Franklin Resources’ assets rise in quarter on Benefit Street Partners acquisition


Franklin Resources managed $712.3 billion as of March 31, the second quarter of the company’s fiscal year, up 9.6% from Dec. 31 and a drop of 3.4% from March 31, 2018, showed Franklin’s earnings report issued Friday.

The firm noted in a written earnings presentation that March 31 AUM included an infusion of $26 billion from the Feb. 1 acquisition of credit specialist manager Benefit Street Partners.

Net flows from Franklin’s investment strategies continued a downward trajectory in the quarter ended March 31 with net outflows of $6.3 billion, preceded by net outflows of $7.3 billion in the previous quarter and net outflows of $10 billion in the year-earlier quarter.

Combined flows from Franklin’s U.S. and international institutional investors also extended a downward course with net outflows of $11.2 billion in quarter ended March 31, higher than the $10.3 billion of net outflows in the quarter ended Dec. 31 and net outflows of about $9.3 billion in the three months ended March 31, 2018.

Franklin faced “some headwinds in the first quarter” regarding its institutional client base, including underperformance of actively managed value equities, which trailed growth stocks by 400 basis points in the quarter, said Glen Johnson, chairman and CEO, during a conference call with analysts.

Mr. Johnson said there were some large redemptions by U.S. institutional investors in the first quarter, particularly from the firm’s global fixed-income and international equity strategies. Mr. Johnson attributed some of the institutional net outflows to investors’ ongoing move to passive strategies from active.

Net flows from non-U.S. institutional investors also were negative, elevated by terminations of nearly $2.2 billion from East Asian and Australian investors whose mandates required redemption following the departure of lead portfolio managers, the Franklin earnings presentation said.

In the latest quarter, Franklin’s equity strategies experienced net outflows of $8.8 billion from all investors, while fixed income had net inflows of $2.6 billion and combined net outflows of $100 million came from multiasset/balanced strategies. In the previous quarter, net inflows to equities were $1.4 billion; fixed income had net outflows of $6.4 billion; and the combined net outflows of multiasset and balanced funds were $2.3 billion.

Equity assets under management totaled $283.9 billion, up 7.9% from the prior quarter and down 8.2% from the year-earlier quarter. Fixed income AUM was $284.8 billion in the quarter, up 13.1% and up 1.6%, respectively; and multiasset/balanced strategies were an aggregated $134.7 billion, up 7.9% and down 2.1% from the prior dates. Cash totaled $8.9 billion, down 11.9% from Dec. 31 and 2.2% lower than March 31, 2018.

In the firm’s written earnings presentation, Franklin said the company is implementing cost-savings measures “intended to increase operational efficiencies and streamline our organization.”

One such measure will outsource administration and reporting for most of Franklin’s funds.

Mr. Johnson stressed to analysts that the project was still in the very early stages, noting that the move “will bring us more in line with our peers” and will result in cost savings at the fund level. He added that fund administration providers “have reached scale so they can serve our global needs now which they couldn’t do before.”

In the written presentation, Franklin said the cost of employee termination benefits totaled $20 million in the quarter ended March 31. Mr. Johnson said he expected execution costs for the company’s streamlining initiative will total between $50 million and $60 million through the remaining two quarters in the company’s fiscal year.

Mr. Johnson did not elaborate during the call with analysts about the size of the staff reduction.

Earlier this week, Bloomberg reported that Franklin said in an internal memo that it might cut as much as 5% of its workforce, which totaled nearly 9,700 people as of Sept. 30.

Bloomberg contributed to this story.

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