The paragraph introduces the Franklin Resources Earnings Conference Call for the quarter and fiscal year ended September 30, 2024. Shamali, the call operator, announces that the conference is being recorded and that participants are in a listen-only mode. Selene Oh, the Chief Communications Officer and Head of Investor Relations, begins the call by noting that the financial results are preliminary and include forward-looking statements subject to risks and uncertainties, as described in recent SEC filings. Jenny Johnson, the President and CEO, will then discuss Franklin Templeton's fourth quarter and fiscal year 2024 results, highlighting the company's business evolution and key performance aspects, with support from other executives like Matt Nicholls and Adam Spector.

The paragraph outlines Franklin Templeton's strategic expansion and diversification efforts to meet clients' investment needs globally. The company has revamped its investor presentation, highlighting its intentional business growth and capabilities across various market conditions. Clients view Franklin Templeton as a trusted partner, offering tailored investment solutions across public and private markets. The firm leverages specialist investment managers and advanced technologies like AI and blockchain to enhance client offerings and ensure shareholder value. Franklin Templeton's decentralized revenue model further strengthens its corporate stability, with ongoing investments in emerging technologies to drive future growth.

The paragraph discusses the company's strategic growth and diversification of assets under management (AUM) through organic growth and acquisitions since 2019. These acquisitions, including Putnam Investments, have enhanced their investment capabilities and expanded their client offerings, particularly in the retirement and insurance sectors. The acquired managers now contribute significantly to AUM and revenue. The company has achieved a balanced portfolio between institutional and wealth management, and continues to focus on improving investment performance and expanding their product range. They capitalize on their extensive investment capabilities across public and private markets, noting opportunities in their convergence. With $250 billion in AUM, they are a leading manager in alternative assets, offering services in areas like credit, private equity, and real estate.

Since 2019, alternative asset AUM at Franklin Templeton has grown over fivefold due to acquisitions and organic growth. The firm has expanded its alternative investment strategies and offerings, though wealth management currently only allocates about 5% to alternatives. Franklin Templeton aims to increase this allocation, as institutions already allocate up to 40%. Their strategy includes expanding the "alternatives by Franklin Templeton" brand globally and fundraising $100 billion in private markets over five years. They also focus on distribution, leveraging a global client base in over 150 countries. Significant growth has been seen in retail separately managed accounts (SMAs), ETFs, and Canvas AUM, with ETFs experiencing a notable 89% growth this year, maintaining positive net flows for 12 consecutive quarters.

The paragraph highlights Franklin Templeton's significant growth and strategic plans. Total assets have reached $31 billion from zero, with Canvas AUM increasing by 94% to $10 billion since its 2021 acquisition, and the number of partner firms rising by nearly 70%. The firm aims to triple ETF AUM and quintuple Canvas assets over the next five years. Retail SMA assets rose 29% to $145 billion, and Investment Solutions AUM nearly doubled to $89 billion through acquisitions and organic growth. Key future strategies include product expansion, leveraging investment capabilities for customized solutions, and strategic partnerships. Private Wealth Management also presents significant opportunities due to a historic $84 trillion intergenerational wealth transfer through 2045.

The paragraph discusses the strategic initiatives and growth of Fiduciary, a wealth management platform, amid a significant wealth transfer from Baby Boomers. Fiduciary has doubled its assets under management (AUM) since 2019, reaching $39 billion, and maintains a high client retention rate. The company aims to further grow through organic investments and acquisitions, with a focus on innovation and technology. Collaborations, such as with Microsoft, are enhancing their use of Artificial Intelligence to improve client services and operations. Additionally, Fiduciary is exploring blockchain technology, demonstrated by launching blockchain-based funds and digital asset ETFs.

During the fiscal year, global equities and bonds saw significant gains, with technology and communication services driving the market due to investor interest in AI. Inflation moderation and declining bond yields boosted key tech stocks, which shifted market leadership beyond a select group of companies. Eight of the 11 sectors outperformed the S&P 500, and investors have shifted their concerns from inflation to global economic growth and corporate profits. The Federal Reserve cut interest rates, which may aid a soft landing in 2025, but market volatility could rise if the push for monetary easing continues. The Fed is expected to cut rates again, amid uncertainty in the labor market due to temporary disruptions.

As the Federal Reserve's rate-cutting cycle advances, fixed income sectors are expected to regain appeal as primary yield sources, while private markets see rising interest in alternative credit and secondary private equity. Mutual fund and composite investment performances improved over various periods, despite $32.6 billion in long-term net outflows, with $20.7 billion in reinvestment distributions. Excluding Western Asset Management, long-term net inflows were $16 billion, a significant improvement from the previous year's net outflows. Gross sales improved across all asset classes and regions, with international business growing and AUM exceeding $500 billion.

In the cited paragraph, the company reports significant growth in gross sales across various regions, including a 31% increase in the US and substantial rises in other areas. Retail and institutional sales grew by 27% and 21%, respectively. In the private markets, substantial capital was raised, with Lexington and Benefit Street Partners surpassing their fundraising targets. Despite real estate sector challenges, Clarion Partners' assets under management remained stable. Positive trends in the ODCE benchmark and transaction volumes hint at recovery prospects for fiscal year 2025. The company remains strong with minimal exposure to office real estate and is expanding in thriving areas such as industrial and multifamily sectors. Additionally, it is exploring growth in European logistics and alternative strategies in US real estate. In public markets, multi-asset net flows reached $8 billion, with significant growth in equity sales and long-term fixed income inflows year-over-year.

The paragraph discusses an internal investigation at Western Asset, led by former Co-CIO Ken Leech, regarding certain tax trade allocations, which is also being investigated by the DOJ, SEC, and CFTC. Following a Wells notice from the SEC, Leech is on leave. Western Asset has seen significant net outflows of $37 billion in Q4 and $49 billion for the fiscal year. Mike Buchanan is now the sole CIO, leading a team of over 100 professionals managing $330 billion in assets. The company has reviewed and enhanced its trading policies. Franklin Resources is collaborating with Western's management to explore support options, potentially including adjustments to economic and operational arrangements, while ensuring investment independence. No further information can be provided due to the ongoing investigation.

The paragraph highlights Franklin Templeton's expertise in fixed income investment management, noting that its specialist teams manage $266 billion in assets and generated $6.4 billion in net flows in the fiscal year. Their institutional pipeline of won but unfunded mandates is $15.8 billion, with a $2 billion decrease from the prior quarter due to a change in value at Western. The acquisition of Putnam Investments has been successful, with its AUM growing 21% to $180 billion, and enhancing Franklin Templeton's presence in retirement and insurance markets with $645 billion in AUM. The company emphasizes its commitment to growth, diversification, and high standards, crediting employees for its success. The paragraph then transitions to CFO and COO Matt Nicholls for a financial review.

In the fourth quarter, the company's assets under management (AUM) increased by 2% to $1.68 trillion, boosting adjusted operating revenues by 4% to $1.7 billion, largely due to higher AUM and performance fees. Operating expenses rose 3% to $1.3 billion because of increased incentive compensation and professional fees. Cost savings from Putnam-related activities amounted to $38 million, leading to a 6% rise in adjusted operating income to $452 million and an improved operating margin of 26.3%. However, adjusted net income and earnings per share fell by 3% and 2%, respectively, due to higher tax expenses and foreign exchange losses. A $389.2 million non-cash charge was recorded as a result of impaired mutual fund contracts. For fiscal year 2024, AUM increased by 22% from the prior year, with the average AUM rising by 12%.

The adjusted operating revenues increased by 8% to $6.6 billion, mainly due to Putnam and higher average AUM, though partially offset by lower performance fees. Performance fees dropped to $293 million from $383 million. The effective fee rate decreased to 38.3 basis points due to various factors including transaction-related fees and the addition of Putnam. Adjusted operating expenses rose 13% to $4.9 billion, mainly because of costs associated with Putnam, increased incentive compensation, office consolidations, and legal fees. While $150 million in cost savings from Putnam were realized, adjusted operating income dropped 6% to $1.7 billion, and the operating margin decreased to 26.1%. Adjusted net income declined 4% to $1.3 billion, and diluted earnings per share fell 8% to $2.39, impacted by reduced operating income and higher tax rates. The company returned $946 million to shareholders and managed its capital by funding acquisitions and paying down debt.

Over the past five years, the company has prioritized returning over $4 billion to shareholders, with $3 billion in dividends and $1.1 billion in share repurchases. The dividend has grown steadily, and the balance sheet supports investment in both organic and inorganic growth, including $2.4 billion in co-investments. Acquisitions since 2019 have significantly contributed to revenue and cash flow. Operational efficiencies have been achieved through cost savings and outsourcing, with future plans to unify investment management technology. A brief update notes expected slight long-term net outflows for October, excluding Western Asset.

The paragraph discusses financial guidance and expectations for Western and Franklin for the upcoming fiscal quarter. Western anticipates long-term net outflows of $18 billion in October, following outflows of $7.7 billion in August and $27.9 billion in September. Excluding Western, Franklin reported $5.7 billion in net inflows for the fourth quarter. The guidance assumes stable markets and excludes potential impacts from ongoing Western investigations. Expected financials include an EFR in the mid-37 basis point area, $860 million in compensation and benefits, $155-$160 million for IS&T expenses, $78-$80 million for occupancy costs, and $180 million in G&A expenses with increased legal fees. The GAAP tax rate is projected to remain between 24% and 26% for fiscal 2025, with the first quarter potentially having a higher rate. The call is now open for questions, starting with Bill Katz from TD Cowen.

The paragraph discusses the impact of the WAMCO investigation on various economic relationships and strategies within a franchise, particularly focusing on Western. Jenny Johnson explains that the majority of client outflows at Western are concentrated in core and macro operations, amounting to $53.6 billion, since a notice was received. Despite concerns and some client redemptions, the outflows have been largely contained within Western and haven't significantly impacted other Franklin strategies. Johnson emphasizes the uniqueness of the relationship with Western, which includes a five-year autonomous arrangement. The company is reevaluating this relationship in light of current circumstances, applying a flexible and common-sense approach, as there is no one-size-fits-all solution in asset management.

The paragraph discusses the operational differences and economic contributions of Templeton and Mutual Series, compared to Western Asset, which is Franklin Resources' largest specialist investment manager by assets under management (AUM). Matt Nicholls highlights that although Western Asset has significant AUM, its financial contribution ranks it fifth or sixth when it comes to adjusted operating revenue. Western has experienced $53 billion in outflows since August, leading to an expected annualized revenue decline of about 20%, which translates to a 2% decline at the Franklin Resources level. This revenue decline impacts operating income more significantly initially since expenses can't be reduced as quickly as revenue.

The paragraph discusses Franklin Resources' strategies to offset challenges, emphasizing areas like Putnam, alternative assets, and expense management. Despite setbacks with Western, including a need to adjust economic arrangements due to declining revenue and operating income, the company remains committed to sustainable growth and supporting Western's investment team. Adam Spector highlights success in strengthening institutional relationships, with significant growth in institutional channel fundraising from $2.2 billion last year to $5.6 billion this year.

The paragraph discusses the company's optimistic outlook on its institutional business, specifically targeting $100 billion in fundraising across private markets over five years. Jenny Johnson explains that this growth target will mainly be achieved through existing investment managers, citing significant growth since acquiring BSP, Clarion, and Lexington. The company projects gross sales of $13 billion to $20 billion in 2025 from real estate, secondaries, private credit, and ventures. The range depends on the timing of Lexington's flagship 11 Fund's first close, following the successful and faster deployment of Fund 10 at higher discounts than usual.

The paragraph discusses Lexington's optimistic outlook for real estate, suggesting that the downturn may be ending and improvements are expected next year. They plan to offer a diverse range of new financial products, including a perpetual vehicle in the wealth channel and a real estate debt fund, capitalizing on their expertise and the regional banks' withdrawal from this area. The company projects managing between $13 billion and $20 billion in 2025, aiming for a total of $100 billion in five years. Following this, Benjamin Budish acknowledges the information, and Dan Fannon from Jefferies poses a question about the expenses outlook for fiscal 2025, considering the complexities related to Western dynamics.

In this exchange, Matt Nicholls discusses the expected core expense growth for the year, indicating that, despite uncertainties, expenses should be similar to the previous fiscal year. He mentions that revenue loss from Western should be compensated by growth in other areas and emphasizes careful expense management if any business declines. Nicholls also highlights ongoing initiatives to manage expenses and investments. Dan Fannon asks for clarification on one quarter of Putnam expenses, to which Nicholls responds with an approximate figure of $125 million.

In this paragraph, Michael Cyprys from Morgan Stanley asks about the company's five-year targets concerning revenue, operating income, and EPS growth, and inquiries about Western's current contribution to AUM revenues and operating income. Matt Nicholls responds by stating that Western contributes around 8-9% of adjusted operating revenues and slightly more to operating income. He emphasizes the company's aim for low single-digit organic growth, acknowledging current challenges on the Western side that are being addressed. He notes the business's evolution over the past five years, highlighting a shift from reliance on mutual funds in the U.S. to expanding areas like ETFs, Canvas, alternative assets, and other growth sectors to achieve scale.

The paragraph discusses the company's growth expectations and challenges in scaling their business, particularly in light of their investments. They anticipate achieving low single-digit growth over five years by balancing areas of growth and shrinkage. Jenny Johnson emphasizes that organic growth is about 1.3% and highlights the challenges in integrating acquisitions, such as Putnam, which involves building new relationships and settling distribution channels. The company has seen significant growth in its ETFs, with notable net flows in recent quarters, suggesting potential opportunities in the active ETF market.

The paragraph highlights the key strengths and global reach of the asset management firm. It emphasizes the firm's unique capabilities in both private and traditional markets, being unrivaled in these aspects. The firm sources a significant portion of its funds, $500 billion, from clients outside the United States and sells over $80 billion internationally, showcasing its strong international relationships and reputation built over decades. The firm is unique in its local asset management capabilities, effectively entering new markets where domestic products dominate. In India, it launched domestic products and is seen as a local competitor, and it established its largest equity fund there in 15 years. The firm is one of the largest Islamic finance asset managers in the Middle East, and it has local presence in countries like Canada, the U.K., and Australia. As emerging economies grow, the firm's ability to be perceived as a local player is a powerful asset. Adam Spector adds that these efforts are starting to gain traction earlier than anticipated.

The paragraph discusses the expansion efforts of a company in private markets within the wealth channel. They have built a strong team of 85 people across the U.S., EMEA, APAC, and the Americas, focusing on institutional quality management. The company has launched scalable evergreen products in real estate, private credit, and secondaries to accelerate their market efforts. Jenny Johnson mentions the company's experience with late-stage venture in mutual funds, highlighting their capability to handle both public and private products. John Dunn inquires about the doubling of private wealth management, with Matt Nicholls explaining that their partnerships have grown significantly, with over 20 partners now onboarded, facilitating their platform expansion.

The paragraph discusses the success and strategies in co-developing products in partnership with wealth management channels, emphasizing the importance of scale and sourcing significant assets under management (AUM) from the launch to offer a diversified product. Matt Nicholls mentions the intention to capitalize on the Fiduciary trust platform by attracting teams to enhance growth, noting its past success. The focus for the coming years is on strategically expanding and utilizing this valuable platform to facilitate further business growth.

The paragraph captures the conclusion of a teleconference call involving executives from Franklin Templeton. Matt Nicholls remarks on the comprehensive resources available for wealth management. Following a brief exchange with John Dunn, the operator hands the call back to Jenny Johnson, Franklin's President and CEO. She expresses gratitude to the employees of Franklin Templeton and their subsidiary, Western, for their dedication and good performance amid distractions. Johnson wraps up by looking forward to the next quarterly meeting. The operator then formally concludes the call.

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