富蘭克林資源 (BEN) 2013 Q4 法說會逐字稿

Good afternoon, and welcome to Franklin Resources Earnings Conference Call for the Quarter and Fiscal Year ended September 30, 2013.

My name is John, and I'll be your conference operator today.

Please note that the financial results to be discussed in this conference call are preliminary.

Statements made in this conference call regarding Franklin Resources Incorporated, 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 MD&A sections of Franklin's most recent Form 10-K and 10-Q filings.

(Operator Instructions)

Now, I'd like to turn the call over to Franklin Resources' CEO, Mr. Greg Johnson.

Mr. Johnson, you may begin.

Well, hello, and thank you for joining us this morning.

We know it's a busy day for all of you, but hopefully, the prerecorded commentary was able to answer the bulk of your questions.

With me today is Ken Lewis, our CFO, and Vijay Advani, Executive Vice President of Global Advisory Services.

The fourth quarter capped up another record year of operating results with revenues, operating income, and net income reaching all-time highs.

Additionally, we are pleased with improving flow trends in the Hybrid and equity products, and continue to see equity strategy relative performance improvements.

At this time, I'd like to open it up for your questions.

(Operator Instructions) Our first question comes from Michael Carrier from Bank of America.

Thanks, guys.

Maybe just a question on the equity and the Hybrid flows.

You've seen decent improvement this quarter, both on the sales side, in the redemptions.

I think when you're looking at what's driving those in terms of the different distribution channels in the geographies, I just want to get a sense on how much traction you feel like you have.

It seems like the performance is there, things are starting to build.

But when you look at the sales levels or the redemptions levels, is there a significant level of improvement that we can continue to see to drive this further, I mean, assuming that like industry trends kind of continue as a -- at the half?

I'm just trying to figure out -- it's -- I think a lot of people have been waiting for this, and you're starting to see some traction there, but just trying to look at kind of what you see in terms of the outlook?

Well, I think it is encouraging, certainly, to see the strength across the equity side and Hybrid, and also just to note the level of exchanges that are going in those two areas.

You had $1.5 billion go into Hybrid out of other funds and $1.1 billion into equity.

So you are seeing somewhat of a rotation part of that, obviously, with munis and people looking for other alternatives.

But the good news is it's staying within the complex.

I think there is clearly an appetite.

We're seeing it for balanced funds as well.

That Templeton Balanced Fund is one of our fastest-growing funds.

And those that are a little bit uncomfortable with where maybe rates are heading and don't want all of that interest rate risk, but do like the lower volatility, you are seeing an increase interest in Hybrids.

And I think the big story that we think going forward is really the global equity one, and we continue to do very well on the institutional side with wins and you tend to turn around faster there on the strength of relative performance.

But retail does take longer, and -- but we are starting to see that turn and we're starting to see it by the better Morningstar ratings, things like that that have to happen, and there's just a lag effect there.

But I think that trend should continue for us, and it should be a trend better than the industry overall because you do have the turnaround and lag effect of what Templeton's done with flows.

Okay.

That's helpful.

And then just as a follow-up.

Maybe, Ken, just on some of the numbers that you highlighted, went over.

I just want to make sure, in terms of the reclass, so it seems like the fee rate was relatively steady, adjusting for that.

I just wanted to find out like what was the driver of that?

And then on the expense guidance that you gave, we should still see the normal, particularly unlike the occupancy of the IT, the normal decline next quarter, but you were just saying that heading into 2014, expect some growth in those buckets.

I just want to make sure I had that right.

Yes, that's right.

The -- there was nothing really significant about the reclass.

It was essentially just some new developments, new contracts that we were -- just there was a little bit of a backlog in reviewing and we just caught up on that.

So there's nothing -- there's no trend there that you have to worry about in terms of the effective fee rate.

I mean, you're right, the effective fee rate was more or less flat.

And with regards to the effective fee rate and the industry as a whole, you see some pressures on fees and the institutional, on the institutional categories a little bit, so we factor that in looking forward.

And on the expense side, in general, we're going to try to keep the expense growth under 5% next year.

But as you said, it is seasonal, so first quarter, we would expect to see a drop, particularly in that information technology line, and then ramping back up throughout the year, as (inaudible) going away.

All right.

Thanks a lot.

Our next question comes from Luke Montgomery from Sanford Bernstein.

So it looks like you did a 64% capital return for fiscal 2013.

I guess that's not inconsistent with your rough targets, but I was wondering, when you think about capital return, is that on a fiscal year basis, or if it's possible that the accelerated buyback this quarter might change your appetite to do a special this December, if can you comment on that?

Yes.

I don't think it will change the appetite one way or the other.

We have one more board meeting in the calendar year.

We'll talk about that in December in terms of whether we want to do a special dividend or not.

So generally, the strategy is exactly the same, dividends, the share repurchases being opportunistic, and then perhaps, a special dividend.

Okay.

And then I guess just staying on the capital return, could you give us a little more context in terms of how you stand on the U.S. cash balances, and whether there is sufficient US cash to maintain that 60-ish, call it 60-ish payout ratio this year without repatriating some non-US cash?

Yes, absolutely.

Absolutely in the short-term, there's no problem there.

Okay, great.

Thanks a lot.

Our next question comes from Craig Siegenthaler from Credit Suisse.

Thanks, guys.

Good morning.

Morning.

Just looking at the muni business and listening to your prepared commentary, it seems like actually you guys are pretty positive on the market, kind of versus where the market's pricing a lot of these bonds.

I'm wondering, have you changed your marketing campaign for muni bonds at all?

Or do you plan to kind of step up given the improvement in yields and potentially, the buying opportunity you see there?

Well, I think we feel like muni is -- you have headline events that affect specific cities or areas between Detroit and Puerto Rico, which has been dominating the headlines, and we think the story with munis is a very positive one for the overall market.

Most states' revenues are improving, and the quality of ability to pay back the debt has improved over the past year.

We don't think that's been really factored in, and so that's the message we're going out with.

And just, muni is a nice thing.

It's like any fixed income.

When you have a selloff and you get more attractive yields, you attract new smart buyers into munis, and I think that's what will happen once this settles.

But it is relatively a liquid market, and it does sell off on headline risk and that creates opportunities.

So we're out there just trying to get that message out, and Vijay has something to add.

Yes, and in fact, we have stepped up our marketing on munis.

We think this is a good opportunity for many of our long-standing clients to get back in, and so we're doing a fair amount of marketing here in the US.

Got it.

And then just a follow-up on the muni business.

Just looking at your 1-year relative performance, I know you guys are generally kind of longer credit, which kind of impacts that, and your yields are probably higher than the average.

But the flow trends were actually pretty negative this quarter.

Do you think we're sort of at the bottom when you think about even like monthly flows, and that we can improve from here?

Or do you think we're kind of going to be -- remain at this level for longer?

Yes, this is Ken.

I'll just take a start.

I just wanted to point out that the flows really and the redemptions really did tend to bottom out in August during the quarter.

It wasn't something that gradually built up through the quarter.

It was a spike in August.

So I just want to put that in there before Greg and Vijay add to that.

Yes, I mean, I hope it has.

And certainly, unless you have another Detroit in the next few months -- take the market, we'll start to settle and differentiate between risk, where it's a pretty broad selloff when you have these kind of outflows.

And that, again, that's what creates the opportunity for us.

So it just depends.

You're correct.

We have a longer duration.

And munis, it will always be that way.

And the area we don't really worry about as much from a relative performance standpoint when looking at our complex is the short-term numbers on munis because of the -- we do want a higher income and stability, and that's how those funds are managed.

So sometimes, you will underperform in the short run on a total return basis, so that's normal for us.

All right.

Great.

Thanks for taking my questions.

Our next question comes from Michael Kim from Sandler O'Neill.

Good morning.

This is actually James Howley filling in for Michael this morning.

So first, I'm just hoping that you guys can update on some of the product development efforts, particularly around your solutions or into strategies, and then the alternative capabilities they should get building up in the retail channel?

Yes.

We've been building that -- this is Vijay.

We've been building that capability over the last couple of years.

And it's only in the last six, eight months that we've had some funds that we've actually launched, both in our SICAV range in the UK under the OEIC, as well as here in the US.

As you know, we recently acquired K2.

We are working with them on a retail hedge fund of funds, our multi-asset strategy.

We've started seeing some traction, especially in Europe and here in the US as well.

So it's been -- these things take time to build up, but both our marketing campaign, web-based campaign, as well as our sales folks on the ground have been talking about this strategy, and we've been seeing good interest both by gatekeepers on the retail side, as well as consultants.

Great.

And then just as a follow-up, turning to the institutional business, are you kind of seeing any meaningful shifts in asset allocations more broadly?

And just any insight as to the RFP activity and the pipeline as it stands?

This is Vijay again.

I think the two big themes, one is domestic fixed income, the global fixed income.

There are a lot of institutions, both institutions and frankly, even the retail channel that's yet dominated by domestic fixed income, whether you're in Europe or in the U.S. And they're looking -- they continue to look for global fixed income.

And on the equity side, I think global equity continues to lead for us.

That's our forte.

We've seen performance come back for us in that area, and we are seeing some surges by consultants.

Great.

Thanks for taking my questions today, guys.

Our next question comes from Chris Harris from Wells Fargo Securities.

So a question here on the muni business, this is kind of a follow-up.

If you guys kind of experience continued outflow in muni but you kind of get an even swap in the equity, is that an accretive proposition for you given the higher fee raise in equity products?

Absolutely.

That's correct.

Okay.

But any way that you can kind of assess the magnitude of that?

I mean, if you do get even swap, what does that ultimately mean for the margin?

Well, if it's retail business, it should be -- it should improve the margin, right?

I mean, you can just kind of gauge by the industry.

And we show this in our disclosures, kind of industry rates and all that, so you can get a feel for what our global equity fee rates are in our US taxable -- I'm sorry, our US fixed income rates, and then most of that drops to the bottom line.

Okay.

And my follow-up question, completely unrelated.

But I know you guys are aware that there's a high-profile portfolio manager leaving Invesco, and I'm just wondering more broadly -- what can you guys do to kind of minimize a potential impact of that happening at your franchise?

Obviously, you have a PM in Global Bond that manages a lot of assets, and so could you give us any little color on what you can do, whether it's building the bench, or kind of locking somebody up in an employment contract, would be helpful.

Well, I mean, I think that's one of the most important things that we do, for senior management, is thinking about people, succession, retention and hopefully, that's something we try to get right, and you always have that risk.

And that risk is something that we factor into all of our long-term compensation awards on coming up with succession for each area.

And then it really comes down to compensation and the quality of work environment, and hopefully, we get those right.

So I think it's always a compliment when people come to us and talk about people and risk of them leaving because that means you have the right kind of talent and organization.

And at the end of the day, if somebody wants to be an entrepreneur, there's not a whole lot you can do about that, but we try to also create some incentives that are aligned with that kind of entrepreneurship in a large organization.

And I -- hopefully, you look at our retention levels, hopefully, we do good job, but obviously, a risk that we have to recognize and deal with.

And I think if you -- we've shown this in some IR slides in the past.

The average tenure of the chief investment officers, the average tenure of the portfolio managers, it's pretty impressive.

We've certainly had store managers leave in the past.

And it hasn't been because we focus on all of the things that Greg mentioned, the succession planning, having a team built around the -- and the process, that it really hasn't resulted in great outflows.

And the other point I'd make is, I think in the example that you had, that's more of like maybe a big fish in a small pond-type of investment manager, where because of our global diversification, it gets spread out across -- you don't see as much of an impact I guess.

Our next question comes from William Katz from Citi.

Hello.

This is actually Neil filling in for Bill.

I just wanted to possibly drill in a bit further on the pace of redemptions.

I already know you mentioned a spike in August, but any way to provide a little more color on maybe the magnitude at a percentage as you work through July, August and then September?

Not really.

It was a dramatic spike, and it was in our aging Growth Fund and the muni Bond Fund.

So it was kind of in two relatively large products that we had redemptions for different reasons in the same month.

So it's kind of bounced back nicely in September, I can tell you that.

Great.

And then one follow-up is you already mentioned trying to keep expense growth to 5% in fiscal 2014.

Is there any other underlying color you can provide with -- relative to comp?

I mean, comp to rev or anything like that?

Well, I think we have been on a little bit of a ramp-up in terms of headcount, so that's going to have some upward pressure that you can avoid.

We have a normal seasonality with payroll taxes.

We have a merit increase, I think, the average was about 3%.

That's effective in December, so you have one month of that next quarter, and then three months the following.

So that's kind of why I think 4%, 5% is a good number to target.

Okay.

Thank you.

Our next question comes from Glenn Schorr from ISI.

Please go ahead.

Hi.

Thanks very much.

Just a quick follow-up on the expense side.

The general spending levels, they increased 7% to 8% in 2014?

2000 -- this year, you mean?

Correct.

Correct.

I'm just curious if that's for any revenue environment.

Obviously, there's discretion expense that go along with soft markets, but curious how much of that is written in stone?

Yes.

So, I mean, we do have flexibility, right?

And I think we demonstrated that, and I guess the most recent example would have been in the global financial crisis where I think we did a pretty good job of reducing the expenses where we can without kind of hurting our strategic initiatives.

So maybe a couple -- maybe some background on how we look at the budgeting might be helpful.

First of all, when we budget, we assume no market either way.

So that's -- so we say -- we just kind of rely on what we think organic flows could be and reinvestments and all that, and what the average change in assets under management are, and then we look at the expense growth.

And we're just basically messaging to the troops, so the things that we can control, to try to keep it at run rate with, as I mentioned, as in the inherent 3%, 4%, 5% increase in it.

So that's what we're focusing on.

And when I say the things that we can control, I'm excluding the sales distribution, sales distribution expense line.

Because a lot of it is market-driven, sales-driven, and a lot of that is based on average assets under management.

So hopefully maybe that provided some color for you.

I mean I, think on the IT line, we're seeing -- we're just seeing some increased expenses.

There's things that we have to replace.

No, that's definitely helpful.

The other place I need some help on the P&L is in the other income line.

You're always helpful and provide that in Slide 19, but just taking a step back and looking at, I don't know, close to $100 million in revenues year-to-date and nothing this quarter, I'm more thinking about the go forward.

You have a lot of investments on the books.

We can make our own market quotes, but maybe you can talk to us about the major drivers in the year ahead, the composition of the seed investments maybe?

Right.

So if you picture Slide 19 in your mind, there are certain things that are relatively predictable, interest expense, interest earnings on cash, et cetera.

If you look at -- the thing that drives volatility is the consolidated sponsored investment products, so these are the products that will consolidate because there are some element of control in the product, whether it's our seed money or a general partner interest or what have you.

And so what you're seeing is the underlying investment gains offers of those products.

It's not something that we have access to, which is something that we're recognizing on the books.

And we try to show you the impacts of that in our 10-K.

We try to show you the components of investments by investment objective, so you can see that typically, the type of investments are global equity.

So if you wanted to try to project that, and by the way, if you get very accurate, let's talk.

If you try -- if you want to look at the components of the products that we're consolidating, it's usually in the trading investment line and we haven't broken out by investment objectives, so you can make your assumption on global equity or US fixed income or what have you, and that should be helpful.

That is helpful.

You had a -- last one is you had a performance fee in the quarter, and then I'm hoping if you could remind us how that -- what percentage is in your fourth quarter versus next quarter and just in terms of assets available for fees, when the fees get paid?

Fees are typically -- it's mostly is in private equity at this point.

With K2, we'll have a little bit more of that and we did see that this year.

So it's $6 million in the current quarter, which typically have a little bit in December, and then we have a little bit next June.

But it hasn't been material even to the revenue line, and I don't expect it to be material going forward either, at least in the short term.

Our next question comes from Brennan Hawken from UBS.

Just a follow-up on the question on sort of a month-to-month, and a little more color on the flows.

When you said you saw them bounce back in September, did that apply to Global Bond as well as muni?

And maybe if you can give some color on October, too?

Yes.

I think my comments were specifically on munis and the Asian Growth Fund because that's where we saw the largest redemptions.

I don't know, I think -- I don't think there's anything else there really to talk about that maybe you guys --

I think the only point I'd make that I think may add some color on the global bond flows is the -- if you look at the net outflow and you would think redemption spike, but they didn't spike.

They were actually flat quarter-over-quarter.

It was just sales were down 47% in that category.

So I think that just tells you that the market was in that kind of risk off mode and -- or risk, yes, risk off for that period and just holding to see where it went in the short run, and hopefully, you can snap back.

And most of the -- that drop was more in Europe and in the places that have been the big drivers where it slowed down.

And that tends to pick up a bit faster when people are more comfortable with some of the macro events and tapering and things that are having an impact on certainly emerging market debt.

So we -- I think we've seen it snap back before.

We hope it does quickly.

And I think the good news is that in Europe, that the flows are more volatile, and that works both ways, so hopefully, you can start to see a pick up, but I think we don't really want to speculate on where we're going this early into the quarter.

Okay.

That's fair.

I guess just thinking about September, the big macro thing tended to be the shutdown in DC and the dysfunction and such.

So I guess it was just somewhat surprising that it came from Europe, and so far as the slowdown in the SICAV fund, as far as Global Bond --

Well, I think it was still a -- the more related to the tapering and the selloff in emerging market debt in the prior quarter that affected that, not so much the shutdown.

And now the sentiment is certainly the other way on tapering versus the risk that was out there in the prior quarter.

Our next question comes from Matt Kelley from Morgan Stanley.

I was hoping to take a step back and just ask, when you guys are having conversations with U.S. retail channels at this point, what are -- if you don't mind going into what are the kind of 5 most frequently asked about products, I'm sure Global Bond and Income series are in there, but are any of the newer -- you mentioned success in the Hybrid funds.

Are the Global Total Return and Global Balanced Funds entering the conversation, along with Asian Growth?

Or any others I'm missing in there?

No.

This is Vijay.

Absolutely, I think the main theme -- we are seeing the retail clients, really, many of them being cautious even if they don't come straight back into equity.

It's really in the balanced suite of products, and clearly, the leader there is Franklin Income.

But besides Franklin income, we have several other balanced products that are US-focused, Franklin Balanced Fund.

Some of them is the convertible securities fund.

So we have a full suite.

And then those that want some global exposure are looking at the Templeton Global Balanced, which is our leader.

And we have seen that even on the offshore side, so you're really seeing two rotations, again, one from domestic fixed to global fixed.

And then from fixed to those that have more risk appetite go directly into equities, but many of them are initially going into a balanced, whether it's the Franklin or the Templeton Balanced Funds.

Greg Johnson

And I would just add.

I mean, the 1 fund that is probably not on a lot of people's radar screen, but if you look at our SICAV range, it had more net inflows than we did outflows in the Asian Growth, would the European Growth, which had $1.3 billion in net inflows for the quarter.

So that has a lot of momentum right now on the strength of Europe and a relatively new fund for us.

Okay.

That's helpful.

And then the second thing I wanted to ask about is the kind of -- if you could bifurcate the discussions you're having with institutional and retail clients on alternatives.

And I know that's a broadly defined concept to pay on which channel, but I'd be curious as to whether, A, you feel like you're well positioned and have everything you need in alternatives?

And B, what the kind of demand themes are between institutional or retail?

I think on the retail side, it's really more the real estate.

We've been in that market for quite some time now, so the real estate funds, we're also seeing -- as I mentioned earlier, we are looking at launching our K2 capability in both the ['40] Act and the SICAV.

So those, I would say, are the two main.

On the institutional side, we have a global summit, which is more a global fixed income, global macro fund, and that's come up with a pretty good track record now, so we are seeing some interest there with consultants and even gatekeepers.

So I would say those are the two or three that are -- that we're focused on.

Our next question comes from Douglas Sipkin from Susquehanna.

Just a follow-up a little bit on some of the products.

I think you guys did a good job of highlighting.

Just looking to drill down a little bit more on the Global Balanced, can you provide us with the size, and maybe sort of how long of a track record does it actually have?

I was trying to dig and figure it out, but I couldn't, so I was hoping you guys could shed some light on that.

And then a balance sheet question.

If you could just provide the percentage of cash, I guess, that's U.S. I know that normally comes in the Q.

So on the US side, the Franklin Income, which is our main flagship Hybrid, as I think we mentioned, just completed its 65 years, and that's north of $80 billion, and I think that's public record.

And we're seeing good flows there.

The Templeton Global Balanced Fund which is more -- it was launched, I believe, about three or four years ago.

And so it's yet early days, but we're seeing good traction.

It's -- that fund is about $2 billion and hopefully growing.

Those are our two main flagships.

And then, as I mentioned, there are several others that are in the balanced Hybrid category that are a little smaller.

Go ahead, finish up.

I'm sorry.

Does that have an actual three-year track record at this point?

Sorry.

The other point I just wanted to mention was on the Franklin Income Fund, based on the success in the US and the long track record, we also launched that in the SICAV range, and that has now seen pretty good flows, especially over the last 12 months.

I think the flows were north of $500 million.

So on the Templeton Balanced Fund, I think that was launched about 5 years ago, so it has a 3-year track record.

And on the cash side, well, wait for the K to come out.

It will be out shortly.

And I'm going to say the range is about 55% to 60% -- say, 55% non-US cash.

Our next question comes from Greggory Warren from Morningstar.

Just touching back on the performance and sort of the flows as we look forward here.

We're getting to that point where we're starting to roll off 5-year numbers during the financial crisis.

Are there any areas on the equity side, either global, international or the domestic, where you guys are still particularly well positioned, do you think that you can get out there in front of advisers and start pushing it first part of next year's -- portfolio start to get reallocated?

Well, first of all, I mean, I think we've been out it pushing in front of advisers as hard as we can since the financial crisis.

That's been our theme on equity, so we think we hopefully are already in good position to do that.

I think as I mentioned earlier in the call, the Templeton side, it just takes a while to get back into -- us back on the shelf, with -- especially with retail.

But I think on the strength of the 1-, 3- and 5-year numbers now in the history, and the strength of the brand, and really just the bet that was made on Europe and it had a tough time, I think that's the area that it's in the best position.

I think you have pockets of strength throughout.

Our Rising Dividend Fund continues to do extremely well in this environment, the Franklin Growth Fund.

All of those are large significant funds with long-term track records that are very much entrenched right in a lot of platforms.

But I think the additional piece would be the global equity side.

Yes.

I think, yes, Greg.

We're seeing, besides global equity, is even our regional funds that are focused on Europe.

As Greg mentioned, the Franklin European growth, Mutual European, I think those we're seeing more interest, and I think both advisers, gatekeepers feel that that's where we're going to see more growth.

And the Templeton foreign fund, in particular, that had taken up a big exposure to Europe, I think we're seeing some good traction there as well.

Okay.

Yes, I wasn't insinuating you guys you weren't pushing this stuff that, in fact, I'll give you credit.

You're probably one of the few companies out there in the last 5 years that's actually actively been pushing equities despite the headwinds that have been out there, so good work on that side.

On the fixed income side, as we look at sort of the global international platform, I know as well as you do that it's not correlated to US interest rates, but I got to wonder how hard is it really going to be to sell fixed income funds in a rising interest rate environment here, getting -- when sort of the mantra is get out?

Well, I think the market, you will really see the market differentiate funds like the Global Bond Fund, which I think in a lot of people's minds gets lumped into a fixed income category, when I was looking at more like an alternative or kind of a fund that's not really correlated with the equity markets and currency's going to be the bigger driver.

So I think what you've seen even this year, if we come in and have a positive return against most fixed income funds, which are negative, that's going to tell the market that this is something different than a typical fixed income fund.

So I think you can.

I think it just comes down to, as the records move apart from each other, where rising rates and longer maturities put a negative total return, those will be hard to sell.

But I also think that we have a lot of funds positioned and that we know, like everybody else, that the rates don't always go down and we have a lot of funds, we have floating rate funds, one of our top-selling funds right now, that hopefully can do well in a rising rate environment.

Yes.

And keep in mind that even on the institutional side in Europe and Asia, yet 80%, 90% of fixed income allocation is domestic.

And I think that as they globalize that and get into global fixed income, you can see opportunities both on the institutional and retail side.

Okay, thanks.

Thanks so much for the color.

Our next question comes from Ken Worthington from JPMorgan.

Please of ahead.

Hi.

Thank you.

Most have been asked and answered.

Just one follow up on the superstar question.

You mentioned you have strategies in place to retain PMs like Michael Hasenstab and Ed Perks.

I was wondering if you can give us a little bit more information about how you retain them, if it's deferred stock, is it non-competes, that would be helpful.

And then I think as one of your follow-ups, you mentioned that when other star PMs have left in the past, the assets didn't follow.

One of the more unique things about Michael's products is he has a huge SICAV following.

When you refer to business that didn't leave in the past, did it have the same sort of SICAV presence that he and his funds had, or was it mostly '40 Act?

Thank you.

Well, you're not helping my year-end compensation discussions, but anyway, the first question around how do you retain, I mean, it goes back to what I talked about earlier.

But we do special long-term awards that hopefully create the kind of long-term incentives that make it difficult for people to consider other alternatives and also vesting on those that talks about things like succession planning and has a very specific metrics in place to develop successors, and they understand, too.

It's in, really, their interest.

I mean, the demands on those two are very high, from the retail channel when you look at all the different places where we are sold.

So having senior people there is extremely important.

At the end of the day, we -- there's no ball and chain.

I mean, we're at-will employers.

And we just do our best to make sure that the incentives are a little bit different than just your traditional bonus every year.

And we try to be as creative as possible in doing that.

And things like Mike -- Michael Hasenstab with the global summits fund is something that's unique to that area because we do recognize, obviously, that the fund is so closely associated with what he has done.

Yes, and I'll -- this is Ken.

I'm trying to tackle the question on SICAV, which is a good point that you raised.

I think, certainly, SICAV is larger part of our business than it was in the past, and there does tend to be a shorter-term time horizon.

But two points I want to make.

I guess if you go back and think about some of the large departures, one was at Templeton a few years ago.

And at that point, the overall assets under management were smaller, but we have a huge SICAV presence with the Templeton Growth Fund.

And so I think the comparisons are valid now as it was historically.

So we didn't see a large decrease in the Templeton SICAV product at that time when that manager departed.

Okay.

Great.

And I'll try this as a data question.

I'm not sure you guys would know it, but if you look at Global Bond, Global Bond has kind of divided returns coming from the debt side and also the currency side, and there's been, I don't know, a higher level of color given over time on what comes from where.

As we think about 2013, is it possible for you to say how the currency side of his products have done?

Have they either positively contributed or are they detracted from returns this year?

Yes.

I mean, we can get that.

I don't -- I think if the fund, as I mentioned, if it has a positive return for the year in a raising rate environment, you would think currency was a net positive for attribution.

That's my quick summary, but we can get the exact info for you.

Our next question comes from Marc Irizarry from Goldman Sachs.

Greg, maybe this is for you, but also, Vijay.

If you have a perspective on institutional, globally, where are sort of the institutional momentum in your business is building, are there certain pockets where you're seeing around the globe, maybe more institutional momentum, and particularly, I guess as you head into next year, is there any -- are there sort of asset classes that you'd point out as well on a global basis institutionally?

Well, I'll just start with -- I mean, I was looking at the wins over the quarter and ones that haven't been funded yet as well, and I think the consistent category would be global equity and that's not new to anybody, but that's where we're seeing.

We also have seen it at add-ons to additional accounts that have been with us a long time, and then not based again on the strength, we're starting to see a positive trend on that.

But I don't think there's anything new from a category that I've seen, just more global equity searches and more wins, but I'll ask Vijay then.

Yes.

I think in the US, you're seeing more of -- more searches in global equities, for sure.

We've been talking about that for a couple of years, and our exposure to Europe at one point was a drag on performance.

And so, while I think consultants appreciated our value discipline, they are now looking at us more closely.

And the second region, I would say, is really Asia.

Asia's institutional business is actually growing quite well.

In fact, as institutions and sovereign wealth funds try to get more global in their exposure, both global bonds and global equities tend to be our forte, and therefore, we're seeing some activity there as well.

We have no further questions at this time.

Well, thank you, everyone, for attending the call today, and we look forward to speaking next quarter.

Thank you.

Thank you, ladies and gentlemen.

This concludes today's conference.

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