Franklin Resources' CEO Discusses Q4 2011 Results - Earnings Call Transcript

Franklin Resources (BEN)

Q4 2011 Earnings Call

October 27, 2011 4:30 pm ET

Executives

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

Kenneth Allan Lewis - Chief Financial Officer and Executive Vice President

Analysts

Michael Carrier - Deutsche Bank AG, Research Division

Chris Spahr - Credit Agricole Securities (USA) Inc., Research Division

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

William R. Katz - Citigroup Inc, Research Division

Cynthia Mayer - BofA Merrill Lynch, Research Division

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

Douglas Sipkin - Ticonderoga Securities LLC, Research Division

Steven M. Truong - Barclays Capital, Research Division

Marc S. Irizarry - Goldman Sachs Group Inc., Research Division

J. Jeffrey Hopson - Stifel, Nicolaus & Co., Inc., Research Division

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

Presentation

Operator

Good afternoon, and welcome to Franklin Resources Earnings Conference Call for the quarter ended September 30, 2011. My name is John, and I'll be your operator for today.

Please note that the financial results to be discussed 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 meaning 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 our actual results to differ materially from the 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 to turn the call over to Mr. Greg Johnson. Mr. Johnson, you may begin.

Gregory Eugene Johnson

Thank you. Good afternoon, everyone, and welcome. Thanks for taking time out to join Ken Lewis and I today for our call. I think, first of all, considering the volatility during the quarter, we are pleased to report positive net flows of just over $3 billion. We are also pleased to report record operating earnings of $688 million.

And now, we'd like to open it up to your questions. Thank you.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Cynthia Mayer from Bank of America.

Cynthia Mayer - BofA Merrill Lynch, Research Division

Just maybe question on the institutional global international flows you guys mentioned in the recorded commentary. It seems like given how good the 1- and 3-year performances for Templeton equity, I'm wondering what's behind institutional redemptions you mentioned. And also I think you mentioned some inflows, I'm wondering what the net is of institutional flows to international global equity overall?

Gregory Eugene Johnson

I think that's a good question. And there were, I think, 5 different lumpy and each of them was for a different reason within global equities. There were 2 kind of long-standing state relationships that one in emerging markets and one in

[Audio Gap]

and some of that is performance, and some of it's moving to passive, but it did result in, I think, about $1.6 billion and $1.7 billion, between the 2 of those. And then we had another significant account in the variable annuity side on the Mutual Series Discovery side that moved to an in-house manager within one of the large insurance companies that wasn't as much performance-related. And sometimes there's just timing differences. When these redemptions were made, it could have been lagging at that time and then taken a while. And more of the recent rebound in performance may not have been considered.

Cynthia Mayer - BofA Merrill Lynch, Research Division

Okay. And just as a follow-up, I think you mentioned Italy was your top-selling area. Was that sales of Global Bond? And what if any impact, do you think, the European agreement on recapitalizing the banks would have on European's appetite for Global Bond Fund?

Gregory Eugene Johnson

Well, I think it's probably a little early to assess that. I still think it's viewed as an alternative category, and obviously, a positive overall for how that fund is positioned and how well it's done. And some of the weakness, which we felt was more short term certainly turned around here in the last few weeks. So as far as what happens in terms of flows, I think, just overall, as you would expect the last week we had negative outflows within the global bond category and that pressure continued early into the New Year. We don't really like to comment a whole lot on where fund flows are going, but I think in this case, just due to some of the misinformation that's been out there, we'll say that we have been pleased to see how it has been very steady despite that one short period of underperformance. And net-net, year-to-date, probably around breakeven overall with an improving trend and U.S. doing better than Europe as far as looking at the flows within the 2 regions.

Operator

Our next question comes from Michael Kim from Sandler O'Neill.

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

Just a follow-up with the Global Bond Fund. I understand the performance has snapped back pretty sharply in the last month other so. But just given the performance hiccup, if you will, are you concerned at all that you might be at risk of somewhat of a kind of a reverse halo effect where maybe some of your other global fixed income funds might be susceptible to a slowdown in flows, either across kind of retailer institutional channels?

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