Franklin Templeton Acquiring O’Shaughnessy Asset Management

Franklin Templeton is acquiring O’Shaughnessy Asset Management, a leading provider of separately managed accounts, with $6.4 billion in assets under management, including $1.8 billion in its popular direct indexing Canvas platform.

Terms were not disclosed, and it is expected to close in the fourth quarter.

“Custom indexing is aligned with our commitment to bringing sophisticated customization to a broader investment audience,” said Jenny Johnson, president and CEO of Franklin Templeton and one of the few women at the helm of a major asset manager, in a statement.

Franklin Templeton currently has $130 billion in SMA assets under management, a small fraction of its $1.5 trillion in assets.

The acquisition will not only boost the level of Franklin Templeton’s SMA assets but also help offset some of the outflows it has been experiencing. The asset manager lost $14.2 billion in outflows over the trailing 12 months through July 31, 2021 — “one of the highest sums among fund families,” according to Morningstar.

O’Shaughnessy, too, will benefit from the acquisition. “As part of Franklin Templeton, we’ll have the opportunity to accelerate client growth at Canvas and continue to add to existing OSAM offerings,” said Patrick O’Shaughnessy, CEO of the eponymous firm, in a statement.

“Custom Indexing represents the next progression of investing through indexing, ETFs and direct indexing,” said O’Shaughnessy. He told ThinkAdvisor in March that the firm’s goal “is to make sure we’re the leading edge of custom equity portfolios — and then start to build additional features beyond that.”

Custom indexing has been growing in popularity as investors, especially those working with advisors, increasingly want customization in investment portfolios to reflect personal values.

The strategy involves investing in some, though not all, stocks in a market index and adjusting their weights, based on consumer preferences. It has grown along with the increased demand for investments based on environmental, social and governance factors, as well as other consumer investment preferences.

“It’s table stakes for advisors if you’re going to remain useful to clients,” Ben Johnson, director of global exchange-traded fund research for Morningstar recently told ThinkAdvisor.

About today’s Franklin Templeton’s news, Johnson said, ” Software is eating the asset management business” and “ the land grab for direct indexing capabilities is the latest evidence of that trend.”  He expects “direct/custom indexing will ultimately be an arrow in the quiver of every major asset manager.”

Cerulli Associates has projected that direct indexing assets, which currently total over $300 billion in separately managed accounts, will grow at a 12.4% annualized rate over the next five years, even topping the projected growth rate for ETFs of 11.3%.