• Assets Under Management (AUM): $1.58 trillion, a decrease from the prior quarter.
• Long Term Net Outflows: $50 billion, including $20 billion of reinvested distributions.
• Equity Net Inflows: $12.5 billion, including reinvested distributions of $16.5 billion.
• Fixed Income Net Outflows: $66.7 billion; excluding Western, net inflows were positive.
• Alternatives Fundraising: $6 billion, with private market assets totaling $4.3 billion.
• ETF Net Flows: $2.7 billion during Q1.
• Retail SMA AUM: $146 billion, with net inflows of $2.5 billion excluding Western.
• Canvas AUM: $10.5 billion, a 10% increase from the prior quarter.
• Adjusted Operating Income: $412.8 million, a decrease of 9% from the prior quarter.
• Western Asset Management AUM: $272 billion as of December 31, with expected net outflows of $17 billion for January.

• Warning! GuruFocus has detected 6 Warning Signs with BEN.

Release Date: January 31, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Franklin Resources Inc (NYSE:BEN) has a strong global presence with offices in over 30 countries, serving clients in over 150 countries, and managing approximately $475 billion in assets.
• The company has seen positive net flows in equity, multi-asset, and alternatives, with a combined $17 billion in positive net flows.
• Franklin Resources Inc (NYSE:BEN) has successfully integrated Putnam, achieving significant net new flows and improved financial performance.
• The company has launched innovative products like the Franklin Lexington Private Markets Fund, which achieved an initial fundraising cap of $900 million.
• Franklin Resources Inc (NYSE:BEN) has been recognized as one of the best places to work in money management, highlighting a strong company culture and employee satisfaction.

Negative Points

• Western Asset Management experienced significantly higher long-term net outflows of $68 billion in the quarter, impacting overall financial performance.
• Adjusted operating income decreased by 9% from the prior quarter, reflecting challenges in managing expenses amid revenue declines.
• The company faces geopolitical uncertainties and market volatility, which have affected international equity markets and contributed to negative market conditions.
• Fixed income net outflows were substantial at $66.7 billion, although excluding Western, net inflows were positive.
• Franklin Resources Inc (NYSE:BEN) anticipates a short-term reduction in operating margin due to integration efforts and support for Western Asset Management.

Q & A Highlights

Q: Can you help us frame the operating income and management fee contribution from Western Asset Management and the strategic vision for Western? A: Jennifer Johnson, President and CEO, explained that the strategic vision involves maintaining the independence of Western's investment team while integrating corporate functions to achieve greater scale. Matthew Nicholls, CFO and COO, added that Western's outflows equate to about 30% of its full-year 2024 adjusted revenue, impacting Franklin's revenue by about 3%. The integration aims to capture benefits from a larger scaled operation, with expected margin expansion in fiscal 2026.

Q: Could you clarify the $200 million to $250 million of additional savings for fiscal 2026? A: Matthew Nicholls stated that the $200 million to $250 million savings are incremental to the flat expense guidance for fiscal 2025, excluding performance fees and market actions. These savings will be fully realized in fiscal 2026, starting from October 1, 2025.

Q: Can you update us on the progress and synergies from the Putnam acquisition? A: Matthew Nicholls highlighted that the Putnam acquisition has been highly successful, with net new flows of approximately $15 billion since closing. The acquisition has exceeded financial expectations, contributing $175 million to $180 million in operating income. Adam Spector, Head of Global Distribution, noted that Putnam's performance and scaled distribution have driven significant growth in gross and net sales.

Q: How do you see wealth fundraising growing to 20% to 30% of total capital raises in alternatives? A: Jennifer Johnson explained that Franklin has demonstrated success in the wealth channel, with 20% of Lexington's Fund 10 raised from this channel. The firm has invested in a dedicated team and educational resources to support distribution. Adam Spector added that both perpetual and drawdown vehicles play a role, with co-developed products with major distributors enhancing success.

Q: Could you provide insights into Franklin's success in winning large VA mandates? A: Adam Spector attributed Franklin's success to becoming a more important partner to fewer players, offering a breadth of capabilities and expertise. Jennifer Johnson mentioned that Franklin's partnership with Venerable has funded, and the firm continues to engage in discussions with other partners seeking to consolidate their manager relationships.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.