富蘭克林資源 (BEN) 2011 Q3 法說會逐字稿

Good afternoon and welcome to Franklin Resources earnings conference call for the quarter ended June 30, 2011.

My name is Christine, and I will be today's facilitator.

Statements made in this conference call regarding Franklin Resources Inc.

which are not historical facts 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 MD&A section of Franklin's most recent Form 10-K filing.

(Operator instructions).

The Company asks that you limit your questions to one initial and one follow-up question.

If you would like to ask additional questions, you may reenter the queue by pressing star 1.

Now I would like to turn the call over to Mr.

Greg Johnson, Chief Executive Officer.

You may begin.

Good afternoon, everyone, thanks for taking time out of your day to join Ken Lewis and I for this call.

Today we reported a very strong quarter of flows and operating results that continue to illustrate the key strengths of our organization.

On a sad note, we lost our friend, Peter Sacerdote, who passed away over the weekend.

Peter was a member of the Franklin Resources Board of Directors since 1993.

His 17-year tenure on our Board gave us great perspective and helped guide our business strategy and culture.

He will be missed by all who had the honor of working with him.

And now I would like to open it up for your questions.

(Operator instructions) Roger Freeman, Barclays.

First, on your European business, you've probably heard comments that Invesco made on their earnings call about looking to outsource their transfer agent function over there.

And I wanted to see what your views on that were, given that you've got a reasonable presence in Europe.

Do you see the pending regulatory changes there as an impediment to doing business as you're structured today?

I would say that we're looking at it.

And I think we do have somewhat different business models with respect to the amount of assets held in UK and Europe, with our SICAV funds that are $150 billion.

We don't have a lot of UK assets.

We have the recent acquisition that is not on our system at this point.

So it's something we are going to look at, but at this stage we don't anticipate any changes.

Okay.

And then, I guess, secondly, just with respect to alternatives, I wanted to see if we could get an update on the -- I think it was the Pelagos acquisition late last year, what your thoughts are around that enabling you to offer any kind of alternative product in our a '40 act fund.

You had said at the time it might take 12 months to figure it out, so I just thought I would get an update six months into it.

I think one of our goals this year is to offer tactical asset allocation funds, multi-asset strategy funds.

And we are getting very close to doing that, and I think we just offered or we just included one in our SICAV fund.

So Pelagos would be a sleeve that those asset allocation funds would use, and we anticipate those offerings in the United States towards the end of this year.

Okay, thanks.

Michael Kim, Sandler O'Neill.

First, can you maybe just give us an update on what you're seeing in the institutional channel in terms of the pipeline, activity levels and maybe allocation trends?

And then just to follow up on kind of the alternatives front -- it sounds like you are maybe pushing those capabilities a bit more in the institutional.

So any color on initial client interest for those strategies as well?

Well, I think, first of all, not a whole lot of changes within the institutional channel.

I think some of the pressure in prior quarters we've seen with the dramatic turnaround in Templeton's performance has taken some of the pressure off the institutional accounts where we had some large redemptions two quarters ago.

So we don't see any of that activity.

We actually saw some increases to existing accounts over the quarter.

I think the activity was pretty consistent with what we've seen as well as the pipeline, seems the global aggregates, some low duration type fixed income, some specialty China equities and India equities, nothing really unusual.

So global equity continues to probably lead the number of searches as well as global aggregate, and the pipeline still looks relatively good.

And I think that the positive development, as I mentioned, is just the Templeton turnaround; that's where the majority of the institutional assets are.

I think on the alternative side you're probably referring to maybe the Global Summits effort and the hedge fund that we have been talking about with our Global Bond Group.

And that's something we are out there talking about, and it was a longer lead time in that category.

We don't expect to get large assets quickly, but it is getting a positive reception out there.

And outside of that, I think it's really the development on the retail side of these asset allocation funds using some alternatives within them that hopefully will be well received in the retail channel.

Okay.

And maybe just a question for Ken -- it seems like despite a less favorable AUM mix, you continue to hold the line here on expenses, so driving margins higher.

So I know you guys gave us some guidance on a few expense line items for next quarter.

But just assuming flows and revenues continue to trend higher, just curious to get your take on how much more margin upside you think we can see from here.

Well, I think one of the things to consider is typically, in the fourth quarter we have some seasonal uptick across most of the expense categories.

So I think it would be reasonable to expect that next quarter.

But -- and certainly there has been a lot of discussions about investing in the Company and making strategic investment in certain expense line items.

But overall, I think it's a measured pace.

I don't think you're going to see any large spike-ups in the overall spending levels.

So you could overlay that with whatever assumption you want to make on the revenue.

Okay, thanks for taking my questions.

Bill Katz, Citigroup.

Just coming back to your guidance into the fiscal fourth quarter, just on the compensation side, just sort of curious -- to the extent that your relative performance has bounced back, particularly on some of the longer durations that you called out in the press release and in your remarks, would there be any potential pressure there?

Or ask another way, what relief valves could you maybe pull, if you will, to maybe offset some of that pressure, if any?

Bill, could you repeat the last part of the question?

Basic question is in terms of comp.

Your guidance is probably a little better than people were anticipating, I would presume, in their expectations.

So given the improvement in relative performance, I was sort of wondering is there any upward bias to that compensation?

And if so, are there other areas of the firm that you could offset some of that wage inflation with?

So I think in the guidance -- and just to be clear, I did mention two things that could impact that line.

One is just a general upward bias, and I think we are thinking in the near-term about 3% to 4%.

That factors in increased headcount, but also factors in expectation around variable compensation.

And I think, as we have been doing over several years, we will continue to do.

In terms of adding headcount we try to focus, obviously, on the low-cost jurisdictions and we have been pretty successful in doing that.

And so, over time, that has the impact of lowering the fixed component and increasing the variability, which is what you want to do in this [business].

And my follow-up question is staying on the theme of margins.

As your non-US business continues to grow, and I probably asked this question before, so I apologize for repeating myself, but is I look at the distribution margin, it looks like it got a little bit more negative, if you will, maybe just a little overly simplistic.

But how does the overall impact on the margins play out if the non-US business continues to outgrow the United States?

Yes, you do ask that -- not just you, but I often get that question.

The general answer hasn't changed.

There's -- it's obviously an oversimplification, but in terms of overall profitability, US/non-US is more or less the same.

And that is because the US is a more developed market and, while certain aspects of the non-US market are more profitable, we are obviously in kind of startup mode in other markets.

So they tend to offset, and on balance the profitability tends to be the same.

The mix between -- in this quarter, between the US/non-US really didn't change that much.

So in terms of the distribution margin it wasn't too much of a change.

But it depends how you are calculating the distribution margin.

I think what we've tried to do with the disclosures is get off of that concept and just look at distribution revenue and the asset component of the distribution revenue versus the sales component and, similarly, on the expense side looking at the asset component of the expense, the sale component of the expense as well as the amortization of deferred commissions, which are pretty well highlighted in our Q, which I might add we filed today.

Great, thanks.

Ken Worthington, JPMorgan.

I'd like to dig into Darby a little bit more.

I think in the K it said the private investment funds have about $4.5 billion.

How big are the assets in Darby's latest fund?

And what kind of distribution should we expect over the next six months to a year out of the Darby and, I guess, all of the other investment product funds?

Right.

So the specific transaction that I mentioned is an old vintage fund, probably one of the oldest vintage funds, one of the oldest investments in the Darby Group that has taken a long time.

But certainly returning 15 times money is a good result on that.

The Darby Group, which I think is probably under the $4 billion number that you mentioned, is really our private equity brand.

That's kind of all our private equity funds.

And they are starting to mature.

I don't think we are going to see anything of this magnitude in the near-term, but certainly, as we are starting to see more of that we will do our best to telegraph that.

Is it something where there is hundreds of millions of dollars of gains, I would assume?

And if it's under $4 billion, there's a lot -- it seems like there's potentially a lot of gains coming.

Is that kind of a fair characterization?

I think it was fair, but it's over a long period of time, as well.

Okay.

And for follow-up, just looking at India, can you tell us what kind of assets you are managing out of India at this point?

There was a media report over the weekend that the Indian government is considering ending the tax deduction on equity mutual funds.

If something like that were to happen, is that a meaningful kind of data point?

Well, also on the positive side -- that market, in general from a regulatory point of view, is very dynamic.

There was a period of time when the commissions paid was in question, and then that has changed.

So that's a positive development.

In terms of their assets under management relative to our total, I don't have the number handy, but it's --

$8 billion.

$8 billion.

Okay, so it's (multiple speakers).

Most of that is fixed income.

Okay, perfect, question answered, thank you very much.

Gregory Warren, Morningstar.

When you look back at your flows over the last, say, 2-plus years, really since the market bottomed in March of '09, you've seen about $115 billion in net new flows, most of that really coming through the fixed-income side of the business.

How much of that -- are you really seeing any new institutional business in there, or is that all being driven by financial advisors?

And then I had a quick follow-up on that.

Well, I think we have stated over the last year or two the area that has been new for us has been the global agg.

and emerging markets debt, and that -- we have had significant wins.

I don't know what the gross number is today, but it certainly has contributed.

But the majority of the flows are going into the retail global bond fund as well as the US retail global bond fund.

Okay, that's kind of what I was thinking.

As a follow-up to that, how effective, then, has been sort of the 20-20 Vision program that you guys launched, and how much have you really tweaked that, and has any of the tweaks that you've done over, say, the past two years enhanced the fixed-income flows?

I think the market share -- and one of our priorities, obviously, when you look at our asset mix and you say, well, Franklin is underweighted in US large-cap growth or US growth in general -- and we've always said that if we were out there looking for a group we would probably have one of the best groups internally, and we just have to get that message out.

So that has been a big part of the 20-20 Vision campaign.

And I think if you look, for us, at the market share gains, it somewhat gets lost when you look at the global bond funds.

But we have made significant progress.

And I think, more important, we've gotten a lot of those funds on investment-only platforms that should drive sales.

And that has been one of the metrics that we are very focused on.

We know that that's the retirement areas where you gain those equity sales, and they are very steady.

So we hope to continue to do that, and we feel it's been very successful.

And we also feel, when going out there and talking about 20-20, you don't just look at the net result quickly in equity sales, you look at the kind of response you get from your partner with the partnership of financial advisors, and it gave them tools, whether it was a Franklin Fund or something else, to sit down with their clients and keep people invested at a difficult time.

And that's really what we try to do on the marketing side and the value-added side.

But, I think we feel like we have made good progress and Franklin continues to grow relative to its competitors.

But it has been a very difficult asset category here for the last few years.

Well, you guys have been doing a great job.

It seemed to me like getting the touch points and being out there -- you want to have sort of that long-term ability to drive the equity inflows, once it does shift.

But just wondering how much of an impact that was having on the fixed-income flows as well, and it seems like just that touch point with the advisors is doing it.

Okay, thanks.

Michael Carrier, Deutsche Bank.

Ken, just one of your comments on the prerecorded call, just as it relates to the Darby, the performance piece -- just wanted to make sure I'm clear.

You said $48 million, and then in terms of the expenses related to that I think in the past, when you've had these, I think the margin was somewhere around 40%-50%, but I just wanted to make sure.

And the just in terms of the mix, in terms of comp and other, any granularity there?

And then on the comp side, when you set up 3% to 4%, I just want to make sure that's the core comp and then you had the performance fee impact as well.

Thanks for the question; you're exactly right.

So the economics are about 40% to 50%.

So just to do simple math, you could do the 50% and then split in half between what you run through comp and what runs through other expenses.

And my comment about the 3% to 4% was exclusive of the Darby transaction.

It was just kind of run rate increases that we are seeing, so 3% to 4% plus call it 12-ish on the comp rate for the Darby piece.

Okay, all right, a couple.

And then, Greg, just in terms of some of the products, I think when we look at the flows into the global fixed-income products, it still had $20 billion -- it seems impressive.

It's just more, where are these flows coming from?

So if you can provide any granularity, whether it's by the regions on the distribution side, any color on the institutional side, that's helpful.

And then on the multi-asset strategy team, I think you made some hires.

Just in terms of your outlook, what are you trying to accomplish there?

It sounds like you are seeing some traction there, but I just wanted to see what the outlook is over the next 6 to 12 months.

So I think, first of all, the Global Bond Fund flows, and I think if you look at the world and what money funds are paying today and then you couple that with the concern over your own currency or your own sovereign debt, and you may have individuals and high-net-worth investors that have a lot invested in their own sovereign debt in markets like Italy, where we've seen tremendous growth over the last couple of years, it's just a way for those high-net-worth investors to diversify some of their more conservative holdings.

And I think we have been in a key position because we had good relationships with the big tanks and those that represent a lot of those high-net-worth investors.

And obviously have had very strong, consistent performance with that group.

And that has really led to those flows.

And that's why I think that that trend should continue in the near-term because I don't think any of the debt noise and all of the sovereign debt issues that are out there are going to go away anytime soon.

And that has been the case in the US as well, where it's a relatively new category for the retail investor.

People are concerned about rates going up.

People are concerned about the economy.

And this is somewhat of an alternative asset class where they can get gains from growth in other economies and other stronger currencies.

So again, it's just a way to diversify and lower risk in a portfolio.

And it has gone from zero to some percentage.

It's still very low on the average holder and one that we think will continue to grow.

But it's areas in Europe where -- Switzerland, where we are seeing the growth, as well as Italy, for the European market.

And then obviously, a lot of it here in the United States.

And then anything on the multi-asset strategy?

I think it's early, and I don't think we -- obviously, this is a huge category for the industry, one that we think we are very well positioned as far as all of the breadth of our product line and different styles, that it's a natural extension of what we do.

And I think having that inflation piece in a portfolio is very important to what advisors and investors are looking for today.

So I don't know how -- we don't really put a number out there.

But if you look at the kind of growth in the industry with three or four big players, hopefully we will get a piece of that.

Okay, thanks guys.

Robert Lee, KBW.

Could we maybe just scroll down a tiny bit into the Global Bonds product, $185 billion of assets and obviously the Templeton Global Bond products are the biggest chunk of that.

But you have been talking about the emerging markets product.

I guess it's the global tag.

and maybe some other things.

I was trying to get a better feel for what proportion of that $180 billion and change would be -- from Templeton Global Bond strategy, and what are the other chunks within that?

Well, the bulk is the global bonds, and that's probably around $120 billion out of the total.

The other big fund is the Global Total Return Fund, which just this quarter and $4.8 billion in net inflows versus $2.5 billion.

And I don't have the current size of that fund, but that would be the next big category, and one that's growing faster than the Global Bond.

And obviously, you have more capacity in Total Return, just because it's a broader mandate with corporates.

But again, I go back to the question that our team gets quite a bit, on size.

And those currency markets and sovereign debt are the largest markets in the world, and trillions of dollars are represented in that.

So if there's any area where you can increase the size of a fund and not inhibit the management, it would be in that category.

And maybe just curious -- I guess you closed or are shortly closing or closed on the balanced asset managers in Australia.

Obviously it's an institutional account, but anything you could talk about in terms of their getting scale and kind of the strategy there?

I think, if I remember from the press release, it was around $11 billion of assets, maybe a little update on what their business is like.

Yes.

Australia market is dominated by the superannuation, and probably around a third of that market is Australian equities, so 35%.

So we felt it was important; that's such a strong growth area and it has now increased from 10% to 12% mandated into these funds.

And it's the lion's share of the market.

There's not really an addressable market.

Its superannuation really is the market.

So that means lower fees than you are normally going to see because it's institutionally driven but very cost efficient and still very high margin at the lower fees.

So for us, it strengthens our position in the market, where we think the other areas will continue to grow like global equities.

Obviously, Australia has had a tremendous run with the currency, commodities, China.

And that has probably created more of a bias towards the local market.

And that will turn at some point, and it will just strengthen our position by having that local presence where we can bring in the other funds over time as well, to one of the largest markets in the world.

Great, thanks very much.

Glenn Schorr, Nomura Securities.

Just curious -- gross sales were up, long-term redemptions were down a lot.

I don't know how much of that you'd consider a seasonal thing versus something particular about last quarter.

But I'm curious on -- I see the things, obviously, driving flows on product preference.

But is there anything you are doing specifically to help stem the flow of redemptions?

Because there's a big change quarter on quarter.

Yes, I think we did mention last quarter, we had a $4.8 billion in redemptions in some large sovereign wealth funds, a lower margin but on the Templeton side.

And that's really what --

It still came down another five (multiple speakers) --

Yes, no -- and overall it was a more stable quarter, I think, in general.

And we didn't have any other chunky institutional redemptions.

I would just add, in terms of being proactive last few quarters we've done a lot of work on the muni side, and we have seen some of the benefits there in the low redemption.

We did a great brainshark out to the advisors that was very well received.

I should have -- I missed that; Ken, thank you for pointing that out.

The munis were $3.5 billion in net redemptions in the prior quarter and $900 million this quarter.

So that's a dramatic turnaround, and same with Asian Growth, where they had a very choppy quarter last quarter.

Actually it was in outflows, had inflows this quarter, $750 million and that was really because of the slowdown in redemptions.

So those were the two big drivers, munis and Asian growth, outside of the other ones that we talked about with the sovereign debt fund, sovereign wealth funds.

Okay, I appreciate that.

And then, even as your cash balances build, I noticed the lower gains this quarter.

But in general, the other income line was pretty small relative to lots of peers in the past, especially as your cash was building.

Anything specific in there on a negative front as a headwind that isn't perfectly clear to us?

Yes, I would say that the highlight is kind of more accounting driven, if you will.

First you have the consolidated variable interest entities that had -- they were a much bigger negative this quarter.

And most of that is offset below the net income line for the non-controlling interest.

If you look at -- there has been no real change in even year-over-year on the core dividend interest category, which is, I guess, roughly around $10 million a quarter.

And then the rest of that variability is either due to the accounting or the markets or resulting from gains that we take.

So there's two things that drive the variability.

There's the mark to market and we have -- it's in the filing, and we probably have about $900 million of trading securities that will get marked, and we kind of show you what category investments they are in.

And then also we have the consolidated -- the VIEs that don't affect the bottom line but certainly do introduce volatility into this particular line item.

And then final question -- as cash builds, it's some version of the same question we always ask every quarter.

Payout ratio used to be 90%-ish.

It has been 50%-ish, a little more, for the last four quarters.

Just curious; I've covered you guys for a long time, so it's inconsistently consistent returning.

And so I still have confidence that it will continue to be that.

But I'm just curious on what, in recent times, would you be saving such a war chest on -- deal front, conservatism, balance sheet consolidation?

Just curious on what goes on in your mind.

When we look at it, kind of a multifaceted discussion -- but certainly, keep in mind that a lot of the cash is outside the US.

Also, we do utilize a lot of cash in product development, probably more so than any of our peers in the industry.

And that pays off.

If you look at it sort of as R&D spend, which is investing back in the business.

So those are the two major factors.

So we balance that with returning capital to shareholders through share repurchases and dividends.

And I guess you can see from our historic record that it has been a focus, but it's very much a balancing act, and not much has really changed.

And I do think we do have a very experienced Board, and they see the benefits of having a very conservative balance sheet.

And it's kind of an intangible out there, that's a high rating for an asset manager and when you get in difficult markets like we've had over the last few years, we think it's one of the big reasons why we have been able to come out of that stronger than we came into it.

And it is important to clients to have that strong balance sheet because they don't really want to invest in companies where they are worried about how they're going to survive a big downturn in the market.

So I think that's an intangible that still is very important and why we will always generally be looked at as too conservative on the balance sheet.

But I think the Board is still going to look at tax issues and things and all those things around a special dividend are always out there.

Thank you.

Jeff Hopson, Stifel Nicolaus.

You referenced your recent success with the Global Total Return Bond Fund.

I'm curious if those flows are coming from the same types of customers, channels, countries as the other global fixed-income product.

And just curious on your thoughts as far as ultimately -- the size of that product versus the other ones or the other big funds, if -- is there any reason why it couldn't be bigger?

Or do you think, because of the credit risk, it probably will be smaller?

Or any thoughts on that?

I think it's nowhere near a concern on size at this point, and it does have a broader mandate.

But generally invest in, if you want to call it more mid-cap type securities than the big sovereign debt Global Bond Fund.

So probably, from that perspective, you would be somewhat limited by size, where you wouldn't be in the other fund.

But I'm not sure what number and how far that has to go before that's a concern because you are investing in corporates as well as sovereign debt.

I think the market is really the same for both.

I think some -- this one is viewed as a little bit more aggressive.

It has had a little bit better return because of that.

But as far as how it's being sold, we are seeing the sale in the same markets.

One of the markets that I didn't mention earlier, in addition to Switzerland, would be Germany -- again, a market that we have been selling the story in for a long time.

But with the recent concerns around the euro, this is again -- which is all new in the last year or two -- we've seen significant flows out of Germany into these funds as well.

Okay, great, thank you.

Cynthia Mayer, Bank of America Merrill Lynch.

Just a quick follow-up on that -- the $5 billion of flows to the Global Total Return really seem huge, and it seemed like it was mostly from overseas.

I'm wondering if all of the worries over sovereign debt have some people moving out of a sovereign fund and into that fund.

Do you have any sense of exchanges, for instance?

Yes; I think that if someone was concerned about sovereign debt, they would probably get out of both funds.

I think it's more we've kind of led with the global bond and then they've seen that they can get some incremental return and maybe telling the story around Global Total Return in addition to the Global Bond Fund.

But I just haven't heard that.

You could be right; I just haven't heard that that's the case, people looking to go out to diversify more away from just the sovereign debt.

And then, I guess just to follow up, too, to discussion of the home country investing bias -- you mentioned Australia as an example of that.

Just in general, should we think of that as a phenomenon that's typical wherever you have a local market that's hugely outperforming the rest of the world, that basically people will invest at home until they discover their home market is underperforming?

And if that's true, should we assume that it's a little harder for you to sell in countries where the local market is really outperforming, and that's the kind of place where you would look for a local manager if you thought it was sustainable?

Yes.

I think that's exactly right.

It's almost impossible, especially if you have a newer market that has been up, like in India or China, over the last decade relative to other markets -- it becomes very difficult to come in there and sell other funds.

So -- but we also know that, over time, that will change and it always does, and there's every country you can look at.

That was really the case in the US, you could argue, where the US market was doing very well and people didn't feel like they needed the additional risk.

And then that kind of reversed itself.

So that's a fair statement.

And just maybe one more follow-up -- the global that's the new core -- that campaign -- is that a US campaign or is that all over?

It's all over.

Okay, thanks a lot.

Douglas Sipkin, Ticonderoga.

I just wanted to follow up a little bit on the international equity business.

I just wanted to get a clarification and ask a question.

I just wanted to make sure -- I think you had said most of the -- a lot of the institutional assets are in fact in the international equity bucket; is that correct?

Right.

Have you seen any incremental interest -- I know you had a choppy quarter or two, but obviously with the one and three, your numbers on some of the Templeton equity stuff are very strong.

I was just curious if you've seen a notable pickup in interest on the part of clients, off obviously given the softening in the markets, too?

I was just wondering maybe you might be seeing some of that.

I think we are anticipating that, and we've seen a slowdown in the redemption rates.

So that's your first step, and then hopefully we will get people back to talking about those funds again and get some new people interested in them.

So we did have mutual discovery, which did very well.

And all this year it's not, just like most mutual series funds, is underperforming in the market to date this year.

But hopefully the Templeton growth and foreign funds can pick up that slack.

Just a follow-up -- have you guys given any consideration to raising the dividend some more on a consistent basis?

It does seem like you guys obviously have a preferable bias towards buybacks.

But when I look at your cash -- and I can appreciate the big piece international.

But when I look at your dividend yields relative to firms which you guys are doing dramatically better than, it just continues to jump out at me as just alarmingly low.

So I'm just curious on your thoughts there.

Our focus has been on continually growing the dividend, and having a good, solid growth rate.

The Company also grows quickly, so -- which is a good problem to have.

But if you look at our historical growth in dividend, it's pretty healthy.

I hear you on the yield, but that's because I think it's mostly a function of the Company growing very quickly.

Okay, great, that makes sense, thanks.

Marc Irizarry, Goldman Sachs.

Greg, I wonder if you could just speak a little bit to the concentration in flows, and then also some of the new products that you tend to launch, maybe multi-asset class and then asset allocation products.

Are you concerned about the over-concentration of flows in Global Bond?

And how much do you think or how quickly do you think you can get some new products out there to sort of mitigate (technical difficulty)?

I think, like anything, you always have to take a step that from flows before you draw a conclusion that the only thing that people are interested in at Franklin Templeton is global bonds.

That's a big portion of your net number, but on a gross basis, it's not nearly as concerning when you look at the amount being sold in all of the other areas.

So I think the key strengths -- and you know better than I the flows in the industry and the pressure the traditional equity managers are under, and especially domestic equity managers -- you can have very strong gross sales and still have fairly large net redemptions.

And that has been a headwind for everyone.

So we have been consistent about pounding the message in on our other funds.

We feel like we are making good headway, we are making progress in market share.

But that's not going to show up on a net flow number until those flows really turn around the other way.

So I don't -- I'm not that concerned.

I still feel there's things that get lost in the shuffle.

We've raised $1 billion in Shariah-compliant funds.

We are offering new funds there.

That's an exciting new area for us.

We talk about tactical asset allocation.

That's another huge category that we think we could get nice momentum, and I think the seeds that we planted in place with the long-term records on the Franklin Growth funds should put us in great position when that turns around.

So again, you look at the gross trends; I don't get nearly as concerned as the net numbers get reported.

Just in terms of US retail distribution, are you seeing some incremental pressure on fees or maybe demands from the US distribution channel?

And then outside the US, are you seeing maybe some areas where the architecture is opening up a little bit, introducing a little more competition for you on the shelf (technical difficulty)?

I think those trends are always in place, in your distribution.

And that is going to hopefully find an equilibrium, and the pressure is always going to be on that side.

But I would say it's anything new or anything that has changed because of some of the consolidation.

That was always one of the concerns out there.

And then internationally I would say the same; I think there's always pressure.

There's always new competitors coming in, but it's very difficult in many of these markets and I think the consistency of Franklin Templeton that has been there through the ups and downs has served us very well with those relationships, and it's very hard to come in and think you're going to get shelf space or get distribution quickly because you've got the next new hot fund.

We spent a lot of years building relationships in those markets and then happen to have the right timing with the Global Bond Fund where we are able to leverage those.

But that was a decade of work to get there for the last few years.

Okay, great, thanks.

That was the last question for today.

Please go had with any final comments.

As always, we would like to thank everybody for participating on the call today and we look forward to speaking next quarter.

Thank you.

Thank you for participating in the Franklin Resources earnings conference call for the quarter ended June 30, 2011.

This concludes the conference for today.

You may all disconnect at this time.