Franklin Resources (BEN) Q3 Earnings call transcript Jul 26, 2024

Franklin Resources, a leading global investment management firm, recently held its earnings call for the quarter ended June 30, 2024. The call provided insights into the company's financial performance and strategic initiatives. In this article, we will highlight the key themes and trends that emerged from the call.

Macroeconomic Environment

Franklin Resources acknowledged the dynamic financial markets and macroeconomic, geopolitical, and election uncertainties that have impacted investors. The S&P 500 and NASDAQ 100 reached historic milestones, with the S&P 500 surpassing 5,500 for the first time and the NASDAQ 100 surpassing 20,000. However, there was a pullback in late July due to disappointing earnings from big tech companies. The themes of artificial intelligence and inflation have driven growth stocks to outperform value stocks, with AI impacting companies beyond mega-cap tech companies. Inflationary trends have moderated, which is supportive of markets.

Financial Performance and Strategy

Franklin Resources ended the quarter with $1.65 trillion in assets under management (AUM), flat from the prior quarter but up 15% from the prior year quarter. The company saw positive net flows in multi-asset and alternative strategies, driven by cannabis, Franklin Income Fund, Fiduciary Trust International, and Franklin Templeton Investment Solutions. The investment solutions team has taken Franklin Templeton's best thinking and leveraged the firm-wide capabilities across public and private asset classes to provide tailored solutions for clients. Franklin Venture Partners generated net inflows of over $300 million, and Benefit Street Partners saw $850 million in total capital commitments for its BSP Special Situations Fund II.

Market Trends and Investment Opportunities

Franklin Resources highlighted the trend of clients wanting to work with fewer managers due to the complex nature of current markets. The company continues to engage more and more in a consultative way with large clients, leveraging its full strength across public and private markets and asset classes. The firm has seen a pickup in money in motion and investors becoming more active with alternatives, fixed income, and select equity sectors. Private markets continue to thrive, with private credit and secondary private equity seeing near-unprecedented levels of pricing power.

Technology and Innovation

Franklin Resources is investing in technology across distribution, investment management, and operations. The company is working with Microsoft to build an advanced financial AI platform, which will help embed artificial intelligence into sales and marketing processes to create more personalized support for clients. Additionally, Franklin Templeton is making a strategic minority investment in Envestnet, a significant industry platform, and has selected a single platform to unify its investment management technologies across public market asset classes.

Financial Results

Franklin Resources reported adjusted operating income of $424.9 million, up 1.3% from the prior quarter but down 10.9% from the prior year quarter. The company is investing in the business to support its strategic priorities in asset management and wealth management.

Future Outlook

Looking ahead, Franklin Resources anticipates raising $10 billion to $15 billion in fundraising and alternatives, and is well on its way to reaching the top end of that range. The company is seeing strong demand for its multi-asset and alternative strategies, and is focused on product development, including new products in secondary private equity and real estate private debt.

In conclusion, Franklin Resources' earnings call provided a comprehensive overview of the company's financial performance, strategic initiatives, and outlook for the future. The company is well-positioned to capitalize on the trends in the investment landscape, particularly in private markets and alternative strategies. Its focus on technology and innovation, along with its commitment to providing tailored solutions for clients, positions it for continued success in the dynamic financial markets.