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UPDATE 1-Franklin Resources to buy European credit manager Alcentra from BNY Mellon

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(Adds details on deal closing, background)

May 31 (Reuters) - Franklin Resources Inc on Tuesday agreed to buy European credit manager Alcentra from Bank of New York Mellon Corp, as the investment management firm looks to expand its footprint in the alternative credit market.

The deal will consist of a $350 million cash payment, with a further payout of up to $350 million on the achievement of certain performance thresholds over the next four years, the companies said.

Investment managers are exploring ways to bolster their profitability amid fierce competition by branching out into new spaces such as alternatives, which generate higher returns.

Alternative credit refers to a line of financing that generally focuses on sectors, such as real estate, which offer lesser liquidity. Individual investors typically do not have access to alternative credit funds, except through mutual funds.

In November, asset manager T Rowe Price announced a $4.2 billion deal to buy fund manager Oak Hill Advisors.

Alcentra, founded in 2002, manages investments for more than 500 institutional investors and is headquartered in London. It manages nearly $38 billion of assets.

The deal announced on Tuesday closes in the first quarter of 2023, after which Franklin will manage nearly $257 billion of alternative assets.

(Reporting by Niket Nishant in Bengaluru; Editing by Amy Caren Daniel)