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Key people: BNY’s lost value on the Alcentra sale

A typical view in London

Value in private credit is created by the staff

This week Franklin Templeton announced a definitive agreement to acquire Alcentra, the credit asset manager owned by Bank of New York Mellon.

The two parties entered exclusive negotiations in March, with price expectations in the range of €1.2bn-€1.3bn ($1.3bn-$1.4bn), as reported by GlobalCapital.

However, the final valuation was lower. Franklin Templeton will pay $350m up front and an additional $350m in performance-related payouts over the next four years. It is also buying all the seed capital investments BNY Mellon had made in Alcentra funds, which, as of March 31, 2022, were valued at around $305m.

In total, Franklin is likely to pay about $1bn, a big discount on the $1.4bn rumoured earlier this year and a far cry from the $2bn that was the initial expectation when the sale was launched, according to people close to Alcentra.

Of course, without having been in the negotiation room, it is impossible to know how or why this happened. But from the outside, and to many close observers of the situation, a big part of the reason is a perceived weakening of Alcentra's business in recent years, evidenced by a long exodus of senior direct lending staff.

Alcentra’s direct lending business was built and maintained by a senior leadership team that, for the most part, is no longer with the business. Regardless of the individual reasons for that, the result is what must be a disappointing sale for BNY Mellon.

The lesson seems clear: treating people well and recognising those who truly create value is the most important thing an asset manager can do.

Individual contributions may make less difference than they used to in banking, where balance sheets and technology pack a punch, or in public markets asset management, where economies of scale and clever algorithms can create an edge. But private, direct lending is about as bespoke as you can get.

Direct lenders' clients — both borrowers and investors —learn to trust people. Without those people, an organisation may be less than the sum of its parts.

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