Franklin Resources' Strategic Responses to Recent Challenges

Current market conditions impacting Franklin Resources

Current market conditions for Franklin Resources are characterized by a potential easing of liquidity preferences, a growing demand for private market solutions, and opportunities in equities amid higher rates. Active management may outperform in this volatile environment, influenced by inflation and recession risks.

"If the Fed only makes a few cuts or does not cut at all, we believe the market conditions will be primed for stocks that should benefit from higher rates and inflation to perform better. Tim Murray, Chief Capital Markets Strategist, Multi-Asset Division 'As fears over a recession have receded, it's likely the current preference for liquidity will ease." --- (TROW, press release, 2024/06/20)

"But even if interest rates decline significantly from current levels, as the most recent dot plots would indicate and as the market expects, we continue to see a path to our net interest margin approaching 3% by the end of 2025." --- (SCHW, event transcript, 2024/05/22)

"But while private markets assets and demand are growing significantly, the current state of private markets investing is well ahead of the underlying technology infrastructure. There is a large gap in private asset transparency relative to the public markets." --- (BLK, event transcript, 2024/07/01)

"So when you take that combination of we know there's tremendous demand in the market for independent partner owned private markets and overall alternative solutions and there are very few firms that can actually provide the resource to cover the channel, that's" --- (AMG, earning call, 2024/Q1)

"Broadening global growth in light of decreasing recession risk Elevated potential for Fed surprises Risk of reaccelerating inflation, driven in part by sticky services inflation Increased opportunities in equities, specifically in value and potentially small-cap A reduced liquidity preference in favor of equities and short-duration bonds While there continues to be a place for both active and passive management in investor's portfolios, this challenging market environment, including higher rates, continued asset price dispersion and more volatile markets, supports conditions for active managers to outperform." --- (TROW, press release, 2024/06/20)

Strategic adjustments: Investment and operational responses

Franklin Resources is strategically adjusting by focusing on short-term profitability and capital efficiency while making necessary investments for future growth. This approach emphasizes deploying excess capital tactically and maintaining operational productivity to enhance competitiveness and deliver shareholder returns.

"But broadly speaking, these technologies require certain things, including infrastructure, power, and these things require financing to drive the scale that's going to be necessary for people to execute on the investments that they see as important to keep their businesses competitive at pace." --- (GS, earning call, 2024/Q1)

"And what he's kind of saying is that in a moment where you're carrying a lot of excess capital sort of for strategic reasons, you have the ability, at least in theory, to deploy portions of that with kind of like into relatively short duration assets or strategies or client opportunities in whatever moment for whatever reason and what might be thought of as a tactical sense." --- (JPM, earning call, 2024/Q1)

"The third thing that we do is, we believe that having short-term pressures and having short-term, meaning within a year or so within a few quarters or a year, discipline of maintaining higher levels of profitability is actually a positive, not a negative because it helps us focus on the highest return investment on the ones that are going to be paying off shorter term rather than long term and making sure that the whole company is mobilizing to continue to do what we currently do, not what we are investing in, but what we currently do much more efficiently and much more productively." --- (MSCI, earning call, 2024/Q1)

"So we're going to adjust. And I think we're showing that we're willing to adjust and make adjustments always with a goal of growing the firm and delivering for shareholders, driving profitable businesses that deliver accretive returns for shareholders." --- (GS, earning call, 2024/Q1)

"So as we execute this strategy, we believe we'll continue to deliver the results you expect, highlighted by our rigorous focus on expense and capital efficiency and strong earnings and returns while we make the critical investments in our future." --- (JPM, investor day, 2024/05/20)

Navigating regulatory changes and compliance

Financial institutions are intensifying efforts to enhance regulatory processes and compliance amid high pressures and risks. Companies like Citigroup and Wells Fargo acknowledge the need for disciplined investments to meet obligations, while regulatory actions, such as those from the FDIC, further shape the compliance landscape.

"firm. Across the investment bank, navigating changes in the cycle means being deliberate around risk management and, given geopolitical uncertainty, where we spend our time to deliver clients, solutions, and to capture share.In wealth management, we continue to focus on aggregating assets and delivering strong advice." --- (MS, earning call, 2024/Q2)

"But we recognize there are places where progress has been too slow. So we have intensified our efforts in areas such as regulatory processes and the related data remediation.We will continue to be purposeful and disciplined about investments across the franchise, and we are fully committed to spending what is necessary to meet our regulatory obligations." --- (C, event transcript, 2024/06/18)

"what I've said in the past. Regulatory pressures on banks with longstanding issues such as ours is high, and until we complete our work and until it is validated by our regulators, we remain at risk of further regulatory actions." --- (WFC, earning call, 2024/Q1)

"In November 2023, the FDIC approved a final special assessment to recover losses incurred by the Deposit Insurance Fund (DIF) to protect uninsured depositors due to the March 2023 closures of two banks, that was subject to potential extension and a potential one-time final special assessment for any shortfall in the DIF." --- (SCHW, sec filing, 2024/Q1)

"as regulators continue to evaluate Basel III endgame. Additional regulatory clarity and a sustained capital markets recovery should have a multiplier effect across our global franchise, further unlocking the unique power of our integrated firm." --- (MS, earning call, 2024/Q1)

Customer engagement and retention strategies

Firms are focusing on personalized strategies to enhance customer engagement and retention. BlackRock emphasizes meeting individual client needs through an integrated platform, while T. Rowe Price and Morgan Stanley highlight the importance of retirement support in building relationships. Overall, aligning strategies with client demands is crucial for growth.

"Across our firm, we're delivering BlackRock to meet all our clients' individual needs, we're helping each and every client unlock their new opportunities and the power of BlackRock's integrated platform has enabled us to drive better outcomes for each and every client and providing them a differentiated growth for them, which then entails providing differentiating growth for you, our shareholders." --- (BLK, earning call, 2024/Q1)

"We leverage both to build client relationships, advance our position as a retirement leader and enable clients and participants to pursue better retirement outcomes." --- (TROW, earning call, 2024/Q1)

"The ability for employers to meet employee needs and expectations around retirement support prevails as a key factor in talent attraction and retention." --- (MS, press release, 2024/06/06)

"And we feel really confident in our ability to generate growth and that our strategy is going to continue to push our business mix even more toward client demand trends over time." --- (AMG, earning call, 2024/Q2)

"Wealth Advisory business. "This initiative supports our goal of helping more and more advisors meet the evolving needs of their clients, who increasingly seek more diversified, personalized and tax-efficient strategies."" --- (BLK, press release, 2024/06/26)

Competitive landscape and market positioning

Franklin Resources faces a competitive landscape marked by the rise of passive investments and fee pressures. To adapt, the firm is shifting towards alternatives and private markets, leveraging its unique position to navigate these challenges effectively.

"I think our competitive position in the market, is really unique today relative to other strategic paths for independent firms." --- (AMG, earning call, 2024/Q2)

"The investment management industry has been evolving and industry participants are facing several challenging trends including passive investments taking market share from traditional active strategies; continued downward fee pressure; demand for new investment vehicles to meet client needs; and an ever-changing regulatory landscape." --- (TROW, sec filing, 2024/Q1)

"Can you talk about the competitive landscape for fixed income retail and fixed income ETFs, both inside and outside the U.S.?" --- (BLK, earning call, 2024/Q1)

"As you heard in my prepared remarks, I think really the main point to take away on flows is that our overall growth strategy is continuing to drive an evolution of our business mix more towards secular growth areas, most importantly alternatives and really with a focus on private markets, which is where a lot of the strength is that we've been seeing." --- (AMG, earning call, 2024/Q2)

"OneIM's deep global network, flexibility and expertise coupled with OHA's longstanding market positioning will provide European borrowers with solutions that best address their companies' needs right now." --- (TROW, press release, 2024/07/16)

Technology integration and digital transformation

Franklin Resources is likely focusing on enhancing customer experience and operational efficiency through strategic technology investments, mirroring industry trends in digital transformation. Companies like Amazon emphasize the importance of rapid technology development, which may inform Franklin's approach to integrating new technologies.

"Moreover, the growing trend of remote work and digital transformation initiatives further accelerates the adoption of cloud technologies across industries." --- (IBM, press release, 2024/05/23)

"Founded in 1999, we enable companies of every size and industry to take advantage of powerful technologies to connect to their customers in a whole new way and help them transform their businesses around the customer in this digital-first world." --- (CRM, sec filing, 2025/Q2)

"Building on the two organizations' long-standing collaboration in AI and digital transformation initiatives, Microsoft's investment deepens the reciprocal commitment to this strategic partnership." --- (MSFT, press release, 2024/04/16)

"This builds on our commitment to support Africa's digital transformation by increasing connectivity for people across the continent." --- (GOOG, twitter, 2024/05/23)

"We seek to invest efficiently in numerous areas of technology and infrastructure so we may continue to enhance the customer experience and improve our process efficiency through rapid technology developments, while operating at an ever increasing scale." --- (AMZN, sec filing, 2024/Q1)

Risk management strategies in volatile markets

In response to volatile markets, firms like JPMorgan Chase and Goldman Sachs emphasize robust market risk management systems, including Value-at-Risk calculations and targeted strategies in stable sectors. BlackRock notes the increased uncertainty necessitating adaptive risk management approaches to navigate the new economic landscape.

"MARKET RISK MANAGEMENT Market risk is the risk associated with the effect of changes in market factors such as interest and foreign exchange rates, equity and commodity prices, credit spreads or implied volatilities, on the value of assets and liabilities held for both the short and long term." --- (JPM, sec filing, 2024/Q1)

"Our market risk management systems enable us to perform an independent calculation of Value-at-Risk (VaR), Earnings-at-Risk (EaR) and other stress measures, capture risk measures at individual position levels, attribute risk measures to individual risk factors of each position, report many different views of the risk measures (e.g., by desk, business, product type or entity) and produce ad hoc analyses in a timely manner. Risk Measures" --- (GS, sec filing, 2024/Q1)

"We’re in a new, more volatile economic regime that is creating greater uncertainty for both the Federal Reserve and markets." --- (BLK, twitter, 2024/05/08)

"About 90% of this exposure is held within Global Banking where our strategy has been to build a franchise to thrive through the cycle, thanking only the best developers and investors, focused on stabilized properties and the least volatile most cycle resistant parts of the market." --- (JPM, event transcript, 2024/05/20)

"Our assets and liabilities that give rise to market risk primarily include positions held for market making for our clients and for our investing and financing activities, and these positions change based on client demands and our investment opportunities." --- (GS, sec filing, 2024/Q2)