Franklin Resources (BEN) 4 May 212021 Q2 Earnings call transcript

Welcome to the Franklin Resources Earnings Conference Call, for the Quarter Ended March 31, 2021. My name is Denise, and I will be your call operator today.

As a reminder, this conference is being recorded. And at this time, all participants are in a listen-only mode. I would like to turn the conference over to your host, Selene Oh, Head of Investor Relations, for Franklin Resources.

begin. may You

are thank XXXX. your materially and factors uncertainties call could joining today number litigation and historical us Franklin of known any uncertainties the in These just Good Form private of forward-looking section MD&A future risk differ the important or results. you other statements to Securities Statements and by such that discuss securities facts not most statements. more are Franklin's expressed Franklin's of are results quarterly Inc., Act looking conference risks, implied with statements the the factors made filing. to important within Resources and meaning and actual of morning Reform which cause and for detail forward-looking These and on unknown from filings regarding described a XX-K recent this involve XX-Q in factors and Exchange the results recent in forward Commission, risks, other other including

I'd Jenny Chief Johnson, call our over like to and Officer. Executive the President to Now turn

everyone. Adam thank of Distribution, Thank Executive Hello, me with Greg that are is Matt on hope our everyone today CFO second quarter And Franklin well. Head Selene. you results. Johnson, us for Chairman, our the call Nicholls, to Spector you, are discuss and joining Templeton's also Global today. We

we status home. business Broadly operate of the be the to Though return our by and will with local working September. effectively planning business. where speaking, office in pandemic we're requirements flexible over our for from approach continue countries our We in of the do to XX% employees and shaped a

parts vary worldwide. rates other have has been in of progress the the are resulted that vaccines by and promising. in world. now from deeply Having obviously being encouraged we The distributed country, that by of India concerned suffering that, the very is are the surge the said number rollout by cases We

employees this and been our personally to out go clients impacted have by disease. terrible thoughts Our who

to our Turning revenue results second in now that reflect to to fiscal growth pleased operating continued a expansion, X% with adjusted Today, our and million. margin $XXX resulting we report financial are in increase income quarter. progress

remains our at net active investments in and million in cash in and excited the we're flexibility March debt collective financial management potential. After quarters combined robust strong, of XX, paid We're billion of experiencing business now of as growth $X.X encouraged company, of Our areas. key and quarter. organic $XXX only two by we're diversified a number a with more and down

firm, clients has believe specialization which employees merger created with a whom for Our differentiated global balances and our opportunities we expanded the as stockholders, financial professionals well and and we partner. as scale offers which

investment broad increased of strategies benchmarks Turning the across this five improvement the we're of XXX than in quarter. composites funds four performance an performance, a periods. stars quarter. base to time More to from or four mutual number rated of their two-thirds for respective And over our key strategy by prior Morningstar funds our seeing outperformed

encouraged deepen during by strategies Mason Legacy of sales demonstrated efforts our clients and initiatives We're our relationships. as the highlights. distribution positive by the Legg to quarter. Legacy to both next Turning merger and Templeton purchase wins results Franklin More new this

excluding broad an by classes, the array reinvested from Our or $XX.X retail. quarter asset Long-term quarter-over-quarter XX% sales by increased led of distribution. of expanded prior $XX.X drove XX% and gross billion billion funds, to distribution U.S. in vehicles efforts inflows increase a across

improved quarter billion net Second $X.X in quarter. billion to long-term to the compared $X.X outflows prior

by improved distribution, over you if $XX exclude reinvest in Importantly, net billion. outflows

Western Partners, flows Templeton net and Equity Asset. Fiduciary Fixed Income, Currie, Benefit Group, the positive Clarion in ClearBridge, Street Martin with Franklin Franklin Royce continued Partners, Trust momentum sales Our International,

Partners core positive increased record been contributed focused billion levels, has flows. with billion As this net the we fixed assets alternative $X from in said both to we income quarter diverse to strategies, Street plus, KX our contributions by Alternative under on on alternatives from due the to strategies and core partners and Benefit also alternatives. XX% Fixed Income estate, grew by billion and positive prior from platform. AUM quarter real reached $XXX of strategies And expanding credit a retail $XX.X firm corporate. and Clarion inflows management, did. contributions calls, to group previous including private bond,

Equity in experienced We quarter distributions. are of with were inflows Asset in its a prior $XX.X almost decade. inflows billion pleased that consistent reinvested billion over level net Western the quarter, highest $XX the excluding

continue see and progress still thematic in value our seeing early days, interest strategies. strong our increased we're while equity We to in strategies. interest And

As of combined end, diversified increased $XX across has quarter our all mandates of pipeline but this asset with institutional one a billion, total of it's and unfunded classes.

corporate Aside make specific in social responsibility the we investing for and from at report to strides to year our And for goals are important clear establish April. key quarter, fiscal our forefront. XXXX. our ESG pleased efforts to results continue inclusion We is release keep priorities them. also the among we diverse

challenging work open questions, up of our firm. I grateful the every and to And so day this outstanding it around I'd they we for done globe that under to like year am our continue do. Before circumstances. do clients everything on past thank to teams they've extraordinary behalf

Now your questions, operator.

[Operator Instructions].

question Dan comes Fannon, Jefferies. Your with from first

Your open. line is

the versus questions this backlog, momentum on the or on ongoing strength of Thanks. business maybe you if difference kind was the look grow, there just also last? talk closes specific that past the you or this and about drove My can if of at evergreen it's flows And the continues quarter? some the strength fundraising could talk to you about kind which if backlog in morning. then if quarter Good alternatives and in

It's that. take the for question. I'll Thanks here. Sure. Adam

do. becoming far is more now they're how to If diversified, about that the you we've what think and actually what's changing, good which are is happening been planning flows news

equity driver we're and but business well our U.S. as seeing seeing in solutions the The very alternatives, as Americas we're good geographically flows, good far fix, and well. in as as flows Europe of diverse So the well. by remains flows, largest

In continue At system. democratization And we say year the very the terms think subscriptions into and for of the and have this we KX that some as others things of the are institutional our healthy market, there. I'd products in other throughout I other Clarion, end to trying retail that's the BSP had raises others alternatives, But healthy wires. will from throughout top for launches something of and also alternatives, really happen really saw two market. we address alternative

Great, you. thank

Thank you.

Brandon from comes question with Hawkins next UBS. Your

open. Your line is

morning. is And good you, in Hi, Beatty thank Adam this for Brandon.

that expect little you. markets on ask from bit quarter, the Thank effect had way? where kind side multi quarter. given you some to where about that, throughout trajectory, more it want either And terms through of of asset the distribution some a have the that, trend maybe or just exchanges asset, bit is the a maybe marketing And in been? do into movement poll that the in there in the multi of you an anything seeing of Just a the seem of were like equity accelerating you're

So

Sure, let me parts. address that two in

where exchange, existing more one-time manage in a essentially First an that of of of we the thing terms is funds. have tweaked reclassified we all, how and

a So reclassification. caused that

this see you for quarter-over-quarter. an but accurate that happening quarter, that's change not should So something

less of and looking really a in though, on to we distribution models more solutions our significant our would is our the In And a on that firms throughout which on What that focus imagine solutions are partners to offer active that solutions. the focus. where that we're see teams that's advisors terms year. general, Franklin, largest that that sleeves business provide and gathering asset is pickup management, full the continue means service in biggest our has entire their focus like partners management at across seeing there suite become having one and portfolio

Great, answer. thanks broadening it. for Appreciate the

Thank you.

Your next comes question with Lee Robert from KBW.

open. line Your is

on step was some a to have any of income. for Hi, the then of I a question side. equity more regards drop gross Quick showing and there. a wonder your in But there can peers for demand for this gross some [ph] Dresdner sales. sharper you been equity provide is bit up large if on sales Rob. in fixed color There's Jeff

we're and the cap large as coming in good side. income that's equity, I of things And perspective, strong there lot quarter. But the drove growth fixed fabulous in to well. in is a starting back terms return The absolutely income. with well quite an demand are standpoint, product feel to like of value And fixed in that be inflows growth. Yes, we think line and we're a that see the fixed marketplace the an had balanced on income. our seeing great news equity of we value value top Western what And from just the our have we side. pickup majority a ClearBridge to on and Dynatech, equities is continue exposure on very in growth. From

sales execute flows into flat. And from the the distributions the you are distributions. exclude improved chart, you fact, about if when net Also, in reinvested equities reinvested

Great. Thanks. And quickly follow could one more. with just if I

capital high outlook general your the acquiring on businesses, on net thoughts and with additional management. Maybe a Just maybe in just terms acquisition? worth

mean. I Yes,

go ahead. Okay, Jenny,

but not as assets We've we're stated maybe benefit, geographic we're as well and that our to as capability. in for location acquisitions, located Fiduciary distribution looking potential and at expanding to grow, Trust, we're there, want continue those that we looking that a usually only not

needs [ph] last and two, a special XX we got ESG trust. trust So top a Peno with as Manager with the really

us So acquire it for continue and to an of will to is focus we area still look there.

you. Thank

question open. comes is JP Morgan, with Ken next line from Your your Worthington,

these Hi, are could for has think net the channels types or and would of distribution on that Thanks. taxes good sold? products through higher have Either proposals which or proposed an you high gains morning. go administration they influence capital through, your worth. the they're Biden dividend business? If the The sold do

in our whatever to at our We expertise like is flexible So, firm, in. expertise want we capability. look as investment to clients be in a that it our would ourselves, vehicle receive delivering management

that be ETF, account. a an be separately can So, that a a can managed CIT, mutual fund,

question there's is fund there ETF there's and the a there, have, lot So that that no potential the tax see mutual out discussion that shift doesn't a some to that inefficiencies of there. an has

advisors fee-based shift, many seeing prefer a However, you the probably were that of bit vehicle. ETF as already

you distributors agnostic can need if an it to So we happens, that years to and likely our couple vehicles to to in for meet see be to distribution any of have these varying of so from the all package demands last able groups. of acceleration of our been be products you're that hearing that your you shift. What in we - to is continue want

income, Muni our what capabilities, And [ph] of have to for I taken management at capability as that, in we'll apple, Templeton that, is we is well as taxes increased becomes Western. Jenny see would we Franklin which and larger strong bite important, in really more active as think both general, fixed add where favor believe we more well. as demand our a the And of

wrapper, presidium? you're mentioned you terms since of guys leads them ETF any benefit Jenny, there? And the new control in inquiries, something seeing business that that or you Is flavor either

little still on So active kind people want blind capabilities. their a out management I think it's of a true the trust jury's for whether bit

going small blind some view side. that that I fixed cap a are in do think trust transparency We products need of there you're ETF. kind the some have certainly it's to a But there's an think some active and even in strategy; the many on to certainly, income. have you and okay I to take of

So thought was be it for of it will be the launched, think an But has active don't level in at what kind people presidium that ETFs it packaging the I benefit. to that I would all that think that ETF. where opportunity maybe would

much. Thank you very

Thank you.

your of Lynch, Your comes is line open. with Michael next Bank from question Carrier America Merrill

a products? morning. Kalman is Mike. did distribution products improved are [ph] have Shawn on placing you your into on us actually Can gross impact that flows major quarter? This And Good Legacy the retail efforts guys in the on Mason update for Legg

Sure.

think successful model. our I is that generalist things to cross two selling, specialist we the need getting the others be of One

in So the if the organizations, two there a premerger, strength from dealer perspective, in regional well. a a some differences little look were cross geographic you take broker Franklin wires, channel selling as had lag a stronger much at of the more was

is to of our advantage we that two that of efforts businesses. complimentary of major take make nature One sure the

a And look to is pretty a Legacy significant take so Franklin that far you about sold versa. happened year-to-date, either selling having cross owned if product new So at crossed XXXX advisors advisors, Legg only vice what's who impact. and we've or Legacy bought

about Another for Canada, ahead where Franklin presence the way Americas the sales a now at is of to look at lighter. Mason. to or think Legg in We're that year Legacy was little say or about in regions geographically, had last that those XX%

cross So yes, had kind of a selling impact. that significant that's

you. Thank

you. Thank

from Sachs, Your question your with is Alex line next open. comes Blostein Goldman

My Hi, the In this for in conditions. is subject to question as you to commentary Sherry is mentioned on Alex. expense [ph] guide. filling the market

as So for have that and the you just are the to wanted into what flows to a get estimates consideration sense market rest year. assumptions taken of the

So in any we we're our market, in guidance. of additional market, terms assumptions the make market a flat overlay assuming don't

we've quarters. the In to similar we're improvements trajectory, of flow the experiencing the experiencing what last something terms and been two that assuming we've been over

up $X.XX in the market. adjusted has it to remains why our mentioned results expenses flow was what momentum continued with improved improved. the billion obviously also that our guidance for performance up billion the pushed slightly that's to as push the we So improve last have What's of terms is in we described our $X.X and our consistent But slightly quarter.

that So in offsets other our upward pressure cost regard. have we in particular, by in but on does on that have an compensation structure definition

Understood, follow-up on just that. to

territory flow up of grind the go rest this continue to that guide of sensitivity higher, kind year? the the the assuming of markets and So for what's this

the the guidance we XXXX the quarter point. third quarter feel good fit we about when We're to think provide for fourth X.X. continued we that I and reach further for X.XX

so you much. Got it, thank

Thank you.

Thank you.

with Your comes Deutsche Bedell Brian question from Bank. next

line open. is Your

folks. morning, Good thanks. Great,

about talk spike and the a at as broadly, tend different least it But, when get and talk bond for about, business environment. backup yield a be you dynamic. funds, yields tends we the have on were to side, On when hit income the rising to obviously, a fixed or get, wanted we sometimes NAV, can institutional a long-term downdraft the up cause can redemption that temporary that. Just to retail NAVs

if clients what So that can actually what redemptions perceive see you or demand, what talk you for do elevated a temporary of or are have Or in we about for Would do on you that's about about concerns their positive are a up yield long-term? client you saying sort that? that, spike Western? as think

fixed I perspective, as dampen on portfolio, income the let's cash mean, face part pensions, I of our in they institutional as from it, mean, both side, potentially particular volatility. companies, a flow insurance need well

fixed have So, differently. fixed income, and about XX% income are of AUM Franklin and there franchises multiple and we our Templeton, within manage they all

a anywhere we with go from BSP. So private treasuries, the obviously, credit

So Western, of they manage bonds. of rising the their on duration component actually X% environment, all portfolio. fixed to rate is example, But a you you're for government income obviously, going only impact an if take in the With AUM differently. have

are and doing, the rate those markets. economic they're So, better bank it component rising they're the yield, rest managing emerging a of high and the chances economy, outperform. are have environment, sector sectors, a component that's if environment, across loan, you chances And credit

ended what tended months, nine significantly and was that back credit or that's short period actually where at, a sector study you six, the term, and versus XXXX, and obviously, at kicked did and than XX when XX points of on you which Western to peers, had that's significant the in greater XX look defined were Western and up because extended, in a then there basis by times to a and in the look rate month outperform performance. component benchmark short underperform a but significant in and So term, because increase, in we and

to and that's been work So our kind at are of through clients that experience. least institutional willing understand

a is to more would I rise, thing ultra-short us. and expect other for products, would lower see we out money rates add into some And that have coming fee as impact which core cash of the very products positive will

view you That's through on another mentioned, forward those great. network that going Schwab on If I Schwab any Schwab might integration the trend sneak platform one the Advisors, in impact with it's where that been? sales Advisor can how from engine the Advisor

the retail is kind - the direction. and go paying a to XX% advisor, wealth the to has client has advisor the world be fee-based that the somewhere a transparencies of about as more strategy between of side flows on It to with environment moved pushed there's what because XX on the push Our obviously of is in more manager.

deepens our that So is provide the that. beyond capabilities to additional goal investment a wealth to just manager tools help be advisor to relationship

engine, CRM there use the use within clients, some gusting to of Schwab it that Schwab case clients and an in tools and the on of some they want the advisor on it for the advisor be or as their tools platform have the advisor the juncture platform, may simple that's you engine, level. unless custody integrated as all are system So sitting of those may to won't and

for that like us, providing that additional So, advisors. how services. those it essentially, the assets out. is do to it and so the relationships advisor with a goals-based to provide types example, make seen plays goal deepen remains which ends But financial models, and hopefully easy to to of be that's That stick up investment for with as you go business just our your

color. great Thank you. It's

Thank you.

from Research, Autonomous your open. Davitt Your with Patrick line is question next comes

few, last questions. answered you my The Thank all I'm you. good.

from comes Credit Siegenthaler Craig Your next question with Suisse.

line open. is Your

client particular have with billion related, redemption. Templeton? the it the does And actually question wondering expand performance move Hi, [ph] my is you. to want Was Afifi institutional behind And other taking questions. in first in fixed could Thank you good flows. money Craig. on income reason if Kareem or filling I morning, for for this was Franklin client This the did also, everyone. the $X thank is My you house? on mandates

think places, in large know. say, particular trend just you time. at would for mandate in-source with them never make does one I still think some a a general, we the the not right significant with with do overall clients moves, have happen I piece this the see client overall only solid a was I just sovereign institutions, quite relationship Why to right to relationship, the relationship. us of of our portion lose but And an institution. feel That assets lot money, overall there, we as we some of

the And given current comment strong flows, making Thank be may sustainability activity very if can you and retail large sneak market, one much. you it? unsustainable. on government which of I Got stimulus levels more, equity could maybe the

I in now we're of in brought months, we're are going activity the really to folks can territories what We've the only two for got about the We've good place. I have really, really model And specialist feel abatement policy. I'm confident from tell you not in government really feeling really generalist the of best interaction. the no stimulus together; seeing there. we're out what from the of confident force we sales. put post-merger We having in is engagement feel where firms a new doing, and terms we're And having, about in of we're doing results that what field do six we a flows. the see we level

put from post-merger business. it. we're If make place the retail, And it's at It's to we largest segment attention, right. you by seeing benefits us we've of integration, our far look huge overall the sure the get most the

about the future. So pretty good feeling I'm

much. very you Thank

you. Thank

with Michael Your Cyprus your open. question from next is Morgan Stanley, comes line

should fees exiting any Mike. fees in around And think [ph] for My outlook question filling on rate just is rest you has the improved about fee from performance Stephanie improvement of generating the for how the quarter in help the quarter, morning. the do think and rate, the the This here? into given performance then trending this fee year? Good we is

quarter we rate redemptions, fee the couple equities. large in we supported of had low quite in growth look, mean, alternatives, was good by support I a this fee had

XX to end model guidance entire the our So the that good right is, feel of year. points, potentially current the high say basis for to rate the it's is the solidified, that basis year we way at to for quite points, XX XX where

on And you Do in you. If opportunity cryptocurrencies. Great, types considering? thank how crypto? you the a be products see might quick then you. from that investments you just opportunity one or are commercial Thank approaching so, one of

in over So governments a things government they to time, and like currency. I'm fan not because I of a control regulate big, crypto Bitcoin, because think like to would not so got their huge want step

put actually that That not a help So Bitcoin of facilitate coin illiquid tokenized And that's something first. is unlock assets tokenization, nothing sort I'll but has become that that there confused with that a business to there's will of a functional assets models. also that backing capabilities. different that both interesting think out and backing be is I coins there because

alternative tokenization. will I So And education there sort back to has, democratizing real how think think would it premium happened long I space of of illiquid of lot there's that I be how period capability think that of office, even to industry a a completely their our has how going as But the assets, question. that's out that out time. that some this change operates take over argue financial of do of around that industry answer would services my some said, blockchain I might the the

to digital probably one assets the in for be the of general, I the it wealth the field capability on side, having future. call important add going let's to just things is

on front in focused are we that capability regard. So the

Great, very you. helpful. Thank

Instructions] next your with [Operator Bedell Bank, comes Brian question open. Deutsche Your from line is

some follow-up. on on Great, detail been ESG, thanks the in for my taking you have that. It's commentary

the Just mentioned, products, specific flows wanted focus assess for and were you or what the $XXX that you into you're then able dedicated what focus. a see quarter, call if to to with the billion ESG specific

little a that cool bit. Just wanted to in on

I'm part XXX bigger including that. if Not that, bigger some go can that you Mason's is sure, of any include some doesn't of parts that you're not into example. mistaken that of like on for in the product, if the think I color exclusionary

actual on a flows, of little those. my you on why Adam little detail give me the in looks let more up spiel So some ESG,

really it's our to And that all all, know, there you of in of right factors. ESG we their as TCFD, they screening. Article manager, the the without true ESG think you we're not look would investment incorporate having two, here coalescing called with kind active large Article manager, think When requires of active don't factors in an ESG presence and investment we six good. SASB anybody of engagement where is it AUM has again, and at the think really something industry now, actually companies reasons when do our six, these particularly think teams we to that into number trends you be an to a And the is the And And around manager ESG of screen. in data. do could became both XX% we Article we really stay, an develop eight first it So Europe process. and think things we out way these engagement along like by one And kind we they the active Europe, started, products had Article before that so requires gather Australia, investment have that one nine, despite important of data and far of U.S. as teams to

have a eight factors XX% XX and there. really its eight In of nine is sort in eight, would qualify towards is products article and AUM our funds there ESG article we So tilt our Article that. have impacting

into two flows ETFs. Paris good aligned seeing our We climate are

reaching sustainability our good total are has ClearBridge, social been Templeton into billion Our global fund return sales XX flows climate infrastructure both dollars, European the months. U.S. net in a for last our Equity and fund,

Europe, So I you're side really ESG relief broad interesting, products. size That of increasing, supply the COVID what's you little there. of to as is infrastructure. that's Biden go question, seeing is which passed, the you're your fund market, a will seeing with this in gets going set doubling their obviously, a of think like see increase bit of green the hear one-third bonds, of And into flows is we're

to to will lot this. I a additional if it'll to Adam, be drive so which supply, know And add continue details you And any don't want more that.

And hit you points, that I have on incomes, but about classes, that equities, thing also to think us. KX, in also significant be solutions Jenny, like ESG Clarion, seeing cetera, a our we're in real yes, alternatives. going think ESG high great and would places asset it we combination say in the for is I flows. And et in traditional just fixed of also and the winner alternatives the that capabilities is all I where

helpful. super That's

In out we $X I flows one-time positive to X fact, the funds MDA significant a of about if is quarter. the say, It the the positive portion have basis, on redemption billion for back fair of have just billion of would net funds, in ESG would three? that, driven

But don't to know that. you're X.X, we right answer think I on the though.

you. thank Great, Okay.

comments. Jenny President and CEO Okay, thank final Johnson, to you. That ends to over our Q&A session; I would for like hand back the call Franklin's

our again, to future. call. participating speaking significant our differentiated look I'd our the more a the truly past Once work again all are for about you we've really in all ever we than year, forward client of next we quarter. efforts, that highlights and investment we done dedication today's employees progress everybody, why and thank Through confident you, built Thank like And for their over focus. with to firm,

So you, thank everybody.

This concludes today's conference call.

You disconnect. may now