富蘭克林資源 (BEN) 2017 Q4 法說會逐字稿

Good morning, and welcome to Franklin Resources' Earnings Conference Call for the quarter and fiscal year ended September 30, 2017.

Please note the financial results to be presented in this commentary are preliminary.

Statements made in 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 MD&A sections of Franklin's most recent Form 10-K and 10-Q filings.

Good morning.

My name is Brenda, and I will be your call operator today.

(Operator Instructions)

As a reminder, this conference is being recorded.

At this time, I'd like to turn the call over to Franklin Resources Chairman and CEO, Mr. Greg Johnson.

Mr. Johnson, you may begin.

Well, good morning, and thank you for joining Ken Lewis, our CFO, and me to discuss the company's fourth quarter and fiscal year results.

Importantly, flows continue to trend in the right direction, as we've seen redemptions slow and sales begin to rebound over the course of the year, led by our international retail business.

Fiscal year financial results remain strong, as we prudently managed expenses while also investing in what we hope will be new areas of growth.

And on the capital management front, we returned $1.2 billion to shareholders in the form of dividends and share repurchases over the year.

Now we welcome any questions you might have on our results.

(Operator Instructions)

Our first question comes from the line of Ken Worthington with JPMorgan.

In the prepared remarks, it was mentioned that the insurance redemptions were the lowest in a decade.

Just first, is that comment about gross or net redemptions?

And the insurance win, can you share with us sort of what product won for you or what asset class?

Just a little more color there.

And then lastly, do you think this is sort of an indication or are there other indications that the insurance channel has really turned the corner here?

Yes.

I mean, I think, as we said before, there is a lot of movement within that channel and the lumpiness of those redemptions that you still have some coming.

Some have been delayed, in particular, and some have been withdrawn.

But it just happened to be, for that quarter, we didn't see any.

I think, next quarter, there's still a chance of some lumpiness coming through.

But hopefully, our goal is to try to capture some of that by introducing things like low-volatility equity products that are geared towards what they may be looking for.

I think that's what we're trying to do in saving that.

I think, today, we have approximately $40 billion of assets that you'd put in that category, of that traditional VA business.

And I don't know what percent is still at risk, but probably half of that would be still put in that category.

Again, that's a...

And the win this quarter was, I guess, a little VAL product or something like that?

Right.

Yes.

Our next questions come from the line of Michael Carrier with Bank of America.

Greg, just on the flow trends, an improvement we're seeing.

You mentioned in the commentary, obviously, the international retail has been driving it, and then you've seen some pickup on the institutional, on the non-U.

S. institutional side of the market.

So both of those are good.

In the U.S., when you look at the institutional part of the business, what's the biggest challenge?

Is it performance?

Is it value versus growth?

Just -- what could maybe shift that momentum?

And then on the retail side, I guess, you're seeing the same pressures that the whole industry is seeing from active-passive.

But you guys have been working on some of the alternative product solutions.

So how much traction are you starting to gain on some of the distribution platforms that can maybe partially offset some of the industry headwinds?

I think the U.S. institutional, if you look at historically for the organization, the majority of the assets and, really, the business was built around Templeton and global equities.

You don't have that.

I think it's more of an open playing field as we get outside of the U.S. So you just haven't had the base of assets, the consultant relations on the other side of the business.

So for us, that -- with value at its longest underperformance stretch probably in history and a lot with that moving to indexing on the -- for that portion within international equities.

That area of the business has been under obvious pressure.

We've continued to build -- I think the opportunity is still in the fixed income area for us.

That's where we're getting significant wins outside of the U.S., and we hope to build that in the U.S. And we've recently made some hires in the U.S. institutional side to build on that opportunity that we see is there.

So I think it's really getting the message out, building the right teams in place to support other mandates rather than, I think, we were a very focused organization on the Templeton side and need to broaden that out to other areas in the U.S. And your second part of the question was on just retail.

Is that right?

Or...

Yes.

It was just -- you're seeing the strength on retail outside of the U.S. Same concept, meaning inside the U.S. You guys have been working on some of the newer type of product offerings, whether it's ETFs, alternatives, K2.

Just how much traction are you starting to see on the platforms to maybe offset some of the traditional pressures that we're seeing in the industry?

Yes, I mean, they're certainly growing and having a positive effect.

And as we've said before, it just takes time.

And the solutions side is one that we're continuing to build.

And obviously, the multi-assets and doing more in that area will be important for us, not only in the U.S., but in Europe.

But I think the K2 side is contributing.

I mean, it's somewhat tough in a hedge fund to fund in a risk-on environment where the markets are running to get a lot of traction.

But we're still seeing a lot of interest and positive flows.

And I think if you get a little more volatility in the market, those kind of alternatives are going to look very attractive.

And the ETFs, we know, takes time, and we're building that, and putting the resources behind it, and we're pleased with the progress as far as getting on as many platforms as possible.

And then it's really how is performance doing.

If you're -- especially, if you're in a smart beta fund, you've got to validate that factor-based performance, and then we think we're on our way there as well.

Our next questions come from the line of Patrick Davitt with Autonomous Research.

Last quarter, you mentioned an ongoing fee rationalization process at the fund board level getting started.

Could you update us on any conclusions from that and, to the extent any changes were made, what they were?

It's still really I mean, I think, ongoing.

It wasn't really at a fund board level.

It was really just management looking and positioning.

And I think we made some adjustments to some funds.

As I said, I think, on the prior call, we didn't identify anything that we'd call out as far as significant assets to reduce fees.

But there was some areas in things like limited duration and shorter-term funds that we thought were not as competitively priced, not big assets, so not -- wouldn't affect our revenue number much.

But it's just really -- we're continuing to do that.

It's looking at every class.

We don't want to be in the fourth quartile.

We think we're fairly well positioned.

There's a couple of areas we're still looking at, but really nothing to call out at this stage as to say that we recognize the importance of being competitive.

And fee rankings can be as important as total return in this kind of environment.

So we need to be realistic about that.

I think the comments in the past on the broader initiative was more related to products and just looking at our product offerings versus fees.

Okay.

That's helpful.

And could you size the fixed index annuity win?

C

Size the fixed indexed annuity?

The win that you called out in the...

Oh.

Yes, we'll get back to you on that one because I don't have that in front of me.

The next questions come from the line of Craig Siegenthaler with Crédit Suisse.

I assume there'll probably be some additional detail in the K, but I wanted to get an update for your current estimate of excess capital outside of the U.S., really that you'd repatriate back to the U.S. if we get a tax holiday here.

Sure, Craig.

So outside the U.S., I think we're looking at around $6 billion or so of cash, maybe a little bit higher.

And what we've identified is kind of -- and this will be refined in the K, you're correct.

But what we identified -- my current estimate is around $2 billion of that is set aside for regulatory, perhaps, seed capital needs or just other business needs.

So Ken, just to be clear, you said $6 billion is excess, but you need $2 billion for regulatory.

So is it $4 billion net?

Correct.

Outside the U.S.

Outside the U.S. So $4 billion net outside the U.S. And let's just say tax reform is unsuccessful, I know you see you have some cash in some higher tax domicile regions like Luxembourg and Singapore, but then you also have some lower tax domicile regions like the Bahamas.

Would you ever explore trying to repatriate some of that higher tax domicile cash back to the U.S. if the outlook for tax reform is pretty bad at some point?

Craig, could you just repeat the question?

There was some noise in here.

Sure.

If there is no tax reform, and if you guys reach the conclusion that there will be no tax reform in the future, would you target some of your excess cash in the higher tax domicile regions like Luxembourg or Singapore in the event that you think there's going to be no tax reform?

And I'm not saying that now but out in the future?

Right.

I would say the answer to that is yes, and it's something that we are constantly evaluating.

And so to the extent where -- those economics make sense, we've done it in the past, where we've repatriated earnings from certain foreign subsidiaries, and we would do that in the future.

I'll just follow up on the other question, just to clarify, on the cash.

I think, if you were to say what's liquid today that you could bring, probably $4 billion is the right answer.

If you could say, how much would we probably bring back, it would be -- or free up would be about over $6 billion because a lot of that is in investments and things that we can liquidate and things like in our short-term income funds.

So the number would be more like $6 billion of what we...

Our next question comes from the line of Glenn Schorr with Evercore ISI.

Just curious for a quick update on both Franklin Income and Global Bond.

In general, performance has been a lot better.

A subtopic on that is if you could give a little color of the $850 million in expected redemption for Global Bond from some key distributor, is that a consolidation thing?

Just curious for any color you can help us with there.

Yes, I think that's just within a large kind of solutions provider where they're going a little more risk-off as far as looking at the portfolio.

I think the flows and trends continue to look very strong.

And I would still argue, as I've said in the past, if you have any meaningful rise in rates, this fund will do very well with its flat to no duration risk.

So I think it's one of the few out there that -- in the fixed income category that will do very well in a rising rate environment.

The Income fund, on the other hand, obviously, has duration risk.

But really, if you look at the quarter or the outflows and some of the pressure in the last quarter despite some of the better short-term performance, it really relates to the 3-year number, which is still, as of end of the year, was under or just in the third quartile.

As of the first few weeks of the year, it was back in the second quartile.

And that's a very important number on the Morningstar metrics.

So we think the next look, we hope that gets upgraded back to its 4-star level, getting rid of that one bad quarter when we had the energy crisis really move the relative number up on the 3 years.

So we're still -- that's a very important, obviously, metric for sales for that fund, and hopefully getting it back to 4 stars with the improved 3-year number should bode well going forward.

Any sort of -- how real-time is that?

Let's say the tough quarter rolls off, the upgrade happens, how quickly does the system take hold of things like that?

It just depends.

I mean, but it -- I think the other pressure you still have is just around the move from brokerage to fee-based and how that has, as I've said in past calls, has an effect on heightened redemptions that wouldn't be there normally, and it's hard to separate out.

But I think, from a sales side, we are now -- we've just gotten approved on 2 major new platforms with the Income fund, and I think that's going to help a lot as we move towards fee-based and these are in the fee-based platforms on 2 big distributors.

Our next questions come from the line of Bill Katz with Citigroup.

Just Ken, you mentioned -- you gave some expense guidance to just look out to the new fiscal year.

So a [pre-board] range of 3% to 5%.

Just sort of wondering if you could frame that out a little bit around a couple of different aspects.

First, what kind of revenue backdrop are you assuming?

And then secondly, what kind of flexibility do you have on that expense growth if markets were to not meet whatever expectations built into your revenue picture?

Sure.

Some but not all of that has some revenue estimates.

And the way we look at it, we say increased flows, but it's such a guessing game, if you will, to project what flows are going to be in the future, as you know.

But certainly, it's aspirational in the sense that the business units have said, "Okay, if we invest XYZ, we think there's a reasonable chance that we can improve incremental revenue in the short term." And then some of the other expenses are more longer-term aspirations.

And then regarding your question on flexibility, I think, it's not like we have agreed to do these things and implemented them on day 1. They're going to take time to phase in.

We're going to evaluate the situation as we go forward.

We cannot spend the additional money.

We can pull back the additional money.

But as it is today, this is our best guess.

That range that I gave you is our best guess of where expenses might be year-over-year next year.

But certainly, there's a lot of flexibility if markets take a downturn, and we want to go in a different direction.

Okay.

That's helpful.

And then, Greg, just want to come back to the discussion of maybe Franklin's position in sort of U.S. When I look at your gross sales dynamics, those still seem to be relatively soft.

I think you explained some of that away with potentially some of the weather issues in the U.S. in the quarter, which was very helpful.

But is there a more profound issue here for Franklin, just having been a strong beneficiary of the growth in mutual funds and brokerage assets, and as that sort of migrates to more customized advisory fee-based type of outcomes?

Do you need to do something more structural?

Or is it simply just waiting for the performance to turn and then gearing that through the distribution channel?

I mean, I think we have been doing something structural, and are in the middle of doing things that, I think, we all recognize sitting and waiting for the old brokerage model is going to be failed effort.

So we are very much and part of what -- a big part of what Ken was talking about on the contingency and some of the spending is really geared towards, continuing to upgrade the distribution model to meet the gatekeeper and institutional quality and institutional quality across all of our groups.

But really, the pressure in the U.S. our core strengths.

And at the end of the day, most of our assets are value.

And if you look at the Mutual Series, Templeton, you had a good start of the year, but a very tough finish to the year.

The things have led the market 1/3 of the S&P's returns.

That just makes it very difficult for your real core value person to get any kind of play in this market.

So I think that's a big effect.

But it's also, I think, part of it is you have to adjust the product line and make sure that you have mandates and styles and sleeves that are cost-competitive that can fit into solutions.

You have solutions that differentiate, whether it's target date funds or multi-asset funds, that we can build.

And part of that is having now ETFs that we can use in a lower cost way as part of that solution and have open architecture solutions that we've done around the globe with other partners.

Those are the, I think, things that we continue to try to adapt to, but we're certainly not sitting around waiting to get back to the old brokerage model because, I think, at the end of the day, we recognize that the fee-based side is going to continue to be the driver going forward.

Okay.

Just if I can tie into that, just how do you think about maybe turbocharging that shift?

Many of your peers talk about the importance of scale diversification, customization, active-passive, et cetera.

And you have some, but not all of those attributes.

How do you think about repatriation opportunity?

You mentioned $6 billion, which is certainly, I imagine, many of your peers potentially using that for maybe acquisitions or other type of growth versus capital return to investors?

Well, I think, as we've said before, I don't think the repatriation has impacted that part of our -- we've added a lot of small type funds that improve our -- or management companies that give us more flexibility around solutions like the risk premium 1, commodities firm, all kinds of different styles looking at ESG like many today, whether you buy or continue to build that.

So that's very much part of what we have done and will continue to do and differentiating the solutions side by having.

I think that's the real advantage of a large global scale player, is that you can have a lot of those pieces together, to really build a solutions capability, including the risk side that we have a very robust risk group as well.

That's where -- if you looked at our plan and priorities, that's really what it's all built around is pulling all of that together and having a world-class solutions group.

That really would be the top goal.

And if we see any weaknesses in that, that's certainly something we'll continue to go out and look at and purchase in the market.

But we have always -- whether it's offshore or onshore, the balance sheet keeps us -- I think, has allowed us that option, and will continue to do that.

I think the tax reform or the tax changes that are being proposed a little different than it was last time during the repatriation where it was kind of a one and done deal.

From what I understand of where the tax direction is going, it kind of levels the playing field, from our perspective, in terms of where the cash is.

So in the future, it wouldn't matter and it shouldn't really impact our M&A decisions.

Our next questions come from the line of Bren Mc Hawken with UBS.

I got a follow-up, slightly different direction from Craig's question earlier.

We just had the House, I think, pass the budget.

So moved a step closer here to tax reform.

If we get repatriation, and you're allowed to repatriate, can you update us on how you would weigh buybacks versus special dividends versus M&A?

Yes, I think we weigh that question all the time.

I guess, and I've been asked this question before, and I can point to, I guess, more than 10 years ago when we did this in the past.

And that's kind of the only guide that we have because it's going to be a separate discussion at the board level.

And we would have to weigh what the M&A landscape is at that time.

Is there something really interesting that is going on at that time?

Share buybacks are always interesting to us.

So I don't know that it actually changes our direction from what we've done in the past.

And I would say, obviously, we just had a board meeting this week, and that was a topic of discussion with the board.

And we recognize that once -- if repatriation does go through, that the investors are going expect that answer help how much do you really need of free cash on the balance sheet.

And that's really what we're looking at today is coming up with a plan to go back to the board and say, "All right, if we bring free up $6 billion more, how much do we need on the balance sheet?

How much do we need for buybacks?

How much do we need for M&A?

And whether or not that means a special dividend?" All of that would be certainly on the table for discussion.

So I'd say we're putting that together right now, and too early to indicate before the board ultimately is going to make that call.

Sure, sure.

And then one follow-up on the institutional, U.S. institutional business.

It seemed from your commentary that, that business remains difficult, yet I think you also said that insurance are the lowest redemptions in a decade.

So does that mean that there were certain other parts of the domestic institutional business that deteriorated?

And if so, what were those parts?

Yes.

I mean, I said before, the continued pressure has been international value is a dominant part of our institutional business in the U.S. And that's been under pressure as value has lagged to growth.

And if you don't have technology exposure in the portfolio, it's been pretty tough to retain assets in that deep value approach.

We have seen redemptions.

You've also seen pressure, as we all know, for anybody that looks at a foundation endowment or any institutional plan that you've seen more and more go towards indexing and passive.

And that's been ongoing pressure as well.

You just haven't seen the new kind of opportunities in the U.S. of monies moving into active international in the value space.

And that's our dominant portion of assets.

So that's really why that segment has been under the most pressure in the U.S.

And our next questions come from the line of Brian Bedell with Deutsche Bank.

Greg, if you can comment a little bit, and I appreciate the color on the distribution in the U.S. But a little bit on the tempo of what your sales force is saying about what advisors are thinking on DOL.

Looks like things got a little bit better after the, certainly, late last year and earlier this year.

But we do see active flows for industry starting to -- active outflows for the industry starting to pick up again.

Do you anticipate that will be a little bit bigger of a headwind in the coming 1 or 2 quarters than it has been?

And also, if you can size what you think the impact from the hurricanes were on your sales in the third quarter.

I think, the -- first of all, I mean, the hurricane impact, I think it had an impact because we saw a, clearly, in Florida and Texas, that they were off like over 30% in that month, in September.

So it did have an impact.

I think the -- our view on DOL is that -- or our hope is that the SEC comes out with a standard that addresses this without destroying the brokerage business.

I think that's where it's going today, is that you'll have a way that without a best interest contract without a process other than going to court to settle disputes.

I think those are private right of action, get rid of that.

And you have something that, I think, will serve the industry well.

I think there's just -- there's no reason why brokerage shouldn't continue to exist.

It's appropriate for certain people, and I think it's inappropriate to move certain people.

So I think the regulator understands that.

So will that slow down the move towards fee-based?

Maybe, a little bit.

But at the end of the day, I still think that, that's where you need to think about -- you got to make sure your firm's properly positioned in that space.

And as far as active and redemptions and how much of it relates, it's just very hard.

I think what we do know is that as you transition from a brokerage to a fee-based account, it's -- you may have 1 out of 3 of your products on that lineup instead of all of them, and that's a general statement.

But one that it makes it difficult to capture the assets that you had.

So anybody with multiple products, with one relationship, is going to be under pressure as those assets transition.

But I do think the pressure of the transition could be alleviated somewhat if we have a standard that allows those 2 to coexist.

And do you sense the advisers are kind of waiting for that to happen?

In other words, are they really kind of not doing much until they get more clarity on that?

Or do you think they are heading one way or the other?

Well, I think some are, and some aren't.

There's pressure to move.

I think the management, many have embraced the rule and fiduciary standard and are putting pressure to do that.

But clearly, some are not comfortable moving to that and will wait.

But it's hard for me to answer that exactly in any way, it's definitive.

Yes, understood.

And then, Ken, just on the spending for next year.

I appreciate the color on that.

You mentioned a bunch of initiatives.

One of them in the prepared remarks were initiatives to enhance investment performance.

Maybe if you could just elaborate on that a little bit.

And then is -- are you still potentially -- or would you potentially look at outsourcing the back-office custody and funds accounting admin?

I know you guys always review that.

This would be typically the time when you would do that.

Is that something that's on the table for this coming fiscal year?

Sure.

I'll answer those questions.

On the investment performance, it's really where can we distinguish our investment performance, find new ideas.

So it's really investing, I guess, one category would be investing in fintech, but also just investing in systems that give our portfolio managers the edge and get -- finding unique information to distinguish their investment performance.

So it's kind of the broad category there.

Nothing more specific than that.

And in terms of the fund accounting, I would say that we have looked at that.

And in the current frame of mind, it's not to do that outsourcing anytime in the near future.

And in fact, invest in systems there as well to take advantage -- to be more scalable and be able to be more flexible and customize some of the unique product demands that are coming down the pike.

And I would just add things like, I mean, we are investing in data.

We've been doing that.

We think that, again, for a global-scale player, is going to be an important part of active management going forward for building better factor-based ETFs.

And that's an important initiative that does require additional resources as we continue to build that out.

Our next question comes from the line of Dan Fannon with Jefferies.

I guess, could you talk a bit about the fee rates and kind of based on the mix of business, that you're seeing today, and kind of a trajectory we can think about that going into next year on that kind of ins and outs of non-U.

S. versus U.S?

Well, I mean, that does play into a factor in the fee rate itself, not necessarily operating income, but the mix between international and U.S. I mean, from where we stand today, we don't really see a significant change in the fee rate.

It's hard to predict mix 12 years out.

But from where we stand today, we're not seeing any significant change in the effective fee rate for next year.

A slight downtick.

And I think, as I've said before, I mean, one, it's hard for everybody to be the in bottom 2 quartile.

That's challenging.

And if somebody believes passive outperforms active, you can cut your fees in half and only lose your margin.

You're not going to get any incremental.

So I think that's the key is we have to switch that around, where a rising rate environment and volatility tends to mean that the active will do better.

And I think that's probably where I would argue where we're heading.

Got it.

And Greg, you mentioned in the comments earlier about some of the placements of some of the funds on key distribution lists and platforms.

Can you talk a bit about that?

Was there more this quarter?

I think the reference in the previous quarter or the earlier was for the year.

So just curious as to where the momentum might be if we're already seeing that potentially in the fourth quarter numbers or is that more for next year?

Yes, I think that's more for next year.

I think the crazy thing about how this transition works with brokerage and fee-based is sometimes, you have to almost get funds reapproved on the platform, funds that have significant assets already in a system and have to go through all the validation of why that should be on the new platform.

And we've been able to do that with 2 of our largest distributors where they haven't been on that in the past.

So I hope that means improved flows but it would be in the coming year, not -- and probably not right away.

Our next questions come from the line of Alex Blostein, Goldman Sachs.

A couple of topics I was hoping to dive into.

I guess, first on the global international equity part of the business.

Obviously, flows there remain kind of a challenge for you guys.

This has been an area of strength for the industry broadly in many of your peers the reported so far.

Is it just the performance issue?

Or is there something in the distribution landscape broadly that you need to address, I guess, more aggressively to start winning more of a fair share of flows on the global international equity side?

No, I think it's just the style with the deep value style of Templeton and not having really -- any real technology exposure in this kind of market.

You're going to be challenged to match up against anybody who does.

And I think that's been the bigger issue for our traditional global equity group.

Got you.

And then the second question, just around your ETF efforts.

Obviously, the competition in the smart beta space is heating up, scale becoming more critical.

We've obviously seen Invesco make a couple of acquisitions recently.

And pricing becomes more and more of a factor.

So just taking all of that together, can you just spend a minute on LibertyQ strategy?

And does it make sense to add to it inorganically just to kind of create more scale and critical mass in that business?

Yes, I think it does.

I think it's just -- you have to -- if the -- and we continue to look at every opportunity that's out there.

But that would certainly jump-start the effort.

And we have filed for passive ETFs, which we believe will give us quick scale in that marketplace and improve all visibility for the rest of Liberty.

And that's very much part of our strategy is to be cost-competitive within the passive sector where existing assets are there.

So I think that's as important to become one of the top players in terms of size.

That's certainly a goal.

And one that, back to Ken's point on resources and incremental cost and specialists around the globe supporting that effort.

But it -- we still are firm believers on the smart beta concept, and we just rolled out the first multifactor-based emerging markets fund in Europe.

And it's been in a very aggressive schedule for us between Canada, Europe and the U.S. in getting these funds out and will continue to be so as we get ready to roll out the 20 passive ones.

Our next questions come from the line of Patrick Davitt with Autonomous Research.

You mentioned some onetimers in the expense line.

I imagine this is in the 10-Q, but I haven't had a chance to look.

Could you be more specific on how big those were and what they were?

I think, I'd -- there's quite a number of them.

So I think maybe the best thing to point out is when we look ahead, like, to next quarter, I mean, I think we mentioned this in the notes that normally, there is seasonality where some of the lines like the tech line and the G&A line are a little bit higher in the fourth quarter and then a little bit lower in the first quarter of the following year.

In G&A, we have advertising that's typically a seasonal spend that goes down.

So if I look at G&A, and say what's a reasonable run rate, given market levels because some of the expense line items in there are driven by market values.

But given the current market levels, I would say that the run rate's more towards where it was in the last 2 quarters prior to the -- I'm sorry, in the June quarter and the March quarter versus the September quarter.

And our last question comes from the line of Chris Harris with Wells Fargo.

Can you guys give us an update on K2?

What are the trends you're seeing there?

And how much AUM is that part of your business?

Yes, I think I mentioned earlier on the call that it continues to be positive flows and interest.

I think it -- a hedge strategy in a risk-on environment, it's hard to keep up with what everything else is doing.

And we feel like it's an important part to balance the portfolio, and many people are using it for that.

And today, probably, over -- I think, in the retail funds, over $2 billion, $2.2 billion and in total assets, $15 billion or $10 billion.

Is it $10 billion?

Yes, that's right.

Right around $10 billion for total assets there.

Okay.

We've reached the end of our question-and-answer session.

Are there any closing comments you'd like to make?

Well, I'll make one, just I think I'm looking at my notes and just want to make sure that I mentioned.

We talked -- there was a lot of questions around global equity and value and not having the growth side, and I'd be remiss not to mention that we do have actually a very strong global growth group.

And when somebody was talking about distribution opportunities in the institutional side of the U.S., I'd certainly put that one there because this team's done an excellent job, a New York-based global growth group, in building very strong long-term records.

And it's a matter for us to get that awareness out there.

And also, even within Templeton, the emerging markets, which does have some technology exposure, has done very well over the last 1- and 3-year period.

So I think that's another very positive story, along with our Asian Growth fund that under the Templeton even in this market, has had excellent performance in the short run.

So with that advertisement, I will close off and say thank you, everybody, for participating and we'll talk to you next quarter.

Thank you.

This concludes today's conference.

You may disconnect your lines at this time.

And thank you for your participation.