Franklin Resources AUM slides 16.9% in first quarter

Franklin Resources managed $580.3 billion as of March 31, the second quarter of the company’s fiscal year, down 16.9% from Dec. 31 and down 18.5% from March 31, 2019, Franklin’s earnings report issued Thursday showed.

The $118 billion decline in the three-months ended March 31 was due to $98.2 billion of performance losses and distributions and net outflows of $25.4 billion.

Total net outflow for Franklin in the quarter ended Dec. 31 was $12.3 billion and net outflow was $6.3 billion in the quarter ended March 31, 2019.

Franklin said in a commentary accompanying the earnings report that net outflows were “slightly offset” by the acquisition in March of Athena Capital Advisors, a registered investment adviser with assets of $5.6 billion, by the firm’s Fiduciary Trust Co. International unit.

U.S. and international institutional investor combined net flows were down $10.2 billion in the current quarter vs. being down $10.8 billion in the prior quarter and down $13.6 billion in first quarter 2019.

“Flows were significantly impacted by industrywide pressures that resulted in significantly elevated redemptions this quarter ... however, we are encouraged by the rebound in long-term sales, particularly in U.S. retail, which had its best quarter in nearly three years,” according to the commentary.

Assets under management in each of Franklin Resources’ asset classes were down in the quarter and year ended March 31, except for cash management, where assets totaled $10.7 billion as of March 31, up 2.9% over the previous quarter and 20.2% for the year.

Combined U.S. and internal equities totaled $207.4 billion as of March 31, down 26.1% in the quarter and down 26.9% for the year.

Fixed-income strategies fell 9.9% to $244 billion in the quarter ended March 31 and were down 14.3% for the year.

Multiasset/balanced portfolios, which totaled $118.2 billion, including the $5.6 billion from the firm’s acquisition of Athena, were down 13.4% in the current quarter and down 12.2% from the same date a year ago.

Regarding the performance and flows into and out of the firm’s strategies, Jennifer M. Johnson, president and CEO, told analysts during Franklin’s earnings call Thursday that performance overall is improving after “taking a hit in March” adding “today’s market dislocation is tomorrow’s alpha.”

By way of a bright spot in the first quarter, Ms. Johnson said the firm’s private credit manager, Benefit Street Partners, attracted $1.3 billion in the first three months of the year and continues to see strong interest in its credit-oriented strategies given market conditions.

The firm also won two large institutional mandates totaling about $2 billion in the first quarter that “helped offset gross flows,” Ms. Johnson said. She did not identify the investors or the strategies they invested in.

Ms. Johnson assured analysts during the call that Franklin Resources’ acquisition of Legg Mason is on track for completion later this year.

In response to analyst questions, she said the focus for the companies at this point is on integration of their operations and distribution groups rather than on possible consolidation of investment strategies.

“There is very little overlap between Legg Mason and Franklin strategies,” Ms. Johnson said.

Institutional investors have expressed confidence regarding the Legg Mason-Franklin merger, she said.

“In the first conversations (we’ve had) with institutional investors, the reaction has been positive. Franklin has a record of leaving acquisitions alone and investors said they have confidence that we won’t go in and muddle with the investment teams.”

Franklin Resources produced revenue of $1.3 billion in the quarter ended March 31, down 5.3% from the previous quarter and down 6.7% from a year earlier.