Release Date: November 04, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Franklin Resources Inc (BEN, Financial) has significantly diversified its assets under management (AUM) through organic growth and targeted acquisitions, with acquired specialist investment managers now representing 64% of AUM.
- The company has seen substantial growth in its ETF business, with assets growing by 89% in the year and positive net flows for 12 consecutive quarters.
- Franklin Resources Inc (BEN) has successfully integrated Putnam Investments, resulting in a 21% increase in AUM since acquisition and enhancing its presence in retirement and insurance markets.
- The firm has made strategic investments in AI and blockchain technologies, including a partnership with Microsoft to develop an advanced financial AI platform.
- Franklin Resources Inc (BEN) has a strong international presence, with AUM surpassing $500 billion outside the US and continued momentum in international markets.
Negative Points
- Western Asset Management, a part of Franklin Resources Inc (BEN), is under investigation by the DOJ, SEC, and CFTC, leading to significant outflows of $49 billion for the fiscal year.
- The company reported long-term net outflows of $32.6 billion for the fiscal year, with Western Asset Management contributing significantly to these outflows.
- Adjusted net income and adjusted diluted earnings per share decreased by 4% and 8% respectively, compared to the prior year, primarily due to the decline in operating income and a higher tax rate.
- Franklin Resources Inc (BEN) impaired an intangible asset related to Western Asset, recognizing a $389.2 million non-cash charge due to decreased AUM and lower future cash flows.
- The ongoing investigations and outflows at Western Asset have created uncertainty and potential volatility in the company's financial performance.
Q & A Highlights
Q: Can you elaborate on the potential changes to the economic relationships with Western Asset Management (WAMCO) and whether the ongoing investigation is affecting gross sales in any segments?
A: Jennifer Johnson, CEO, explained that the outflows at Western Asset are primarily focused on specific strategies and have not significantly impacted other Franklin strategies. Matthew Nicholls, CFO, noted that Western Asset's contribution to adjusted operating revenue is relatively small, and the company is working on adjusting economic arrangements to accommodate revenue declines. Adam Spector, Head of Global Distribution, added that institutional flows have improved, doubling from the previous fiscal year.
Q: Could you provide more details on the $100 billion fundraising target across private markets over the next five years?
A: Jennifer Johnson, CEO, stated that the target is based on growth from existing managers, with significant increases in size for BSP, Clarion, and Lexington since acquisition. The focus is on real estate, secondaries, private credit, and venture, with projections for 2025 ranging from $13 billion to $20 billion in gross sales. The range depends on factors like Lexington's flagship fund timing and real estate market recovery.
Q: What is the outlook for expenses in fiscal 2025, considering the Western dynamics?
A: Matthew Nicholls, CFO, indicated that expenses are expected to remain similar to the last fiscal year, normalizing for a full year of Putnam and excluding performance fees. The company plans to manage expenses carefully, leveraging initiatives across investment management and operations to offset any revenue declines.
Q: What are the growth expectations for revenue, operating income, and EPS over the next five years?
A: Matthew Nicholls, CFO, mentioned that Western Asset currently contributes around 8-9% of adjusted operating revenues. The company aims for low single-digit growth on average, focusing on scaling areas like ETFs, Canvas, and alternative assets. Jennifer Johnson, CEO, highlighted the firm's global capabilities and local asset management presence as key growth drivers.
Q: How does Franklin Resources plan to double its private wealth management business?
A: Adam Spector, Head of Global Distribution, noted that the firm is expanding its wealth management offerings with scale, launching evergreen products in real estate, private credit, and secondaries. Matthew Nicholls, CFO, added that Fiduciary Trust, the firm's wealth management platform, will focus on attracting new teams to drive growth.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
