Franklin Templeton has agreed to buy Alcentra, one of Europe’s largest credit managers, from BNY Mellon as it quickens its push into one of the hottest areas of the asset management industry.
The San Mateo, California-based group said on Tuesday that it would pay up to $700mn for London-based Alcentra, which has $38bn in assets and invests across the spectrum of alternative credit from high-yield bonds to debt sold by private companies.
The deal is the latest example of a mainstream asset manager betting on assets outside traditional bonds and equities in an effort to lift profits. Active managers such as Franklin Templeton, which manages $1.5tn, are under pressure from cheaper exchange traded funds.
Franklin Templeton, which suffered heavy outflows ahead of its 2020 purchase of Legg Mason, has been among the most aggressive buyers of managers of alternative assets, a broad spectrum spanning everything from infrastructure to real estate. Managing such assets allows companies to charge much higher fees.
Alcentra, which is led by chief executive Jon DeSimone, was founded in 2002 and employs 180 people across offices in London, New York and Boston. It invests in senior secured loans, high-yield bonds, private credit, structured credit, special situations and multi-strategy credit strategies.
Franklin Templeton said that its extensive distribution network would give it an advantage over smaller providers as the products become more mainstream.
In November, it bought private equity investment specialist Lexington Partners for $1.75bn and alternative investments made up 10 per cent of assets under management before this deal.
Jenny Johnson, president and chief executive of Franklin Templeton, said that expanding into alternative European credit “is an important aspect of our alternative asset strategy”.
Franklin Templeton will pay $350mn in cash when the deal closes and up to $350mn more if a set of performance criteria are met over the next four years.
The explosive growth of private credit over the past decade also reflects how banks have retreated from certain lending following the financial crisis, allowing non-banks to step in.
It has come as investors have moved to diversify their stock and bond portfolios following a period of volatility and lacklustre performance.
Globally, alternative assets topped $15tn and 15 per cent of total assets under management last year. That is expected to rise to $22tn, according to a recent report Boston Consulting Group.
The deal will boost Franklin Templeton’s presence in Europe and double assets run by its US alternative credit specialist investment manager Benefit Street Partners to $77bn.