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Franklin Resources looks for alternative assets

Date: Tuesday, February 26, 2008
Author: Phil Craig, Financial News US Online.com

Franklin Resources, the US investment manager responsible for $646bn (€436bn) of assets, wants to buy an alternative asset manager.

Robert Lee and Larry Hedden, analysts at investment bank Keefe, Bruyette & Woods, said after a meeting with Franklin’s management that they “seemed more interested in pursuing acquisitions in the alternative asset space”.

Lee and Hedden wrote: “Management attributed this increase in interest to declining valuations for alternative managers as potential sellers have lowered their expectations, perhaps as some who have been bidding these properties up may have moved to the sidelines.”

Demand for funds of funds managers remains high, leading the management team to expect that a deal “would necessarily have to incorporate significant earnouts”. An earnout is a clause where the buyer agrees to pay more to the seller on the condition certain performance targets are met by the acquired entity after the deal.

The analysts also suggested the firm is interested in acquiring an exchange-traded funds manager, as ETFs are competing more fiercely for investors assets.

Greg Johnson, chief executive at Franklin Resources, also known as Franklin Templeton Investments, has made it clear he is interested in acquiring a growth manager or a regional asset manager. This is the first time they have spoken openly about acquiring an alternative asset manager. The firm declined to comment on specific details.