Franklin Templeton, a traditional global fund manager based in the unlikely small city of San Mateo, California, has agreed to buy the multi-affiliate manager Legg Mason, based in an equally unlikely city of Baltimore. Multi-affiliate management, while popular with investors, is not easy.
Franklin Templeton’s announcement last Tuesday, February 18, stressed that Legg Mason’s affiliates would retain their semi independence. They were not the actual words used, but that was the implication. Given the history of funds manager takeovers, investors have the right to be sceptical. Neither Franklin Templeton nor Legg Mason executives in Australia spoke about the deal publicly last week.
But Martin Currie, the largest equities specialist affiliate of Legg Mason in Australia and New Zealand, sent a comforting note to clients. Julian Ide, the Martin Currie chief executive, said the staff and client reaction to the transaction was overwhelmingly positive. “Franklin Templeton brings extensive resources, a strong asset management culture and a clear vision for the future leadership. We share so much in common, we will continue to grow at industry leading rates,” he said.
The challenge with a multi-affiliate funds management business strategy – which was created by Norton Reamer, who launched United Asset Management in Boston in 1980 – is to allow the fund managers to retain sufficient independence to keep them motivated, while, at the same time, trying to collect synergies from the increased scale of the group of businesses. Usually, the synergies come from the back office and retail distribution. For the bosses of multi-affiliate firms, it sometimes seems like herding cats.
Andy Sowerby, the Legg Mason Australia and New Zealand country head, who was recently promoted to a more senior role governing the Asia Pacific region, has overseen a rapid expansion for all of the firm’s affiliates in the region since he moved to Melbourne from the UK with his young family in 2016. He was formerly the executive director and global distribution head at Martin Currie in Edinburgh. He was always a strong advocate of the multi-affiliate funds management model.
Under Sowerby, Martin Currie entered the active ETF market in Australia, through an innovative arrangement with BetaShares, and expanded in the wholesale New Zealand market with new products.
It has also combined the talents of some of its affiliates into new product strategies focusing on income generation for investors. Western Asset Management and Brandywine Global, both leaders in fixed income, have been key players among its Australian-represented affiliates, too.
In New Zealand, Brandywine Global has, to date, been the most successful Legg Mason brand, pulling in over $800 million, including $300 million in a locally-domiciled tax-efficient vehicle.
Meanwhile, Martin Currie, the flagship active global and local equities manager, has expanded off the back of both local equities performance and global and emerging markets capabilities.
The agreement will see Legg Mason’s affiliates continue with autonomy, with the integration of Franklin Templeton, including global distribution efforts, to only commence after careful and deliberate consideration.
Legg Mason chair and chief executive, Joseph Sullivan, said he had the “utmost confidence that the transaction would create meaningful long-term benefits for clients and provide shareholders with a compelling valuation for their investment”.
“By preserving the autonomy of each investment organisation, the combination of Legg Mason and Franklin Templeton will quickly leverage our collective strengths, while minimising the risk of disruption. Our clients will benefit from a shared vision, strong client-focused cultures, distinct investment capabilities and a broad distribution footprint in this powerful combination,” he said.
“While cost synergies are not a strategic driver of the transaction, there are opportunities to realise efficiencies through parent company rationalisation and global distribution optimisation,” the firm said in a prepared release.
Managing a multi-affiliate firm is not easy. The holding company has to juggle the independence of the affiliate, to maintain the talent and stay within capacity limitations, with the challenges of exploiting potential synergies and scale benefits from various business functions, such as the backoffice and retail distribution. Franklin Templeton’s evolution has not been easy either. The firm’s headquarters used to be in New York but a large proportion of the staff lost their lives in 2001 during the terrorist attacks on the World Trade Centre, the company’s former headquarters.
Greg Bright is publisher of Investor Strategy News (Australia)
Note: Martin Currie is a regular sponsor of Investment Strategy News.