Franklin Resources (BEN)

Q1 2012 Earnings Call

February 01, 2012 4:30 pm ET

Executives

Gregory Eugene Johnson - Chief Executive Officer, President, and Director

Kenneth Allan Lewis - Chief Financial Officer, Principal Accounting officer and Executive Vice President

Analysts

Michael Carrier - Deutsche Bank AG, Research Division

Robert Lee - Keefe, Bruyette, & Woods, Inc., Research Division

Matthew Kelley - Morgan Stanley, Research Division

Cynthia Mayer - BofA Merrill Lynch, Research Division

William R. Katz - Citigroup Inc, Research Division

Craig Siegenthaler - Crédit Suisse AG, Research Division

Jonathan E. Casteleyn - Susquehanna Financial Group, LLLP, Research Division

Kenneth B. Worthington - JP Morgan Chase & Co, Research Division

Michael S. Kim - Sandler O'Neill + Partners, L.P., Research Division

Glenn Schorr - Nomura Securities Co. Ltd., Research Division

Daniel Thomas Fannon - Jefferies & Company, Inc., Research Division

Presentation

Operator

Compare to:
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Good afternoon, and welcome to Franklin Resources Earnings Conference Call for the Quarter ended December 31, 2011. My name is John and I'll be your operator for today's call. Please note that the financial results we be discuss in this conference call are preliminary.

Statements made in this conference call regarding Franklin Resources, Inc. which are not historical facts, are forward-looking statements within the meanings of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve a number of known and unknown risks, uncertainties and other important factors that could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. These and other risks, uncertainties and other important factors are described in more detail in Franklin's recent filings with the Securities and Exchange Commission, including in the Risk Factors and MD&A sections of Franklin's most recent Form 10-Q filing. [Operator Instructions] Now I'd like turn the call over to Mr. Greg Johnson. Mr. Johnson, you may begin.

Gregory Eugene Johnson

Thank you, and good afternoon, everyone. Joining me, as always, is our CFO, Ken Lewis. The first quarter had many challenges, but overall there were a number of positives, including investment performance, improving flow trends in many asset classes, operating margin and capital management that we highlighted in our commentary that was made available this morning. Hopefully everyone had a chance to listen to that, as well as take a look at our 10-Q that was also filed this morning. Now I'd like to open it up for your questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Michael Carrier from Deutsche Bank.

Michael Carrier - Deutsche Bank AG, Research Division

Your first question, just on the equity side of the business, it looks like the flows in the quarter are probably better than you expected. Yes, I know last quarter you guys had some either redemptions on the institutional side, I think it was maybe $2.7 billion that you pointed out. This quarter you've mentioned, on the prerecorded call, some wins. Just wondering how significant those were because it seems like on the retail side, depending on how big those were, you saw some improvement there. So just trying to figure out what's driving that. And then any -- do you have any product granular, that you could give? I think you mentioned income products, but just any color there.

Gregory Eugene Johnson

I think there was no real significant moves on the institutional side except there was one large account, about $840 million in global equities that was a new mandate during the quarter, and then there were a lot of wins in the $200 million to $300 million range. But really nothing more, I would say, normal as far as wins and losses during the quarter. But nothing really to call out as far as retail trends. I just think there's a lot of noise, quarter-to-quarter, on the institutional side.

Michael Carrier - Deutsche Bank AG, Research Division

Okay. And then just on the global bond side, you guys provided some color on the prerecorded call, just any more color when we look at the U.S. products and the flows versus the non-U.S. And, yes, I think even if we look in the past 2 years, there was a lot coming in the non-U.S. channel, and you guys have mentioned over time where it's not as sticky, and so when you have some volatility in the market, you can see some more outflows there. And then, I think, we've asked the question before in the past on capacity on those products. I just wanted to get your thoughts on -- sometimes there is -- you can have the same strategy, you have different funds. So when you think about some of the concentrations that the fund can take in, say, like emerging markets, have you guys ever considered, or would it make sense, to have a product where you can focus more on some of the smaller markets and then have a product that, just given the size of the fixed income markets, could continue to grow and you probably wouldn't have any capacity issues?

Gregory Eugene Johnson

I think all of that -- we've considered all of that. I'll start with just the flows. And I think as we've called out on prior calls, I think the level of flows coming in to the CCAB and the cross-border funds, we felt that, that was not a sustainable level. And this was the first kind of setback. And also, I think, the other factor is that you do have more control by gatekeepers. And with the increased volatility, they have -- they can slow down a larger portion of your flows versus the U.S., which is more one-on-one out with advisors. And also, I think in the U.S. generally, a smaller portion of an overall portfolio, and in the offshore sales, a lot of newer investors to this category. So what we're seeing and what is consistent with our thinking is that the U.S. was less vulnerable to the downturn and didn't have as much in terms of outflows and is quicker to rebound based on the performance. And I think it is important, it's early for January, but much of the underperformance that we experienced over the last year, we've had a strong rebound in the month of January. So I think that'll help when people see where the fund is priced today. And then on emerging markets bond and capacity, those are all good points. I mean, we came out with emerging markets balanced fund this quarter, which would have more exposure in the smaller markets along with the emerging markets. So capacity is not a constraint right now with sovereign debt and how this fund's been run historically. So we don't think it's an issue with the global bond fund. And I'd also point to the total return fund which continues to grow in terms of flows, which includes corporate's as well.

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