Franklin Retirement Heads Aim to Double AUM

Once colleagues early in their careers, Yaqub Ahmed and Steven McKay have since spent nearly three decades working in different sectors of institutional investing, often at competitors. Now they’re co-leading Franklin Templeton’s retirement and insurance business that, after closing its purchase of Putnam Investments in January, has more than $100 billion in defined contribution assets under management.

As of this year, Ahmed, head of Franklin’s retirement, insurance, sub-advisory and 529 college savings program, will co-lead the division with McKay. Putnam’s former head of global DCIO and institutional management was officially named to the role in January, though the leadership structure has been in the works for months, according to an interview with the two executives.

Yaqub Ahmed

Ahmed will be responsible for large and mega-sized DC institutional plans, along with initiatives such as personalization via managed accounts, retirement income and alternative asset exposure in DC plans. McKay will lead the distribution and national accounts teams, or what he calls, “the daily blocking and tackling of getting the strategy right.”

Ahmed notes that he met McKay about 28 years ago, when they were both at MFS Investment Management, and they have remained in touch through the years as they circled each other at various asset managers and recordkeepers.

“We’re going on three decades of partnership, friendship, and now we get to come full circle and work together again,” he says.

McKay, like many from the Putnam side of the deal’s DC asset management division, officially joined Franklin this January after a $925 million acquisition from Great West Lifeco Inc., which also owns Empower and which got a 6.2% stake in Franklin through the deal. Unlike most colleagues, McKay was on the deal team, working with Franklin’s Ahmed to structure the post-transaction future.

Steven McKay

“I had watched the success of Franklin from afar, and Qub and I kept close on things we were doing at Putnam as well, so it made it a little bit easier when we came together,” McKay says. “But there was also a lot of work and a lot of time spent with just Qub and I in a conference room figuring out what the best structure was—our focus, alignment, strategy and execution—but most importantly, how do we best serve our clients?”

Ahmed and McKay say there was no attrition, at least in their division, in the deal, because the retirement and insurance part of the transaction was “done for growth.” Franklin Templeton’s statements and 2023 annual report back the notion, calling out both the firm’s strategic growth areas of retirement and insurance-backed investment products, as well as noting the hundreds of billions of dollars American workers put into their retirement plans every year.

A scan of LinkedIn shows numerous senior leaders from Putnam’s DC business now carrying the Franklin Templeton name—moves a spokesperson confirmed—including positions such as director of retirement sales execution; director of strategic relationships; director of wealth planning; and institutional DC strategist.

Deal Rationale

Overall, Ahmed says the team has grown by more than 30% through the transaction. But the pair’s growth plans are even greater.

“We want to double our business over the next four to five years,” he says, referring to AUM. “We have an aggressive growth plan.”

Both Ahmed and McKay noted “gaps” in their prior business models that they believe the acquisition will help fill.

Ahmed noted Franklin’s strength in long-term, traditional investment assets, with gaps in target-date and stable value funds. These, he noted, are crucial and “sticky” offerings for DC investing; adding them through the Putnam acquisition “really rounded out our toolkit.”

McKay, for his part, noted an increased distribution network, including the ability to better reach strategic partners, such as advisers, in both the DC and retail space.

“We’ve optimized the distribution model to add business development directors in the field to really get to what I consider that movable middle—those thousands of advisers out there that need our help, that want our help and that are going to work with us in the DC space,” he says. “That was important to me, because we’ve had a lot of success at Putnam in certain areas over the years, but I always had a desire to add resources and capabilities to optimize the distribution model.”

Challenges

The team will face a consolidating (with this deal as a case in point) but increasingly competitive space of defined contribution investment only managers and retirement income providers. Franklin’s $100 billion in DC AUM looks like a relatively small figure when looking at DCIO giants BlackRock Inc. and the Vanguard Group, which both clocked roughly $1.16 trillion in DCIO assets at the end of 2022, according to PLANADVISER’s most recent DCIO Survey.

McKay notes that the combined team is fully aware that new scale alone will not guarantee Franklin reaches its goals.

“We have to get our focus right, we have to align the strategy to that focus, and we have to execute,” he says.

Ahmed points to the strategic relationships key to winning business among the “number of funds and strategies that are out there.” With decades in the sector, Ahmed says he and McKay are aware of the “the many hoops” needed to jump through in a highly regulated space with numerous intermediaries before getting to the ultimate end client: the retirement saver.

“We’re more focused on [the participant] now than ever before,” he says. “We’re focused on things like target-date and advice and managed accounts and retirement income, and you have to understand the retirement investor and their household to get those pieces correct.”

Ahmed notes an “advice gap” in the U.S. that he sees best solved through the workplace, particularly for the masses of people who aren’t affluent enough for individual wealth advisement. This is why, he says, it is so crucial for Franklin to focus on innovating in areas such as managed accounts, retirement income and access to alternative assets.

“We view the workplace as the financial epicenter for most U.S. workers,” Ahmed says. “That’s who they are looking to, and that’s the one place you can scale out these types of resources.”