Asset AllocationNovember 4, 2021

Franklin Templeton Bolsters Alts Business With $1.75 Billion Lexington Buy

The acquisition is intended to increase the firm’s real estate, private credit, and hedge fund strategies.

Reported by Michael Katz

In a move to shore up its alternative asset capabilities, investment management firm Franklin Templeton has agreed to pay $1.75 billion to acquire Lexington Partners, a manager of secondary private equity and co-investment funds. Franklin Templeton said the acquisition will complement its real estate, private credit, and hedge fund strategies as investors increasingly allocate capital to alternative assets.

“This acquisition will position us to capitalize on the highly sought-after secondary private equity market,” Jenny Johnson, president and CEO of Franklin Templeton, said in a statement.

Founded in 1994, Lexington has 35 partners and principals, and assets under management (AUM) of $34 billion. It says it has raised more than $55 billion in aggregate commitments from over 1,000 institutional investors. The firm is currently investing from its $14 billion flagship global secondary fund, its $2.7 billion middle market secondary fund, and its $3.2 billion co-investment vehicle. Lexington also invests in private investment funds during their initial formation.

Lexington has eight offices, located in New York; Boston; Menlo Park, California; London; Hong Kong; Santiago, Chile; São Paulo; and Luxembourg. Once the deal closes, which is expected to occur by the end of the second quarter of 2022, Franklin Templeton said it will have alternative AUM of approximately $200 billion.

Under the terms of the deal, $1 billion of the $1.75 billion price tag will be paid at the closing of the deal, and additional payments totaling $750 million will be made over the next three years. Lexington will operate as a specialist investment manager within Franklin Templeton, and its current management team will maintain their roles post-transaction. Lexington’s partners and employees will also be granted a 25% ownership stake in Lexington, vesting over five years, and $338 million in performance-based cash retention awards to be paid out over approximately five years.

“This transaction provides for long-term continuity and stability for our investors, management team, and employees,” Wil Warren, president of Lexington, said in a statement.

Warren, who is also co-chair of Lexington’s secondary investment committee, has been with the firm for 27 years, managing its investment operations and overseeing the secondary and co-investment funds. Prior to joining Lexington in 1994, Warren was an associate at Landmark Partners, and before that he was an analyst in investment management at LaSalle Partners.