Franklin Resources, Inc., operating under the Franklin Templeton brand, is a global investment management organization. The company offers a diverse range of investment products and services, including sponsored funds, institutional and high-net-worth separate accounts, retail separately managed account programs, sub-advised products, and other investment vehicles . These products span various asset classes such as equity, fixed income, alternative, multi-asset, and cash management solutions . The company's revenues are primarily derived from investment management fees, which are based on a percentage of assets under management (AUM) .
- Investment Management Fees - Generates revenue through fees based on a percentage of assets under management, which are the largest contributor to the company's operating revenues .
- Sponsored Funds - Offers a variety of funds that are managed and marketed under the Franklin Templeton brand and other subsidiary names .
- Institutional and High-Net-Worth Separate Accounts - Provides tailored investment solutions for institutional clients and high-net-worth individuals .
- Retail Separately Managed Account Programs - Delivers personalized investment management services for retail investors .
- Sub-Advised Products - Supplies investment management services to products sponsored by other companies, which may be sold under those companies' brand names or on a co-branded basis .
- Sales and Distribution Fees - Earns revenue from fees associated with the distribution and sale of investment products .
- Shareholder Servicing Fees - Collects fees for providing services to shareholders of the investment products .
- Other Investment Vehicles - Includes various other investment solutions across different asset classes .
You might also like
What went well
- Franklin Resources is significantly expanding its private wealth management business, with plans to double its size through organic investments and targeted acquisitions . The firm has increased partners in its evergreen offerings from just a few to over 20 partners, enabling broader distribution and growth .
- Rapid growth in ETFs and alternative assets showcases Franklin Resources' diversification and growth potential. ETFs have seen net flows of over $3 billion in each of the last two quarters, an 88% increase, reaching $31 billion in assets . The firm also has strong capabilities in both private and public markets, a unique position among asset managers .
- Strengthening global presence and local asset management capabilities give Franklin Resources a competitive advantage. The firm sources $500 billion from clients outside the U.S. and sells over $80 billion internationally . It is viewed as a local player in markets like India, Mexico, and the Middle East, where it is one of the largest Islamic finance managers among global asset managers .
What went wrong
- Significant client outflows at Western Asset Management due to ongoing investigations by the DOJ, SEC, and CFTC into past trade allocations by former Co-CIO Ken Leech, leading to a 20% decline in annualized revenues at Western and negatively impacting Franklin Resources' overall revenues by approximately 2%. ,
- Low organic growth rate of approximately 1.3% (excluding Western's outflows), indicating slow overall growth, with reliance on growth initiatives that have not yet scaled and may take time to yield results. ,
- Underutilization of valuable platforms like Fiduciary Trust International, as the company has not focused on fully capitalizing on these assets, potentially impacting future growth prospects.
Q&A Summary
-
Western Asset Outflows Impact
Q: How are Western Asset's outflows impacting your business?
A: Western Asset has experienced $53.6 billion in outflows since Ken received his Wells notice. This is mainly in their Core, Core Plus, and Macro Ops strategies. Western's annualized revenues are expected to decline by about 20%, equating to about a 2% decline at the Franklin Resources level. The operating income impact will initially be higher since expenses can't be reduced at the same rate as revenue. We are adjusting our economic arrangements with Western to accommodate this decline. -
Expense Outlook and Putnam Integration
Q: What's the outlook for expenses, including Putnam's impact?
A: Normalizing for a full year of Putnam and excluding performance fees, we expect expenses to be similar to the last fiscal year. One quarter of Putnam expenses is about $125 million. We will manage expenses carefully, especially considering the Western situation. -
5-Year Growth Targets
Q: What are your revenue and growth projections over next 5 years?
A: We aim to achieve low single-digit growth on average. Without Western's outflows, our organic growth rate runs at about 1.3%. We are building scale in areas like ETFs, which had over $3 billion in net flows in the last two quarters, up 88%, totaling $31 billion in AUM. Our breadth in private and traditional markets, along with our international presence, will drive growth. -
Private Markets Fundraising Goal
Q: Can you discuss the $100 billion private markets target?
A: The $100 billion target over 5 years is based on our existing managers. Since acquisition, BSP has doubled in size, Clarion is up nearly 40%, and Lexington up nearly 30%. For fiscal 2025, we project gross sales between $13 billion and $20 billion in private markets. This depends on factors like Lexington's flagship fund launch and the real estate market's recovery. -
Institutional Flows Beyond Western
Q: How are institutional flows outside Western Asset?
A: Excluding Western, last fiscal year we raised $2.2 billion in the institutional channel, which more than doubled to $5.6 billion this year. We have worked hard to build better relationships with institutions globally. -
Private Wealth Management Expansion
Q: What's your plan for growth in private wealth management?
A: We are expanding partnerships in the wealth channel, now up to over 20 partners with products like CPREX from Clarion. We co-develop products with wealth management partners and emphasize launching with scale. We also intend to grow our Fiduciary Trust platform by attracting more teams to join.
-
With the ongoing investigations into Western Asset and the significant net outflows of $37 billion in the fourth quarter and $49 billion for the fiscal year , how does management plan to mitigate the impact on financial performance and regain client confidence in this segment?
-
You have set a goal to fundraise at least $100 billion across private markets over the next five years ; given that you raised $14.8 billion in fiscal year 2024 , what specific strategies will you implement to achieve this ambitious target amidst market uncertainties in real estate and private credit?
-
Considering your aim to scale ETF AUM by 3x and Canvas assets by 5x over the next five years , what are the key drivers you anticipate will contribute to this growth, and how will you differentiate your offerings in a highly competitive ETF market?
-
With significant investments in AI, blockchain, and digital assets as strategic priorities , how are you balancing these investments with disciplined expense management, and how do you plan to generate tangible returns from these technologies?
-
Despite improvements in mutual fund investment performance in the 1-, 3-, and 10-year periods , the company experienced long-term net outflows of $32.6 billion for the fiscal year ; what are the underlying factors contributing to these outflows, and what measures are you taking to reverse this trend and achieve sustainable organic growth?
Q4 2024 Earnings Call
- Issued Period: Q4 2024
- Guided Period: Q1 2025
- Guidance:
- Effective Fee Rate (EFR): Mid-37 basis points .
- Compensation and Benefits: $860 million, assuming $50 million of performance fees .
- Information Systems & Technology (IS&T): $155 million to $160 million .
- Occupancy: $78 million to $80 million .
- General & Administrative (G&A) Expense: $180 million .
- GAAP Tax Rate: 24% to 26% for fiscal 2025 .
Q3 2024 Earnings Call
- Issued Period: Q3 2024
- Guided Period: Q4 2024
- Guidance:
- Effective Fee Rate: 37.5 basis points .
- Compensation and Benefits: $825 million, assuming $50 million of performance fees .
- Information Systems and Technology (IS&T): $150 million to $155 million .
- Occupancy: $77 million to $78 million .
- General and Administrative (G&A): $175 million to $180 million .
Q2 2024 Earnings Call
- Issued Period: Q2 2024
- Guided Period: FY 2025
- Guidance:
- Effective Fee Rate (EFR): High 37 to 38 basis points .
- Expenses: $4.6 billion to $4.65 billion annually .
- Compensation and Benefits: $820 million for Q3 2024 .
- Information Systems & Technology (IS&T): $150 million .
- Occupancy: $80 million .
- General and Administrative (G&A): $175 million to $180 million .
- Institutional Pipeline Fee Rate: Mid- to high 20s basis points .
Q1 2024 Earnings Call
- Issued Period: Q1 2024
- Guided Period: Q2 2024 and FY 2024
- Guidance:
- Effective Fee Rate (EFR): High 38 basis points for Q2 2024 .
- Compensation and Benefits: $815 million for Q2 2024 .
- Information Systems and Technology: $155 million for Q2 2024 .
- Occupancy: $80 million for Q2 2024 .
- General and Administrative (G&A) Expenses: $175 million for Q2 2024 .
- Total Adjusted Operating Expenses for FY 2024: $4.55 billion to $4.6 billion .
- Putnam's Contribution: $150 million to $170 million to operating income for FY 2025 .
Competitors mentioned in the company's latest 10K filing.
- Investment management companies: Compete with Franklin Resources in offering a wide range of financial and investment management services and products .
- Securities brokerage and investment banking firms: Compete with Franklin Resources in offering financial services and products .
- Insurance companies: Compete with Franklin Resources in offering financial services and products .
- Banks: Compete with Franklin Resources in offering financial services and products .
- Hedge fund firms: Compete with Franklin Resources in offering financial services and products .
- Other financial management institutions: Compete with Franklin Resources in offering financial services and products .
- Competing securities broker-dealers and banks: These entities distribute and sell their own proprietary funds and products, which could limit the distribution of Franklin Resources' products .