The paragraph introduces the Franklin Resources Earnings Conference Call for the Quarter Ended September 30, 2023. The operator, Julie, welcomes the participants and states that the call will be recorded. Selene Oh, Head of Investor Relations for Franklin Resources, takes over and introduces the preliminary financial results and the risks involved. Jenny Johnson, President and CEO of Franklin Templeton, along with CFO and COO Matt Nicholls and Head of Global Distribution Adam Spector, will discuss the company's fourth quarter and fiscal year 2023 results and their efforts to transform the business to meet the needs of clients and shareholders.

The company has diversified its offerings to provide a wide range of investment expertise and capabilities in both public and private markets. They have also invested in value-added services such as technology and digital wealth to stay ahead of industry trends. The global financial market has been challenging and volatile, with tech companies driving most of the gains. The company believes in the value of active management and sees opportunities for long-term investments in uncertain times. As a result, there is a significant amount of cash in bank accounts and money market funds, with clients showing interest in private markets and fixed income as yields become more attractive. The company is actively engaging with clients to understand their needs and address their strategic goals.

In the third paragraph, the company discusses its efforts to provide guidance and leadership to clients, as well as its focus on organic growth, expense control, and strategic transactions. Despite a 20% decrease in inflows, the company saw a 23% improvement in long-term net outflows. They also saw positive net flows in key areas such as alternatives, multi-asset, ETFs, and high net worth channels. The company's acquisition of Alcentra, a European credit manager, has doubled their alternative credit assets under management (AUM) and made them one of the largest managers of alternative assets. Alternative AUM now represents 19% of their long-term AUM and 25% of adjusted revenues. Alternative asset management fee revenues have also increased by 36% year-over-year.

The company announced the acquisition of Putnam Investments and a partnership with Power Corporation and Great-West Lifeco to strengthen their presence in the retirement and insurance segments. The industry is seeing consolidation of asset management relationships and the company believes they are well positioned to provide value-added services. They expect an increase in investors moving money from the sidelines and are well positioned to capture that money with their specialist investment managers. Assets under management increased by 6% due to market appreciation and the acquisition of Alcentra. Investment performance remains strong, with a majority of strategy composite AUM outperforming their benchmarks.

In the fiscal year, long-term net outflows improved by 23% and reinvested distributions decreased. Multi-assets saw a 66% increase in net flows, driven by flagship fund Franklin Income Fund. Alternative net inflows were $6 billion, with growth in private market strategies and outflows in liquid alternative strategies. The firm continues to expand its alternative assets, with strong client interest in alternative strategies on wealth management platforms.

In the current fiscal year, Franklin Templeton anticipates a significant portion of their capital to come from the wealth management channel. They have focused on client education through podcasts and webinars and have seen positive net flows in their fixed income strategies, particularly in Brandywine Global, Franklin Templeton fixed income, and Western Asset. They have also seen net flows in ETFs and SMAs. Despite overall net outflows in equity, they have seen positive net inflows in large-cap core, international, smart beta quantitative, and emerging market strategies. Their ETF business has also seen significant growth, with net inflows of nearly $4 billion and AUM of over $16 billion.

The company continues to launch new and innovative ETFs based on client interest, with strong momentum in their SMA platform. They have expanded their SMA capabilities and have seen success with their personalized portfolio solutions such as Canvas. Private Wealth Management AUM has also seen growth, with Fiduciary Trust International generating consistent long-term net inflows. Franklin Templeton has been the investment manager and administrator of Fondul since 2010, and their largest holding recently had a record-breaking initial public offering.

The company's listing reflects their ability to provide partnerships and their commitment to developing the local capital market. They plan to expand their business and invest in key areas of growth. The CFO and COO will review the financial results and provide an update on the Putnam acquisition. Fourth quarter earnings and AUM decreased, but adjusted operating revenues increased. Investment management fees were positively impacted by Fondul, but offset by lower catch-up fees.

In the fourth quarter, the adjusted effective fee rate increased by 1 basis point to 40.2 basis points due to transaction-related management fees earned from Fondul. Adjusted operating income and margin also increased, primarily due to higher investment management fees and lower expenses. Adjusted net income and earnings per share also increased due to higher other income and lower taxes, with an additional $0.05 increase from Fondul and secondary private equity catch-up fees. For the fiscal year, AUM and adjusted operating revenues decreased, while the adjusted effective fee rate increased due to the inclusion of Lexington and Alcentra. The company continues to focus on long-term growth initiatives and disciplined expense management.

In the fiscal year, the company's adjusted operating expenses increased by 3%, mainly due to the full year impact of Lexington and 11 months of Alcentra. However, excluding performance fee related compensation and the impact of the acquisitions, adjusted operating expenses were slightly down. This resulted in a decrease in adjusted operating income and net income compared to the prior year. The company ended the year with a strong cash position and plans to prioritize dividends, repurchase shares, and potentially make targeted acquisitions. The Putnam transaction is expected to add approximately $150 million in adjusted operating income after the first year post-closing.

In the private market space, the company has seen strong growth and interest in private debt, particularly in real estate-related debt. They have had a successful year in their CLO business and are currently raising funds for their special situations and new BSP flagship fund. Alcentra is being integrated into their distribution force and Lexington is continuing to raise funds for Fund 10. The company expects to raise 20% of their funds from the private wealth channel for Lexington.

The company is seeing increased interest in wealth management alternatives and has expanded its capabilities in the U.S. and plans to do the same in Europe. They have also outsourced fund administration and transfer agency functions globally and are now focusing on improving their investment management technology. They have taken a deliberate approach to integrating acquisitions, such as Putnam, into their operations.

The speaker discusses the integration of Legg Mason SIMs and the potential financial impact. They caution that this process will take time and that there won't be any immediate changes. They also mention the opportunity to modernize and reduce expenses in the long term. In regards to the SMA business, they mention the success of launching the Franklin Income Fund in an SMA wrapper and the potential for other flagships to follow suit. They also note that the SMA wrapper is popular in the retail channel due to the shift towards fee-based services.

Franklin Templeton views itself as being flexible in how it delivers its investment expertise, and is not tied to any particular vehicle for delivering its products. The company sees potential for growth in its products being delivered through different platforms, such as SMAs, ETFs, and mutual funds. The company believes its broad product capability and global distribution give it an advantage in the market. While the company may have been late to some trends, it has been an early adopter in others, such as active ETFs. The company sees potential for growth in its flagship funds being delivered through the SMA platform, and is also seeing growth in SMAs for emerging markets and municipal bonds.

The speaker, Matt Nicholls, is providing an update on expected expense growth for the company. He splits it into three components: the first quarter guide, a preliminary outlook for fiscal year 2024, and an update on the acquisition of Putnam. He then goes into detail about each expense category, including compensation and benefits, IS&T, and occupancy. The company expects EFR to remain at 39 basis points, compensations and benefits to be at $750 million, IS&T to remain flat at $125 million, and occupancy to increase to $65 million due to a consolidation of office spaces in New York City.

The company expects their expenses to be approximately flat in the fiscal year of 2024, with a potential increase due to the acquisition of Putnam in the fourth quarter. The acquisition is expected to add $50 million to revenue, with $42 million in investment management fees and $8 million in services. The operating income addition for the first month of the acquisition is estimated to be between $8 million and $10 million.

In the second fiscal quarter, the company expects to add $25 million in operating income, with an additional $25-30 million in the third and fourth quarters. They are still aiming for a total operating income of $150 million by the end of their fiscal year in 2024. This is a change from their previous guidance, as they now expect to achieve over 50% of their targeted operating income by the end of the first month after the acquisition. They expect to realize between $85 million and $100 million of operating income in the actual year and reach a run rate of $150 million by 9/30/24. The company also mentions the possibility of accretion or dilution in the current market conditions.

The transaction is expected to become accretive by the second quarter, which is a couple of months after it closes. The estimated incremental run rate by 9/30 is $150 million, with $8-10 million added in the first month and $25 million in each subsequent quarter. This is not just a run rate, but actual operating income addition. The $150 million run rate could potentially be achieved by the end of the last fiscal quarter.

The analyst asks about the impact of interest rate moves on Western's fixed income performance and how conversations with clients are evolving. The company mentions the opportunity to rotate cash into longer duration products and the potential for more capital to go back to passive vehicles in fixed income. Franklin is well positioned to take advantage of this opportunity on both the active and passive sides.

Jennifer Johnson discusses the current state of interest rates and how it is impacting the flows in the core and core plus fixed income markets. She mentions that there is a discussion about moving cash into longer duration and that there are different views among their 4 independent fixed income teams. She also talks about how their sales force is trained to understand these nuances and align products with clients' views. Johnson mentions that Western is their top-flowing SIM and that they are well positioned to capture money moving out of cash and into longer duration. Adam Spector adds a comment at the end.

The speaker, Jenny, discusses Western's success in having good conversations with clients and being a top-selling SIM for Franklin Templeton. They have had strong performance and client interest in Western products, despite recent challenges in certain strategies. The speaker, Matt, mentions that the company has been active in acquiring companies to expand their investment management capabilities, but they feel they are mostly done with this for now. They may still make smaller transactions, but do not have any major plans for large-scale transactions in the near future.

The speaker explains that the company plans to focus on capital returns and protecting dividends, as well as being disciplined in buying back shares and hedging employee grants. They also mention the recent DOL rule proposal and how it may impact the company's distribution efforts and products in different channels. The company plans to be conservative and careful in their approach to share repurchases, but will continue to focus on opportunistic opportunities.

The speaker believes that education and suitability of products are important in the financial industry. They also mention their belief in transparency and informing their distribution partners. They are optimistic about their recent deal with Putnam and the potential for growth in the retirement channel. They hope to improve their distribution reach and partnerships with other firms through this deal.

The company is excited about the growth opportunity in the 401(k) channel, as people continue to contribute to their retirement accounts even during market volatility. The acquisition of Franklin Templeton will bring complementary distribution forces and a larger sales force, as well as insurance expertise and alternative capabilities, making them a more relevant partner for clients. The commitment of $25 billion from Great-West was a result of a detailed analysis of the company's various SIMs.

The speaker discusses the success of Franklin and Western's insurance ideas and the recent Venerable announcement. They clarify that expenses will be flat in fiscal '24 compared to the adjusted numbers in fiscal '23, excluding performance fees and other comps. They also mention that alternatives had lower gross sales in the quarter, but all 3 strategies were positive and Lexington's final close will be in December. Clarion has had improving redemption queues.

The speaker, Matt Nicholls, discusses the difference between private markets and alternative markets in terms of strength. He also mentions that compensation for the quarter was better than expected due to lower variable compensation and a higher margin associated with a transaction-related fee. Jennifer Johnson adds that the market is showing a preference for transparent active ETFs, which is the focus of their company.

The speaker discusses their lack of pursuit in a particular area and gives an update on Putnam's AUM and flows, which are in line with expectations. They also mention a new partnership with Venerable, but cannot provide specific details at this time.

The company has recently announced a customized solution for insurance companies to more efficiently manage their portfolios. They are currently in talks with other insurance companies about this approach. The Putnam operating income guidance does not include the $25 million investment from Great-West. The fee rate is expected to be in the mid-teens and the implementation timeline is estimated to be within the first year after closing.

The speaker discusses the timing of a reallocation towards fixed income in the wealth channel, and the potential for private credit to outperform traditional fixed income due to the current lending environment. They also mention the possibility of creating products that combine private credit and traditional fixed income to provide both liquidity and excess returns.

The speaker discusses the challenges of providing alternative investments in the wealth channel due to the suitability and DOL rule, but states that it is an area of focus for their company. They also mention the impact of capital requirements on lending and predict continued growth in private credit. The speaker thanks employees and mentions the upcoming acquisition of Putnam.

This summary was generated with AI and may contain some inaccuracies.