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Opinion
Brian Chappatta

Franklin Escapes Fund Purgatory With Legg Mason Purchase

The asset manager was at risk of falling further behind in the middle of the investing pack. 

Don’t get caught in the middle.

Don’t get caught in the middle.

Photographer: Michael Nagle/Bloomberg
Corrected

In the asset-management industry, reputation is everything. A mutual-fund manager might have a fantastic strategy, but without a steady stream of cash flowing in to set up the position, returns may come in weaker than expected. That, in turn, could lead some investors to lose confidence that the concept was ever great in the first place.

That, in a nutshell, is what happened to Franklin Resources Inc. over the last several years. The company has been stuck near $700 billion in assets under management for the past 18 months, down from a peak of $921 billion in mid-2014, while its competitors have grown steadily. Moody’s Investors Service downgraded Franklin’s credit rating in mid-2018 and last year “expressed concern that Franklin's reputation for global/international strategies and solid relative investment performance has been undermined.” That’s not quite a death knell, but it’s close.