Franklin Templeton, the $1.42 trillion global asset manager that has grown by acquiring others in recent years, is buying Putnam Investments from Great-West Lifeco. It’s unclear if the deal, which will combine two of the largest asset management firms, can change their trajectory.

Executives at both companies praised the $925 million deal and said that the new strategic partnership between Franklin Templeton and Great-West will unlock “numerous opportunities.” In addition to making sense on paper, Franklin Templeton and Putnam “share a client-centric culture, a core belief in active management, a collaborative and research-based investment approach, and a long-held commitment to fundamental investment principles,” Robert Reynolds, president and CEO of Putnam, said.

The addition of Putnam, which as of January managed $170 billion in assets, will significantly grow Franklin Templeton’s presence in the retirement sector, especially its defined contribution plan assets, which will total approximately $90 billion after the deal.

But unlike the deal in which Franklin Resources acquired asset manager Legg Mason in 2020 and created a fixed-income giant, investors didn’t celebrate the deal for Putnam. Shares of Franklin Resources fell slightly on the news, from $24.72 to $23.97.

Analysts say the deal between Franklin Templeton and Putnam is more about distribution than asset management. Franklin Templeton will have opportunities to sell its funds to the wealth management, insurance, and retirement businesses of Great-West and its parent company, Power Corp. of Canada (Franklin Templeton is obligated to pay up to $375 million to Great-West depending on the growth of a newly formed partnership). And it’s happening after a long period in which the core U.S. fund business at each firm has struggled to grow.

Since 2013, Franklin Templeton’s estimated total U.S. net asset flows have been more than -$228 billion and Putnam’s have been -$20 billion.

“While Putnam was a prominent name in U.S. mutual funds in the 1990s, it fell on hard times in the early 2000s and was not considered a prized asset when Great-West acquired it in early 2007,” Greggory Warren, an analyst at Morningstar, said in a note.

Since then, Putnam has been “a source of heartburn” for Great-West, which bought the then troubled asset manager for $3.9 billion. Over the past five years, Putnam lost $80 million in 2018, broke even in 2019 and 2020, became profitable in 2021, and returned to a net loss in 2022, according to Warren.

Putnam said in a statement that it has had strong flows in various channels over certain periods, and that “similar to others in the industry, we have faced headwinds at times due to the pressures on active management.”

The firm added that it has “generated superb long-term investment performance for clients and investors,” noting that 80 percent of Putnam’s fund assets are ranked 4 or 5 stars by Morningstar.

Franklin is betting that it can offset dilution to existing shareholders (it’s using $825 million in stock up front for the deal) and justify the $100 in cash it will owe by making Putnam as profitable as itself. “[That] should be easy enough, as long as it folds in all of Putnam’s assets under management and eliminates redundancies in personnel,” Warren said, adding that the firm also needs to create meaningful growth.

Eliminating and consolidating products is a step that observers expect to take place. Together, Franklin Templeton and Putnam have hundreds of U.S. funds, and many appear to overlap. For example, there is a Franklin Income fund and a Putnam Income fund, as well as several equity funds focused on companies of a certain size.

“The harsh truth in the current operating environment — where there’s a heightened focus on fees and performance, which has spurred the growth of passive products and increased fee and margin compression for the asset managers — is that firms will need to cull or consolidate parts of their product portfolios,” Warren said.

Franklin Templeton acknowledged some overlap but said that it expects to continue using the Putnam name and brand for fund strategies after the deal closes.

“Putnam adds complementary investment capabilities with strong long-term track records,” Franklin Templeton said in a statement. “While there is some overlap each of these teams have different investment processes and styles of investing — thereby creating a differentiated sale opportunity. While there are no immediate fund consolidations planned, this transaction would facilitate the potential to reposition sub-scale funds to drive growth and business development.”

Putnam said in a statement that it will maintain a significant presence in Boston, where it is headquartered, and that there will be continuity among investment teams.

If Franklin Templeton is trying to grow, then establishing or deepening relationships in the retirement business and with insurers is a logical move, according to Martin Coughlan, founder of Acclinate, a consultancy for asset managers on product development, talent acquisition and distribution, marketing and branding.

“The investor buying process has changed, resulting in the need for a different sales process across the industry. Putnam has had a large sales and client service team [in the] mutual fund space, and I would expect we will see significant consolidation of the two sales teams here after the merger,” Coughlan said.

Franklin and Putnam said that the integration of the firms will be thoughtful, but neither one would comment on personnel changes. “Decisions regarding headcount or changes in roles or responsibilities will be made in due course. Importantly, we do not anticipate any portfolio manager changes or changes to Putnam’s distinct investment process,” Franklin Templeton said in a statement.

Michael Brown, an analyst at Keefe, Bruyette & Woods, said in a note that the deal left the researchers “mixed overall.”

“Expanding deeper into active equities/fixed income is not the strategic move we expected next, given BEN’s concerted focus on growing the alts side of the business. Focusing on Putnam, the deal will be fee rate dilutive and, based on recent data, will not help [Franklin Templeton’s] net flow picture,” Brown said.

Great-West initially plans to invest $25 billion in Franklin Templeton’s investment managers within a year after the deal closes, and more in subsequent years. This was viewed as a positive by analysts, but it’s not enough to move the needle on flows.

“We view Great-West’s commitment of an initial $25 billion to Franklin’s specialist investment managers within 12 months of the closing to be a good start. But we have to be conservative with our expectations, which is why we think this deal more likely than not will detract from our valuation,” Warren said.