Franklin Resources (BEN) Q3 2024: Alternatives Raise Surpasses $12B, Accelerating Fee Mix Shift
Franklin Resources’ Q3 2024 saw alternatives fundraising cross $12 billion fiscal year-to-date, marking a decisive shift in product mix and long-term fee structure. While AUM remained flat sequentially, underlying business momentum shifted toward higher-fee and diversified strategies, with continued investment in technology and global distribution. Management’s focus on platform unification, digital assets, and consultative client engagement signals a multi-year transformation beyond headline flows.
Summary
- Alternatives Fundraising Momentum: Over $12 billion raised year-to-date, positioning BEN at the high end of its annual target.
- Technology Integration Underway: Aladdin platform implementation aims to unify investment systems and drive future cost efficiencies.
- Global Product and Channel Expansion: New Japan joint venture and ETF growth diversify revenue sources and client reach.
Business Overview
Franklin Resources (Franklin Templeton) is a global asset manager with $1.65 trillion in assets under management (AUM), offering a wide array of investment solutions across public markets (equities, fixed income), private markets (alternatives), and wealth management. The business generates revenue primarily from management fees and performance fees, with major segments including traditional mutual funds, ETFs, separately managed accounts (SMAs), and a growing alternatives franchise encompassing private credit, real estate, and secondary private equity.
Performance Analysis
Q3 2024 marked a transition quarter for BEN, with AUM flat sequentially but up 15% year-over-year, primarily from the Putnam acquisition and market appreciation. The quarter’s core theme was a pivot toward higher-fee alternatives and multi-asset solutions, offsetting ongoing net outflows in legacy fixed income and equities. Long-term net outflows totaled $3.2 billion, but this was partially balanced by $3.6 billion in reinvested distributions and strong fundraising in alternatives and multi-asset strategies.
The alternatives segment, led by Benefit Street Partners, Clarion Partners, and Lexington Partners, posted $1.4 billion in net inflows, while multi-asset saw $1.8 billion in net inflows. ETF net inflows doubled quarter-over-quarter to $3.3 billion, and Canvas, the firm’s custom indexing platform, grew AUM by 13% to $8.2 billion. Fixed income outflows moderated, and equity outflows improved significantly, with single country ETFs and value strategies showing resilience.
- Alternatives Fundraising Sets Pace: Over $12 billion raised fiscal year-to-date, nearing the top end of BEN’s $10–15 billion annual target.
- ETF and Vehicle Diversification: ETF AUM reached $27 billion, up from $4 billion five years ago, with 11 consecutive quarters of positive net flows.
- Putnam Integration Drives Scale: Putnam’s AUM is up 23% since deal announcement, contributing to overall AUM growth and impacting fee rate mix.
Adjusted operating income rose modestly quarter-over-quarter but remains down year-over-year, reflecting ongoing investment in technology and product capabilities. The business is absorbing new platform costs while benefiting from scale and operational synergies, particularly as legacy systems are retired and new vehicles ramp up.
Executive Commentary
"We continue to make progress executing on our long-term plan of diversification across asset classes, investment vehicles, and geographies. Client demand led to positive net flows in multi-asset and alternative strategies during the quarter."
Jenny Johnson, President and CEO
"Implementation costs [for Aladdin] are expected to be approximately $100 million over the next three to five years... At or around fiscal 2028, we expect to begin to realize savings of about $15 million per annum. And then in 2029, we expect that to raise to $25 million at least."
Matt Nichols, CFO and COO
Strategic Positioning
1. Alternatives and Fee Mix Shift
BEN’s alternatives platform is now a core growth engine, raising over $12 billion fiscal year-to-date and approaching the top end of its annual target. This segment delivers higher management fees and performance fees, with fundraising momentum in private credit, secondary private equity, and real estate debt. Specialist managers like Lexington Partners are deploying capital rapidly and exploring new fund structures, including continuation vehicles and perpetual wealth management products.
2. Technology Platform Unification
The decision to implement BlackRock’s Aladdin platform will unify investment management technology across public markets, enabling cost efficiencies, faster integration of acquisitions, and improved risk management. The $100 million investment will be absorbed over several years, with material cost savings expected post-2028 as legacy vendor contracts are retired.
3. Global Channel and Product Expansion
The new joint venture with SBI in Japan, combined with the expansion of ETF offerings and retail alternatives in EMEA, signals a deliberate push into high-growth and underpenetrated markets. BEN’s single country ETFs and custom indexing (Canvas) are meeting demand from Latin America, Europe, and Asia, while wealth management AUM has more than doubled over five years.
4. Vehicle Agnostic Distribution
BEN’s strategy is to be vehicle agnostic, distributing investment strategies via mutual funds, ETFs, SMAs, and custom solutions. This approach allows BEN to capture flows as client preferences shift globally, especially as the industry moves toward fee-based advisory models and digital engagement.
5. Innovation and Digital Assets
Franklin Templeton is investing in artificial intelligence, blockchain, and digital asset products, including a new Ethereum ETF and a proposed digital asset JV in Japan. These initiatives aim to position BEN at the forefront of technology-enabled asset management and attract new generations of investors.
Key Considerations
This quarter underscores BEN’s active repositioning from legacy flows to higher-growth, higher-margin segments, while absorbing the costs of modernizing its operating platform and expanding globally.
Key Considerations:
- Alternatives Fundraising Trajectory: Continued strength in private credit and secondary private equity raises the long-term fee profile and supports organic growth.
- Aladdin Implementation Timeline: Technology unification will drive operational leverage post-2028 but requires disciplined cost absorption and execution in the near term.
- Putnam Integration and Fee Rate Impact: Rapid AUM growth at Putnam has diluted the average fee rate, but mix shift toward alternatives and SMAs could offset this trend.
- Global Product Demand: Expanding ETF, SMA, and custom indexing platforms are capturing flows in diverse geographies, reducing reliance on any single market or channel.
- Wealth Management Acceleration: Organic and inorganic growth in wealth management, including fiduciary trust acquisitions, is building a stable, recurring revenue base.
Risks
BEN faces continued net outflows in core fixed income and equity strategies, with fee rate pressure from product mix and geographic expansion. Execution risk exists around Aladdin platform migration, as cost savings will not materialize until legacy systems are retired. Market volatility, regulatory shifts, and competitive pricing in ETFs and alternatives could further challenge margin expansion. Management’s forward-looking statements highlight these uncertainties, especially around timing of flows and expense absorption.
Forward Outlook
For Q4 2024, BEN guided to:
- Stable effective fee rate at 37.5 basis points
- Compensation and benefits of $825 million (including $50 million performance fees)
- IS&T (Information Systems and Technology) expense of $150–$155 million, including $3 million for Aladdin implementation
- Occupancy expense around $77–$78 million, G&A $175–$180 million
For full-year 2024, management expects to reach the high end of its $10–$15 billion alternatives fundraising target. Key drivers will be continued product development in private markets and real estate debt, as well as new global distribution partnerships.
- Expense absorption from Aladdin and other initiatives expected to be “close to neutral” on operating income per quarter
- Further progress on cost synergies as legacy systems are retired
Takeaways
Franklin Resources is executing a multi-year shift toward higher-fee, diversified product lines while modernizing its tech stack and expanding global reach.
- Alternatives and Wealth Management Growth: These segments are now the primary engines for future fee and AUM expansion, with robust fundraising momentum and new channel access.
- Technology Replatforming: Aladdin implementation is a major operational lever, with long-term cost savings but near-term complexity and investment.
- Watch for Margin Inflection: Investors should monitor the timing of cost absorption, legacy system retirements, and whether all high-growth segments can deliver in tandem to offset legacy outflows and fee pressure.
Conclusion
BEN’s Q3 2024 results reveal a business in strategic transition, prioritizing alternatives, multi-asset, and global vehicles while absorbing the costs of technology unification. Execution on platform integration and sustained fundraising in higher-fee segments will determine the pace and durability of future margin expansion.
Industry Read-Through
Franklin Resources’ results reinforce several industry-wide themes: the shift from legacy mutual funds to alternatives and ETFs, the necessity of technology platform consolidation for operational leverage, and the importance of global and vehicle-agnostic distribution. BEN’s ability to raise alternatives capital and scale wealth management mirrors rising demand for private market access and custom solutions across the asset management sector. Competitors with legacy tech stacks and narrow product sets will face increasing margin and growth pressure, while those investing in digital assets, AI, and global partnerships are better positioned for the next industry cycle. The pace of cost absorption and the ability to deliver new products across channels will be critical differentiators in the coming years.