Franklin Resources Inc Q3 FY2022 Earnings Call

Welcome to the Franklin Resources Conference Call for the Quarter End June 30, 2022. Hello, my name is Daniel and I'll be your call operator today. As a reminder, this conference is being recorded. And at this time, all participants are in a listen-only mode. I would now like to turn the conference over to your host, Selene Oh, Head of Investor Relations for Franklin Resources. You may begin.

Good morning, and thank you for joining us today to discuss our quarterly results. Statements made on 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 actual results to differ materially from any 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 the MD&A sections of Franklin's most recent Form 10-K and 10-Q filings. Now, I'd like to turn the call over to Jenny Johnson, our President and Chief Executive Officer.

Thank you, Selene. Hello, everyone, and thank you for joining us today to discuss Franklin Templeton's third fiscal quarter results. Matthew Nicholls, our CFO and COO, and Adam Spector, our Head of Global Distribution, are on the call with me. Since January, macroeconomic and geopolitical factors have contributed to global financial markets experiencing a period of volatility not witnessed in decades, with substantial drawdowns of both equities and fixed income markets. These declines have challenged investor sentiment and industry flows, particularly in fixed income. Assets under management and flows were impacted by these industry-wide pressures. We continue to benefit from a diversified mix of assets. As investors look to reposition their portfolios, we've seen interest in our alternatives and multi-asset strategies, which both experienced strong net inflows during the quarter. In addition, notwithstanding flow pressures in fixed income, investor interest remains robust across the asset class. Over the past few years, we've been very deliberate in transforming our company by expanding our investment capabilities and deepening our presence in key markets and channels. This diversification combined with our financial flexibility serves us well across market cycles and is creating broader sources of revenue, positioning our company for future success. This quarter, we continue to make progress building our alternative asset business, which is less correlated to public markets and a source of increasing client demand. We now have specialist investment managers that represent a meaningful portion of the key alternative categories. On April 1, we closed the acquisition for Lexington Partners, a leader in secondary private equity, where current markets create further interesting opportunities. At the end of May, we announced the acquisition of Alcentra, and we're pleased to welcome the Alcentra team to Franklin Templeton. This acquisition was an opportunity for us to enter the European alternative credit sector at significant scale and globalize our current U.S. alternative credit business, Benefit Street Partners. As one of the largest European credit and private debt managers, Alcentra has approximately $38 billion in AUM, with global expertise across a broad array of credit strategies. Given the current challenging market conditions, we are pleased to have carefully structured the transaction to help mitigate risks. Alcentra has a strong team that will benefit from the scale, stability, and cultural alignment of being part of a combined alternative credit specialist investment manager led by Benefit Street Partners' long-tenured and experienced senior management team. Pro forma for Alcentra's AUM, our alternative credit AUM doubles to approximately $77 billion, and our aggregate alternative AUM increases to over $260 billion, representing 19% of our AUM and an even higher percentage of our adjusted revenues. As mentioned, this quarter's market environment challenged industry flows. And while we continue to benefit from a diversified mix of assets, we had third quarter long-term net outflows of $19.8 billion. Fiscal year-to-date, long-term net outflows were $7.4 billion. This quarter's continued market dislocation, rising rate environment, and the need for inflation hedging has heightened investor interest in alternatives. Our net inflows increased to $2.1 billion this quarter, which included outflows in certain liquid alternative strategies. Our three largest alternative managers, Benefit Street Partners, Clarion Partners, and Lexington Partners, each had net inflows with a combined total of $4 billion. Fundraising momentum in this area continues. Our multi-asset net inflows were $1.6 billion, which represented the fourth consecutive positive quarter for the asset class. In this broad market sell-off environment where investors are focused on income-generating strategies, we benefited from having strong income funds managed for yield with notable investment track records and customization strategies. The first half of 2022 saw the worst fixed income net outflows for the U.S. mutual fund industry since 2000, with six consecutive months of net outflows. While current interest in the asset class continues to be strong, and our fixed income inflows increased by 6% from the prior quarter, net outflows were $14.3 billion, primarily due to certain U.S. taxable and municipal strategies. We benefited from having a broad range of fixed income strategies with non-correlated investment philosophies, including net flows into taxable U.S. income, multisector bond, corporate and enhanced liquidity strategies. Equity net outflows were $9.2 billion. This quarter, the risk-off environment impacted investor sentiment on certain growth strategies, which were partially offset by positive net flows into infrastructure, emerging markets, and sector-specific equity strategies. Consistent with what we've learned throughout our 75-year history, we've been front and center with our clients to help them navigate this period of high market volatility, rising rates, and inflation and fears of recession. In this period of uncertainty, the importance of thought leadership and active engagement have increased. Clients are looking to us to provide them with investment solutions focused on income, inflation-hedged alternatives, and customization strategies, as they look to rebalance their portfolios and reallocate risk across a variety of asset classes. Last year, we shifted from a regionally focused sales model to meet the varying demands of our global business, shifting decision-making and resources closer to our clients. This quarter, we saw the benefits of geographical diversification outside the U.S. with improving net sales trends in EMEA and positive net flows in the Americas. Net flows for non-U.S. regions improved by 79% fiscal year-to-date from the year-ago period. Touching briefly on our financial results, which reflect the acquisition of Lexington Partners, adjusted revenues were $1.6 billion, relatively flat from the prior quarter, and a decrease of 3% from the prior-year quarter. Our adjusted effective fee rate increased to 39.5 basis points, compared to 38.5 basis points in the prior quarter. Expenses were flat quarter-over-quarter and a 1% improvement from the prior-year quarter. Adjusted operating income was $567 million for the quarter, a decrease of 2% from the prior quarter, and a decline of 6% from the prior-year quarter. Our balance sheet position remains strong, with total cash investments in excess of $6 billion after upfront cash consideration of almost $1 billion was paid for the acquisition of Lexington. Let me wrap up by saying that over the past several years, we've significantly diversified the firm to serve more clients across a broader range of investment strategies with deep expertise and specialization in both public and private markets through more vehicles across geographies. Although the current market landscape presents challenges for the investment industry, and our firm within it, we are proud of the progress that we have made to date to help our clients in both good and challenging market conditions. Finally, I'd like to thank our dedicated employees whose hard work and commitment to help people all over the world achieve the most important financial milestones of their lives. Now let's turn it over to your questions.

Thank you. Our first question is from Glenn Schorr from Evercore. You may proceed.

Thank you very much. So Jenny, I enjoyed the comments in your prepared remarks on the wealth management alternatives and everything that you're doing on the education front. So I'm curious from a product standpoint, how you're thinking about just making drawdown funds available or putting retail-specific products in motion, specifically semi-liquid products like order and liquidity? Because we've seen some hiccups lately as markets pull back and seeing gross sales free up, so I'm just curious how you're thinking about the products that you're bringing into that channel?

Yes, the opportunity in the wealth channel is significant, but it is quite complex. We're learning that the initial challenge is accessing the gatekeepers, and there is a substantial amount of education required. Signing up clients is complicated, which is why we've invested in companies like Case. Currently, we have several of our products available on both iCapital and Case. The education aspect is crucial, and we are collaborating with Case through our FT Academy to enhance understanding of alternatives. Our offerings such as the BSP, BDC, and CP Reef are gaining traction in the RIA channel. It's important to achieve a certain scale before wirehouses will list you on their platforms, even if you clear their due diligence. Therefore, building relationships in the RIA channel is essential. You might remember a recent acquisition in the private credit sector. Benefit Street Partners acquired it, and they have experience working with RIAs in the REIT space. There are many areas where it’s vital to succeed to gain traction. However, we feel optimistic about our Opportunity Zone fund, which is available at several major wirehouses, along with CP Reef and our venture fund that have also made their way to some private banks. These products are primarily designed to be interval funds.

Yes. Glenn, I just might add that when we talk about the distribution of alternatives to the wealth platform, yes, that's a broad strategic effort, but each platform is a little bit different. And so I think one of the things we've been able to do well over the last few quarters is to engage with kind of the head gatekeepers of each platform to say what type of a strategy is really best for you. Some want perpetual, some want other things, some want a product where there's going to be a broad consortium of banks participating in the deal, others want something that's more bespoke for their platform. So we've really been able to be a little more specific about what we're offering on each platform, and I think that will pay significant benefit.

I appreciate all that. Maybe just one quick follow-up. You know that there were fixed income flows since 2000. It is what it is, the market was a bit nuts. Now that we've gotten some reprieve in terms of the rate move and the spread move as they've settled in, could we hope and should we expect that fixed income, especially U.S. taxable, settle in with those conditions?

Well, I’ll begin and then Adam can elaborate. Some of our most significant growth flows continue to be in fixed income. Although we have experienced redemptions, particularly heavier ones in the retail sector compared to the institutional side, we still observe strong inflows into this asset class. One point that may not be fully understood is that we encompass a broad range of perspectives within the fixed income market. For instance, if you examine Brandywine, Franklin fixed income, and Western, their alpha generation only correlates at 0.15, indicating there is always something performing well in that sector. We see a consistent demand for fixed income investments and income generation, whether from insurance companies or other sources. This demand exists in both private and public markets. Adam, do you have anything to add?

I would add, Jenny, that a few things. One, the asset class is just more attractive flat out with higher yields, and it's less risky with lower degradation, so I think there's just a better data to be had in fixed income. The other thing we've seen that is on the pension side, as we see folks are a little better funded at this point, looking to the I-type strategies, which we're now offering, it's another area where you might see some growth in fixed income allocation.

That definitely makes sense. Thank you.

Thank you. The next question comes from Ken Worthington with JPMorgan. Please proceed.

This is Michael Cho. I'm stepping in for Ken today. I wanted to change the subject a bit and inquire about the recent launch of the blockchain-based money market fund. I know it's been covered in the media for some time now, but given that some time has elapsed, I have a few questions. First, what are your goals for launching a fund on the blockchain? Second, I noticed the use of the seller chain—what factors influenced your choice of that chain over Ethereum or a private chain? Lastly, given the time that has passed, are there any lessons learned that you would be willing to share?

Sure. We chose Stellar at that time because Ethereum was based on proof-of-work and Stellar operates on proof-of-stake. The main criticism of Bitcoin revolves around its high energy consumption, which results from the need to solve algorithms to post on the blockchain, making it quite energy-intensive. We recognized that this would become a significant concern. Ethereum is transitioning to proof-of-stake, but we selected Stellar because it was already designed that way. We decided to establish this money market fund because we believe there will be a convergence in the future, with tokenized assets eventually becoming regulated securities. Some countries are ahead of the U.S. in this regard, but we want to ensure we are prepared for this shift. Ultimately, we think this will lower costs, allowing us to provide high-quality investment products at more affordable prices when built on the blockchain. Starting with a money market fund was a logical choice. We recognized that many products labeled as "stable coins" with yields of 7% or 8% were not viable, which informed our decision. We collaborated closely with the SEC throughout this process to educate ourselves, and we have successfully registered as an approved 40x money market fund. The market will evolve as people grow more comfortable with this technology, which allows them to securely hold their tokens in wallets—a process that can be complex. Currently, the space is still experimental for many, but it will become more institutionalized. We can apply all the knowledge we've gained from building on the Stellar system to launch additional 40x funds. Overall, this initiative is about embracing disruption in our industry and advancing with the changing landscape.

Okay, great. That is wonderful, thanks Jenny.

Thank you. Next question comes from Dan Fannon of Jefferies. Please proceed.

Yes, hi. Good morning everyone. This is actually Rick on for Dan. So I wanted to tack on to the fixed income discussion from earlier. So just looking at the data that we have available to us, and you guys living this business well, clear that a sizable chunk of the deterioration you guys are seeing in outflows are coming from retail. But just like thinking about the large institutional base and nature of the Western franchise, could you maybe speak on trends and conversations you're having with that client base and the platform more specifically?

Yes. Over the past decade, Western has outperformed in nine of those years. In 2018, there was a year of underperformance, but they significantly excelled in 2019, making up for that. I always caution against underestimating Western. While it's still early to give a definitive assessment, my CFO consistently points out that quarter-to-date, Western is among the top performers. This suggests that their positioning may indeed be effective. From a business management perspective, we appreciate having diverse viewpoints on the end products within the fixed income sector, which have low correlation. Western engages in many discussions with institutional investors, who are familiar with their strengths. Recently, Morningstar upheld their Gold rating and expressed strong confidence in the investment team, noting they are an excellent group. Therefore, we remain very optimistic. Although I think there will be a slowdown for now, I'm not surprised. However, I believe the Core and Core Plus funds remain our bestsellers in terms of gross sales, indicating there is still significant capital flowing into those areas.

Yes. And if you look at the current situation, I think we continue to be very optimistic. I think people slow down for now, but it wouldn't surprise me. And yet, I believe the Core and Core Plus are our top selling from a gross sales fund. So there's obviously still a lot of money going in there.

Depreciating sales were

Yes, we're up quarter-over-quarter. Remember that Core and Core Plus are about one-third of Western's total AUM. They have a lot of other things that are doing exceedingly well. And on top of that, even within the Core and Core Plus plan, we've got a very significant institutional pipeline.

Understood.

The next question comes from Alex Blostein of Goldman Sachs. Please proceed.

Maybe we could start with some of the dynamics and some of the numbers around the alt products for you guys. Obviously, with Lexington coming in, there's a couple of moving pieces. So I was hoping maybe just to get a reset on what the fee-paying AUM is for the old bucket? I think you guys gave us total AUM, but I was hoping to get the fee-paying AUM, the management fees that are being generated by Lexington, not as it's fully in the run rate as well as the kind of the total gold bucket. And then on Lexington specifically, any updates you could provide us with from a fundraising perspective? I think they're in the market with Fund X. How that's going, what the expectations are, when that fund AUM will start coming into the run rate?

Do you want to start, Jenny, okay?

No, no, you go ahead.

Okay. Alex, regarding the management fee revenue from the alternative asset managers, we expect to accumulate approximately $1.2 billion to $1.3 billion on an annualized basis. We've shared this information previously, and it's in line with what we communicated before. This represents about a 50% increase from the previous year, excluding performance fees, as we've mentioned. That's the current status of our management fee revenues.

I would say that the Lexington is on schedule despite the challenges in their fundraising efforts.

If you're seeking an understanding of the overall alternative asset business in comparison to our franchise size, for example, when we consider the business for Alcentra, approximately 19% of our alternative management would fall within the alternative asset sector. Roughly 21% of our revenue and potentially up to one-fourth of our operating income will be derived from Alternative Assets overall.

Got it, all right. I will hop back in the queue. Thanks.

Thank you. The next question comes from Patrick Davitt from Autonomous Research. Please proceed.

Hey, good morning guys. There have been a lot of questions out there about the quality of the Alcentra business, given what looks like fairly stagnant AUM over the last few years, obviously, some high-profile employee losses. I understand it looks like you've got a very good price relative to what they're hoping to get in and obviously, put a lot of protections into that price. But could you flesh out a bit how you see the process of running the ship there and getting back up to the level of growth we expect from a private credit manager?

Yes. The turnover that occurred happened before the deal was announced and was primarily at the senior level, particularly concerning direct lending. However, the rest of the business has been performing well and growing. It's important to filter out the noise surrounding the senior changes, and understand that these shifts occurred at a high level, which is why we see this as an opportunity to integrate with Benefit Street Partners, which already has a strong senior leadership team. We know that acquiring a company means bringing on their investment team and process, so we focus on retention to reduce any future employee departures. Our distribution in Europe continues to improve, and we're excited about offering private credit products to our distribution network. Bringing these two elements together gives us a reason to be very optimistic. Adam, do you have anything else to add?

Yes. I would just say that Alcentra brings two things that, one, is a product capability that's very European-specific in addition to other products, but that really helps us out with our alternative franchise and a real distribution capability as well. Both of those things are added.

I'll just conclude by saying that we take a close look at mergers and acquisitions in the asset management sector, including both traditional and alternative assets. We believe that expanding our alternative credit capabilities to include Europe is crucial due to the growth potential in that region, specifically in the U.K. and Europe. While our top priority is to grow organically whenever possible, there are instances where achieving leadership takes too long to develop and become relevant. In our view, it would have taken us possibly a decade to build what Alcentra has become, similar to the 15 years it took to establish Benefit Street Partners. Therefore, we determined that this was the most effective route to establish ourselves as a significant player in alternative credit globally. Regarding the pricing aspect, it is influenced by some uncertainties in the broader market and also reflects how mergers and acquisitions can be structured, which we've approached very carefully. We're confident about the growth potential of the business post-acquisition, as Alcentra has various sectors and strategies, most of which have been growing steadily, and we expect this trend to continue after the deal closes.

Just to add, during the due diligence process, as you can imagine, we checked on the reputation of the firm with the consultants and institutions, and we're very comfortable with that. We think they still, despite some of the headline stories around turnover, have an excellent reputation in the market.

Great, helpful. Thanks. And just one quick follow-up. Would you be willing to give the total AUM in kind of this core flagship strategies at Western? There's so much of institutional that we can't see. I don't think we've got an update on that in a while.

The Core Plus strategy or Core and Core Plus strategy?

Core and Core Plus together is about $150 billion approximately at West.

Sure, great.

Thanks, Patrick.

Thank you. Next question comes from Stephanie Ma of Morgan Stanley. Please proceed.

This is Stephanie on for Mike Cyprys. My first question is on expense and performance fee outlook. So hoping you can just give us an update or mark-to-market on expenses given lower AUM levels? And then performance fees, that continues to be much stronger than you had guided. So any color on that outlook would be helpful as well.

Yes. Regarding overall expenses, in our last call, we guided an adjusted operating expense range of $3.9 billion to $3.95 billion for the fiscal year ending September 30. The update is that we expect to be closer to the lower end of that range, around $3.9 billion rather than $3.95 billion. This guidance includes Lexington. A couple of quarters ago, I mentioned that our previous guidance of $3.9 billion to $3.95 billion was excluding performance fees and Lexington. Last quarter, we adjusted that to include Lexington while still excluding performance fees. This quarter, we maintain the range of $3.9 billion to $3.95 billion, again excluding performance fees but including Lexington, and we expect to remain closer to the lower end for the year, assuming all else is equal. In terms of specific line items, I previously guided these to remain about the same: General and Administrative expenses around $140 million, occupancy costs approximately $57 million, and IS&T around $125 million, all inclusive of Lexington partners. Our compensation ratio is expected to be around 45% for the year. Regarding performance fees, we do not provide specific guidance. However, for modeling purposes, we think $30 million to $40 million is reasonable. We recognize that we have exceeded that range for a few quarters. It is challenging to calculate our performance fees accurately. The increase in performance fees reflects our strong performance across various asset classes, including real estate, credit, and others, particularly with our specialist investment management companies, mainly AB&3. As we grow in alternative assets, the potential to earn more performance fees increases.

That's very helpful. If I can just place my follow-up in here. We noticed a reference to the China JV of $12 billion of AUM. So hoping you can expand on some of the initiatives there? And are there any plans to raise your ownership? And then what sort of growth are you seeing in that region?

So I believe that we have said that we would like to extend our ownership in there now that the regulations have changed, and so we're in discussions to do that. We also have a wholly-owned fee, which would give us other optionality if we were not able to buy 100%. Look, China is a massive, important market. We were early as far as firms, asset managers who did joint venture partners. We have unbelievably excellent performance, have had really stable investment teams there. We hired Dr. Ben Mang, who is our Chairman of Asia-Pacific and is well connected. And it has been a profitable business for us. We think it can be much more meaningful as far as its contributions over the long run.

Great, thank you.

Thank you. Next question comes from the line of Alex Blostein of Goldman Sachs. Please proceed.

Thank you for the follow-up. I have a couple of quick questions. Let's revisit the discussion on performance fees. Matt, considering that performance fees have become a larger part of our overall business model, could you outline the sources of performance fees for this quarter and share any insights on potential performance fee accruals that might be realized as investments mature? This would help us understand what the potential for performance fees looks like going forward.

A significant part of the increase in performance fees from quarter to quarter has come from our real estate franchise, Clarion Partners, which has performed exceptionally well. I would estimate it accounts for about 60% of the increase. Additionally, a large portion of the rising performance fees is due to meeting performance thresholds and realizing that performance quarterly. This has been the main driver of the increase in performance fees. However, I do not want to overlook the strong performance of our credit business, which has also contributed to performance fee increases over the past two or three quarters. The increase is really a mix of realizations, quarterly performance thresholds, and annual performance fee thresholds. It may be useful to mention that we believe our performance fees will likely peak at the end of the calendar year, which marks the conclusion of our first quarter. This quarter, we achieved approximately $127 million in performance fees, with around 70% of that being specifically from quarterly performance fees. Therefore, if we were to see the same level of performance next quarter, it could be reasonable to estimate reaching between $60 million and $70 million in performance fees. However, I am not providing guidance for modeling purposes; I am just sharing the way I would approach it.

Yes. Okay. I got you. That's helpful. And then another quick one for me just around the balance sheet. So lots of moving pieces. Obviously, election payment came out. You guys have contingencies coming up as well. How are you thinking about sort of the discretionary cash balance today? So if you were to think about maybe both cash and investments, and you would say, okay, how much of that is sort of truly available for corporate purposes or whatever else? And how much do you guys think you're going to need to use towards future GP co-investment or GP balance sheet commitments, given the fact that your liquids are getting bigger over the next couple of years here?

Yes. Firstly, out of our approximately $2.6 billion in investments, around half of that is very liquid, with over $1 billion being highly liquid. It's essential to see new funds to enhance our access to distribution opportunities. We've mentioned that we have a strong multiple benefiting the assets under management that this generates. Therefore, we prefer not to liquidate that investment but can recycle it. We are more disciplined now and are avoiding letting seed capital remain idle for extended periods. Annually, we can recycle several hundred million dollars from the $2.6 million. A part of this recirculation, Alex, is directed towards alternative asset areas. We likely have around $800 million currently invested in our alternative asset businesses, which focus on longer-term investments, unlike the short-term seed capital. So, firstly, we are improving our ability to recycle funds without increasing the $2.6 million. Secondly, we are setting aside a significant amount of income and cash annually to continue investing in GP-level alternative asset opportunities. It's worth noting that when we make these commitments, we also allow our senior employees in both the Alternative Asset business and across Franklin to invest. The interest from employees in these areas has led to Franklin's actual commitment from the balance sheet diminishing rather than increasing. However, if we see a lack of interest due to market conditions, Franklin is still there, and we can expect our commitment to rise significantly. Regarding the cash we have available for further investments and M&A, we estimate this to be over $1 billion. Given the current market conditions, we are very cautious and disciplined. We believe having cash readily available for opportunistic situations will give us a competitive edge. In summary, we feel secure with our roughly $6 billion or more in cash and investments. We are disciplined in circulating these investments and carefully adding to them each year. Concerning upcoming acquisition-related matters, as you noted, we are mindful because we have $1.6 billion in acquisition-related payments due over the next four years and $1.4 billion in debt maturing over the next five years. We can manage this, but we also aim to reduce our debt since borrowing costs are increasing. This is our perspective on the situation.

Awesome, thanks a lot. I will leave there.

Sure, thanks Alex.

Thank you. And the next question comes from Brennan Hawken of UBS. Please proceed.

Good morning. Thank you for taking the question. This is Adam Beatty in for Brennan this morning. Kind of a two-parter a multi-parter on alts distribution. In particular, we're wondering about some of the nuances of alts distribution in the European market, particularly for European retail and what you're seeing there? And then in kind of a separate angle, just wanted to get your thoughts on how much sort of product and distribution crossover you're expecting between Alcentra and BSP?

I think there are some general trends that are relevant across the board. Companies are taking longer to go public, and there are fewer equity investment opportunities available as that market has contracted. The Basel III capital requirements have made banks more selective in their lending, leading to a rise in private credit as a response to changes in the banking sector. This has resulted in significant excess returns in the private markets, which presents an opportunity to integrate these into the wealth channel. However, there are challenges due to the illiquidity of these assets, making it essential to create appropriate vehicles with careful consideration. Our product development team is focused on this, but it requires extensive education and managing the complexities involved in onboarding clients. We're starting to see progress in the U.S. after discussing this for two years, with it being a core priority for us. We expect similar developments in Europe, although each country presents unique challenges, including varied interpretations of EU regulations. Adam, do you have anything to add?

Yes. I would like to point out that one of the key characteristics of Franklin Templeton's transactions has been minimal overlap in products. As we grow larger, maintaining zero overlap becomes increasingly challenging. Nonetheless, we are very optimistic about the transactions we are pursuing and the limited product overlap. Additionally, having a regional-specific alternatives manager provides a significant advantage, allowing for products that are better suited to local markets. Furthermore, within Europe, there are two main aspects to consider when introducing alternatives to the wealth channel: one targets ultra-high net worth individuals, while the other focuses on the mass affluent. We aim to address both segments. Finally, sustainability remains a significant trend globally, particularly in Europe. By incorporating sustainability into alternatives within the wealth channels in Europe, I believe we will see substantial growth.

And to answer your question about BSP versus Alcentra, very little overlap there.

Yes, and so are you planning to sort of be able to cross-distribute that, similar to what you've done with Legg Mason legacy?

I understand there's some overlap, Adam. However, the potential to collaborate on transactions and distribution, as well as jointly raising capital, presents significant opportunities globally. The relationships between the two organizations are also complementary, suggesting that there could be some very interesting prospects for collaboration.

Very interesting. No, no. Thank you so much, Jenny. Appreciate it.

Thank you. This concludes today's Q&A session. I would now like to hand the call back over to Jenny Johnson, Franklin's President and CEO for final comments.

Great. Well, I just want to thank everybody for participating in the call today. And once again, I want to thank our employees for their hard work and remaining focused on our clients, particularly in this type of market environment and also for supporting each other. We look forward to speaking to you guys again next quarter, and I'd just say enjoy the rest of your summer and stay healthy. Thanks, everybody.

Thank you. This concludes today's conference call. You may now disconnect.