Franklin Resources AUM flat in quarter, down 1.2% for year

Franklin Resources managed $715.2 billion as of June 30, the third quarter of the company's fiscal year, up 0.4% from March 31 and down 1.2% for the year, showed the firm's earnings report issued Tuesday.

Total net outflows from Franklin's investment strategies slowed to $5.4 billion in the quarter ended June 30 from $6.3 billion in the previous quarter and net outflow of $12.1 billion in the year-earlier quarter.

The earnings report showed net market appreciation of $8.3 billion in the quarter, compared with net appreciation of $42.3 billion in the prior three-month period vs. net market losses of $11.1 billion in the second quarter of 2018.

Combined net outflow from Franklin's U.S. and international institutional investors totaled $4 billion in its third quarter, down from both the $6.6 billion net outflows in the quarter ended March 31 and $5.7 billion in the three months ended June 30, 2018.

In the report, Franklin attributed lower net outflows overall in the quarter to higher institutional sales in the U.S. and internationally of $6.5 billion compared with $4.5 billion in the previous quarter and $7.1 billion in the quarter ended June 30, 2018.

Jennifer Johnson, Franklin's president and chief operating officer, said in a call with analysts Tuesday that the firm's institutional new business pipeline is strong. "We are very pleased with the response in the market," she said, adding that the firm has had "some big wins" from institutional investors into separately managed accounts.

Ms. Johnson referred to two mandates totaling $2 billion which were funded by non-U.S. institutions in the second quarter. The firm's hedge funds-of-funds unit, K2 Advisors, also gained "a big win" in the quarter, Ms. Johnson said. She did not identify the new investors.

In the latest quarter, Franklin's equity strategies experienced net outflow of $7.4 billion from all investors, while fixed income had net outflow of $900 million. A combined net inflow of $1.1 billion came from multiasset/balanced strategies.

In the previous quarter, net outflow of equities was $8.8 billion; fixed income had net inflow of $2.2 billion; and the combined net outflow of multiasset and balanced funds was $100 million.

Equity assets under management totaled $282.2 billion in the three months ended June 30, down 0.6% from the prior quarter and down 9.1% from the year-earlier quarter. Fixed-income AUM was $287.8 billion in the quarter, up 1.1% and up 7.9%, respectively. Multiasset/balanced strategies were an aggregated $136 billion, up 1% and down 1.2% from the prior dates. Cash totaled $9.2 billion, up 3.4% from March 31 and up 1.1% from June 30, 2018.

In response to analysts' questions, Matthew Nicholls, executive vice president and chief financial officer, made it clear that Franklin is on the acquisition trail, with a particular focus on alternative investment firms, wealth managers, financial technology and smart beta firms as well as more traditional money management firms.

He said the firm is "seeking to gain scale in some areas where we should be much larger."

Franklin Resources set aside about $4.7 billion of discretionary cash and investments for general corporate uses "with a strong preference for deploying these assets for growth-oriented opportunities," according to information accompanying the earnings report.

Franklin Resources produced net operating revenue of $1.5 billion, up 3% from the previous quarter but down 5.3% from the year-earlier quarter. Net income totaled $246 million, resulting in net decreases of 33.1% and down 38.8%, respectively.