Franklin Resources, operating under the Franklin Templeton name, reported a marked increase in first-quarter profit driven by stronger fee income tied to rising equity markets. The firm said its shares climbed 1.8% in premarket trading following the results.
Markets have reached a succession of record highs recently, a dynamic the company linked to optimism around artificial intelligence and easing interest rates, which together outweighed concerns stemming from geopolitical and macroeconomic issues. For investment managers such as Franklin Templeton, higher market levels tend to lift revenue because management fees are linked to the value of assets under management.
Earlier in the week a peer, Invesco, also disclosed quarterly profit gains on the back of rising investment management fees, underscoring a broader industry trend of fee growth as asset values increase.
At the end of the quarter, Franklin Templeton reported assets under management of $1.68 trillion, a 7% increase from the same period a year earlier. The company said its total investment management fees, the largest component of operating revenue, rose 3% in the quarter to $1.85 billion.
On a profitability basis, Franklin reported quarterly net income of $255.5 million, or 46 cents per share, for the three months ended December 31. That compares with net income of $163.6 million, or 29 cents per share, in the year-earlier quarter.
The firm also reported a swing in client flows. Total net inflows during the quarter were $26.8 billion, reversing outflows of $50 billion reported in the comparable period a year earlier.
Key points
- Assets under management reached $1.68 trillion, up 7% year over year.
- Total investment management fees rose 3% to $1.85 billion, supporting operating revenue.
- Quarterly net income increased to $255.5 million (46 cents per share) from $163.6 million (29 cents) a year earlier; total net inflows were $26.8 billion versus outflows of $50 billion a year prior.
Risks and uncertainties
- Market direction: Fee revenue is sensitive to market levels because fees are tied to assets under management - equity market declines could reduce fee income.
- Macroeconomic and geopolitical developments: The company noted that optimism around certain themes and falling interest rates have supported markets, implying that shifts in these factors could alter market momentum and flows.