Welcome to Franklin Resources Earnings Conference Call for the Quarter Ended June 30, 2021. Hello, my name is Hillary, and I will be your operator today. As a reminder, this conference is being recorded. And at this time, all participants are in a listen only mode. Host.
I would now like to turn the conference over to your host, Celine Oh, Head of Investor Relations for Franklin Resources. You may begin.
Call. Good morning, and thank you for joining us today to discuss our quarterly results. Statements made on this conference call regarding Franklin callers, Inc, which are not historical facts are forward looking statements and within the meaning of the Private Securities Litigation Reform Act of 1995. Call. These forward looking statements involve a number of known and unknown risks, uncertainties and other important factors that could cause actual call.
Please go ahead. Thank you, Ms. Hilary. Thank you, Ms. Hilary.
Thank you, Ms. Hilary. Thank you, Ms. Hilary. Thank you, Ms.
Hilary. Thank you, Hilary. Thank you, Hilary. And I will be your call. Uncertainties and other important factors are just described in more detail in Franklin's recent filings with the Securities and Exchange Commission, call, including in the Risk Factors and the MD and A sections of Franklin's most recent Form 10 ks and 10 Q filings.
Call. Now I'd like to turn the call over to Jenny Johnson, our President and Chief Executive Officer.
Thank you, Celine. Hello, everyone, and thank you for joining us today to discuss Franklin Templeton's results for our 3rd fiscal quarter. Greg Johnson, our Executive Chairman Matt Nichols, our CFO call and Adam Spector, our Head of Global Distribution are also on the call with me today. We hope that everybody is doing well. This past Saturday marked 1 year since we closed on our Landmark acquisition of Legg Mason and its Specialist Investment Managers.
Call for our valued clients. This commitment has been our North Star throughout the past year. For the past 12 months, through the hard work and dedication of our employees, call. We've made significant strides bringing together the 2 firms and executing on our growth strategy. We have created a diversified business across asset class, call.
Client type and region and we're well positioned in key growth areas call, where there is client demand, including alternatives, fixed income, SMAs and ESG investing. Call. Early on, we redesigned a nimbler and more adaptable distribution model with a more region centric sales approach, call. Pushing our decision making and resources closer to our clients. And the positive momentum we're seeing around sales flows call.
Shows that what we're doing is working. Our sales initiatives are resulting in deeper relationships and increased diversification inflows across funds, callers. These factors have led to significant improvement in total net flows since the time of the acquisition. Call. Financial Advisors have deepened their relationships with Franklin Templeton through enhanced access to newly introduced capabilities.
Specifically, This progress has led to growth in key areas of the business. Since the acquisition, we've grown alternatives by 15%, call. Wealth Management by 22% and SMAs by 25%. Above all else, we've been incredibly aligned in terms of culture and are focused on delivering strong investment results. Our efforts this past year have translated into a better, to the stronger Franklin Templeton.
Turning now to our 3rd fiscal quarter where our momentum has been building. Ending assets under management reached call. Across a broad array of investment strategies. Overall results continue to reflect outperformance in fixed income, call. Including Western Asset and Brandywine Global, Alternative Asset Strategies and Global and International Equity Strategies across Franklin Competent callers.
Mutual funds with 4 or 5 star ratings by Morningstar increased to over 150 funds this quarter. Turning next to distribution highlights, we saw positive net flows into the majority of our specialist investment managers and Benefit Street call partners Clarion, ClearBridge, Fiduciary Trust International and Martin Currie all reached record highs in assets under management. We were pleased to see a record $3,100,000,000 in net influence call to alternatives and also that our fixed income net inflows returned to positive territory at 2,100,000,000. We made progress diversifying our net flows across funds, vehicles and asset classes during the quarter, call. Scaling smaller products and creating broader sources of revenue.
For example, 15 of our top 20 funds with positive call.
Our next question
comes from the line
of Jefferies. Please go ahead.
Hi, good morning, everyone. Hi, good morning, everyone.
Hi, good
morning, everyone.
I'm very
pleased with the progress we made in the quarter. Call. In the U. S, our collective sales initiatives are yielding positive results with net flows during the quarter. Call.
Specifically, we saw net flows into U. S. Retail, which is our largest distribution opportunity and in global financial institutions, our largest client opportunity. On the product development front, we launched the $1,000,000,000 pre leveraged Western Asset Diversified Income Fund. Call.
This was our largest ever fixed income closed end fund IPO and illustrates the successful partnering of our SIEMs investment capabilities with the combined reach of our distribution platform. Additional recent strategic developments include call. The close of the acquisition of Diamond Hills high yield focused U. S. Corporate credit mutual funds in July, adding $3,400,000,000 to assets under management call.
And the announcement of a merger of Benefit Street Partners Realty Trust with Capstead Mortgage Corporation, call, which will create the 4th largest publicly traded commercial mortgage REIT upon closing. Call. Looking at our financial results, our adjusted operating income increased by 3% to 601 call. From the prior quarter, inclusive of the one time impact of costs associated with the successful launch of the Western Asset call. And with 6,400,000,000 in cash and investments, the ongoing strength of our balance sheet enables us to invest with confidence in the business and make sure we're best positioned to be a leader in an ever evolving industry.
Host on behalf of our clients. Now your
questions. Operator? Thank you. Our first question is from Patrick Davitt with call for Autonomous Research.
Hey, good morning, everyone. My first question is on the $5,000,000,000 5.29 call. Do you know if that will flow through the mutual funds or is it in more of an institutional wrap up because The mutual fund flow data we can see for just the fairly significant outflow in July, I'm just wondering if that's what it's associated with. Thanks.
Yes. Thanks for that question. That is in the mutual fund flows. Those were mutual funds that were in that program.
Great. Thanks. Call. And then on the drivers of the expense guide, you mentioned it being driven by the close in fund launch costs and the performance fee comp, but that would suggest an 80% comp ratio on the call. Performance fee, which seems quite high.
So is there something else driving the increase? Or is it right to think about the performance fee composition being
And maybe we should take offline the 80%. I think it's a lot less than that. The it's more like much less than that.
Our next question comes from the line of call, John Salmon with Jefferies.
Thanks. I guess just to follow-up a bit on just performance fees and I know these are difficult to predict, but this was the largest quarter from you, call. I think in history and so I think the prepared remarks said something about diverse set of contribution. So can you talk about kind of where the performance fees came from and then looking ahead, how we should generally think about this quarter visavis what might be in the future just given
call.
Yes. So a couple of things there. First of all, I'd say that call. About 70% of the performance fees are attributed to our largest alternative asset management, Specialized Investment Manager, so that's attributed to Clari and Benefit Street Partners. 2, though, call.
The rest of it comes from a very diversified group that represents about half of our specialized investment managers. So it's a very diversified group specialized investment managers that have been outperforming that have produced the performance fees. Call. And the second part of your question, how should we put this into context this quarter versus future quarters? I think it's important that to note that while it reflects the growth of our alternative asset business, in particular, This quarter did include 2 quite large episodic performance fees that occurred at the same time.
In one instance, call. We had several funds cleared to performance hurdles and became eligible for carried interest distributions, which had accumulated over several years. It's call about 4 years actually. In the other, a significant charge in invested capital became eligible for a long dated performance fee. And this fund had significant performance over the management period, which resulted in a large performance fee.
So for this combination of events and timing along with the performance fees that over half of the other call. Specialized investment managers resulted in this elevation of performance fees or elevated performance fee levels. I would repeat our guidance on performance fees call. $10,000,000 per quarter. I think you'll agree that sounds quite low, but we think it's best to be conservative around performance fees.
Call. But we do acknowledge that's conservative.
Okay. Thanks. That's helpful. And then just generally on alternatives, given the strength in flows in the quarter, Can you talk about just kind of the fundraising environment today, kind of the runway you see for growth here and where the potential
call. Yes, there are a few things that are really working call for us in alternatives. One is just the quality of the firms that we have. We think it's that they're strong in their individual asset classes call. And we're in a number of different alternative areas from real estate to private debt, private equity to hedge funds.
We also have an advantage call. We are seeing growth around the world in our alternatives. It's not just U. S. Flows.
A number of our alternatives have an ESG component to them, especially in real estate. And so that combination of ESG and alternatives call is resonating, I think, quite strongly. And finally, from the alternative side, I'd say you spent a lot of time concentrating call on how to democratize access to alternatives to make sure it's not just institutions in the ultra high net worth segment call that can access alternatives and we're raising money in retail as well. All of that to me speaks to the ability call to have continued strong momentum in fundraising there.
And let me just add, Adam. Call. There's a lot of discussion about the democratization of alternatives, our experience and I think we probably have one of the strongest retail call. It is complicated to sell in a retail franchise and it is an area of serious focus for us for figuring out how to do it and we've had some success in it. And then if you think about call.
Our biggest alternative managers with Clarion and BSP both are income generating and that fits very well call in the retail space. So it's a matter of educating the advisors on it and getting the brand name out there, call. But having the relationships that we have, we think that that's just a huge upside opportunity for us there.
Call. It's also good to put alternatives generally into perspective in terms of where we've come and where we are. About 2.5 years ago, we had about $18,000,000,000 to alternative assets under management. And we now have $141,000,000,000 under management. Obviously, and that call.
Contains 2 large acquisitions of Benefit Street Partners and Clarion, but it also includes an embedded 15% at least organic growth rate over that period. So it's both Acquisitions and making opportunities work in terms of organic growth.
And the final thing I would add is that we're continuing to add resources to distribution there and it was only last quarter that we started a specialized sales group to focus just on alternatives in the U. S. And we're seeing traction from that already.
Our next question comes from Ken Worthington with JPMorgan.
Hi, good morning. This is Samantha Trent on for Ken Worthington. So our first question is just
on the equity fund call
on these equity fund redemptions that were called out this quarter. You highlighted that these assets generate very little in revenue.
Can you kind of give
us an indication on how much net of the assets Franklin manages that generate little, if any, revenue? And is this a good business? And what do you see as the outlook for these low fee assets?
Call. I don't know that we if I try
to think through it, I
mean, you obviously call. Things like Smart Data and Pathus, obviously, are lower, but we have those primarily in our ETFs. If you look at our $13,000,000,000 in ETF, 50% of it's active. Call. So there aren't no fees, but obviously the passing is lower.
I'm just trying to I'm stalling a little bit because I'm trying to think through any call. Obviously, big chunky, which I don't I can't think of any off the top of my head. These were kind of unique relationships call that honestly we had acquired years ago kind of local managers, smaller managers that had Lower
fees. Okay. Thank you.
And just one more. Call. I mentioned in the commentary that Franklin added a number of new agreements with distribution partners. Can you just kind of talk about the nature of these agreements and Are you trying to make these more making its way to more of a third list with these distribution partners? And then also just talk about how call to be compared with your existing distribution agreement.
Sure. I don't think there's a real change in call. What I would highlight is that really added agreements are really a direct result of a concerted effort to cross call. So a lot of those additional agreements are onboarding legacy Legg Mason products to Franklin agreements or vice versa, And we've done both. One of the statistics we've called out is that we've cross sold to about 6,000 new advisors call in the U.
S. That is advisors who used to do business with only Legacy Franklin or Legacy Legg Mason. We're able to do that because we're taking on more agreements and putting product callers. More products on broad platforms. We also see a real geographic benefit to taking those new platforms on.
If you think about call. Europe, as an example, in EMEA, where Franklin historically had a stronger distribution footprint, call. About 15% of our AUM is legacy Legg Mason in terms of retail distribution, But it's about 30% of the flow. So getting products onto those platforms has had a real immediate benefit to us. Call.
Thank you for taking my questions. Our next question comes from Brennan Hawken with UBS.
Good morning. Thanks for taking my question. You referenced the enhancements to customization capabilities within your SMA offering. Can you speak to where you are today with that customization and those capabilities
and whether or not that call.
And what investments you want to make to enhance that offering call and further execute that opportunity.
Let me start and then Adam can add to it. Call. About 10% of our SMA business today is already very much customized, whether it's tax harvesting or call. And we just believe fundamentally with technology, FinTech, fractionalization of shares This customization of individual accounts is going to become more and more important, whether it's for things like tax harvesting or things like call. Yes.
The clients are demanding that kind of customization or for it to just fit into a portfolio. Now, Cloudera Trust is a high net worth manager that's been I think we're going to celebrate our 90th year this year. That's what they did. I mean, if you're a high net worth manager, oftentimes people come with concentration holdings from a single company call. That maybe they built and so you customize the rest of the portfolio around that.
So it's and of course it's they tend to be high tax bracket people. Call. Tax management is key to what they do. What we're seeing and we've talked about this as the world has gone fee based is the demands on financial advisors to provide the type of services that traditionally were just done by high network managers like City Show Trust and bring them call. And so we think this trend is here to stay.
We have had that capability within our SME for quite a while. We're continuing to call. And I know, Adam, you're closer to the day to day. I don't know if you want to add anything to that.
Yes. I think, Jeremy, really did hit call. The high points there, it is already 10%, about $125,000,000,000 in SMAs. It's continuing to grow and we're continuing to expand that reach call to more folks. What I would say in general about our SMA business is that ClearBridge and Lake Mason historically had an call.
Incredibly strong infrastructure in terms of operational and technological platform for the SMA business. We've now been able to use that platform across the business call. Such that about 50% roughly of our net flow into the SMA business is coming from legacy Franklin Investment call. So really seeing again the advantage of using a legacy part of one firm to benefit the entire organization.
Call. Yes. Thanks for that. We definitely heard about that success. But is there anything you can add to the revenue opportunity call tied to those that 10%.
I would say in general that when we look at our SMA business, call. It tends to be very good revenue business because it tends to be stickier than mutual fund business. We have a longer average life call. And that has a definite revenue impact. I would also say that to the extent that you customize for a client, call over time that relationship becomes less about quarter to quarter performance and more about call.
Really meeting the client's overall goals, whether those are the ESG goals or tax efficiency goals, which again leads to longer
callers. It's also going from a profitability perspective. Even though it's lower fee, it's higher margin business. It costs less
to run. Because
it exists on the you use the existing infrastructure and so incremental. Correct. For you. Thanks for that. Yes.
Okay. And then Matthew, understanding your commentary about the chunky nature of the performance fees and The $10,000,000 a quarter is probably conservative, which looks pretty clear, especially after last quarter. But is there a seasonality? Call. Now that we're kind of getting used to the new business mix here at Franklin, should we think about a seasonality to the performance fees?
And call. Ballpark of like half of that 80% as
a reliable
yes, I think that's correct. Yes, I think it's the way to look at it. I was thinking about Patrick's question. I think the way that we look at it in terms of the call. Performance related compensation.
And without the closed end fund launch costs, we would have been slightly down expense quarter over quarter. Call. So I think that's important. And that allows you to calculate in the roughly 50% or 60% of Yes, performance related conversation, but it really depends then on which performance fee and which specialized investment manager and call. Which mandate it is, it's a little bit difficult to generalize.
So I think in terms of this quarter, that's the right answer. In terms of the call. I'll just take advantage of this just to give you a quick update for the Q4 and call. Comparing it to where we're at now. Our comp ratio, as you can see, was 44% for the quarter, which was consistent to call.
The last quarter, and I expect that to be 43% to 44% next quarter. That's consistent with call. Comp and benefits being down by about 5%. So that's the comp and benefits line. In terms of information systems and technology, I We expect that to be up slightly, probably 5% to 7% in the 4th quarter, and that's driven by outsourcing initiatives, which ultimately call.
We'll help in compensation reductions next year, even somewhat into the Q4. Call. In terms of occupancy expense, we expect this to remain flat in the 4th quarter, perhaps 1% higher because we're working on some interesting opportunities there that call. Result in slightly higher occupancy expense, but then followed by meaningful reductions in 2022, but for the quarter about flat to 1% higher. And then G and L, as you know, this quarter was sharply higher because of the closed end fund launch costs.
Without that, G and A would have been call. Flat. In terms of our expense guidance for the Q4, we're assuming at least 50% normal, Let's call it normalized T and E, which will lead to about $125,000,000 of G and A for the Q4.
Is that sequential growth or year over
year? Sorry, Brad, which sequential or what?
Call. On the expense guidance you gave Brennan, is it is that sequential growth?
Quarter over quarter, so Q4 versus Okay. Yes. Just wanted to
clarify that. Thank you. My broader question is on ESG, the $200,000,000,000 of AUM that you referenced, that's up from $175,000,000,000 in the prior quarter. So If you can talk about what proportion of that was due to net flows into ESG products call. Recategorized the DSG.
And then importantly of that $200,000,000,000 what would you say is in call. As opposed to direct investments in sustainable investments.
So let me try to tackle that. I don't have the exact details. I would say in general, When you think about that $200,000,000,000 it's not primarily exclusionary based at all. Instead, I would say if you had to try to categorize it, think about it as call. More assets that are in line with the European Article 8 or Article 9 definition.
That's roughly how we think about what that call. $200,000,000,000 is. Most of the change there really is due to either market call. Because we're seeing very strong flows, especially in Europe. If I take a look at our European assets.
I think ESG is going to be key in every single market. Europe is just a little bit ahead right now. I believe that call. Article 8 and 9 type assets, that $200,000,000,000 number that represents something like call. 50% of our AUM in the EMEA region, but 30% of our flow and 50% of call.
So it is becoming more and more important. So I think you'll see that number rise over time.
Okay. And I would add that We kind of break that category. So we think the way Europe has done it with Article 6, 8, 9 is a good framework call to think about it. And we are pleased that we have so many products that qualify to get 25 for Article 8 and call. It's diverse across all of our SIEMs.
We kind of put it into 4 categories, thematic, tilted, call. Values could be things like Sharia and Sukup funds and then impact. And we're talking Clarion, Martin Currie, call. Franklin, Western, so really across all of our different SIEMs, we have
Okay. That's helpful.
And then just maybe a follow on on that, the institutional versus retail breakdown, would you
You mentioned
customized SMAs, I think, earlier in response to another question about clients being able to customize
Yes, I would say in that 200, the customized SMAs is not a huge part of that number because a lot of that customization is really tax loss harvesting. Call. So I don't think that's a huge part of that number. Institutionally, we are seeing significant demand for ESG. Call.
And I think in certain markets in Europe and Australia, it's hard to win any new institutional mandates unless you have ESG integration. Call. So I see that as a theme across both retail and institutional. Got it.
And then just lastly for the flow number that you mentioned, it was market and performance call. I'm sorry, performance inflows that drove the $175,000,000 to $200,000,000 Is it fair to say you had more than say $10,000,000,000 to $12,000,000,000 of inflows into call. What you would consider ESG products if
we back out market for the Q2? I think we're going to have to get back to you on that. I don't have that number in front of you. That's Okay. Thank you so much.
Thanks, Brian.
Our next question comes from Bill Katz with Citigroup. Call.
Okay. Thank you very much for taking the question this morning. First question, coming back to expenses for a moment. What is your market assumption as you to the Q4. And then maybe the broader question is, Matthew mentioned that there's some synergy coming.
I don't know if that's just the remaining synergies call. Would the deal if there's anything new, any way to sort of at least initially ring fence how you're thinking about fiscal 2022 call. Maybe excluding performance fee contribution on the comp side or the close end fund vehicle just for comparison perspective.
What's the first question, Bill? The first question?
I'm sorry, I was just asking about on expenses, just the guidance for call. Q4, is that assuming flat markets like
it's been historically or is it yes, yes, yes, it's assuming flat market for the 4th quarter So and performance fees at the rate that I just talked about versus anything that might be elevated. Call. In terms of 2022, it's obviously a little bit early at the moment. We'd rather focus on the Q4 and then provide you with 2022 views call when we talk about the Q4. But just as a reminder that on the expense reductions associated with the merger transaction, call.
We've achieved a notional amount of about $150,000,000 or expect to achieve that amount call. By year end, that means that in 2022, we will achieve the other 150. So That's sort of a stake in the ground in terms of expense reductions in 2022 or else remaining equal.
Okay. And then just a follow-up, just to unpack a couple of different things. When I look at your data you had, I caught that U. S. Turned positive this quarter, I wish would imply that the international book was still outflowing.
Maybe you could walk through maybe what's the difference between what's happening non call. And then just sort of following up on ESG, could you unpack maybe the equity component? I appreciate that you called out a couple of idiosyncratic call. Any sort of color on sort of what's coming in the door versus what is exiting? Thank you.
Call. Sure. So let me try to think about it. So from a regional perspective, U. S.
Is really our largest market. It's somewhere between 70% 75% of total AUM, and we are net flow positive both for the quarter year to date. Call. Things are working really well there. We're continuing to do well with our biggest partners.
We're cross selling really well. And then the other thing I think we've Incredibly well in the U. S. Is to start to bring more specialists to bear from across our investment teams, alternatives, ETFs, etcetera, client relationships. So that's been really strong.
Americas and our European business call. Are roughly flat and the outflows really have been in Asia. The Asian outflows are call. You know what's going on in India, that's a significant portion of it. Some of those one off equity call.
We're in Asia as well that We've also Japan. The good news is that we're seeing a turnaround now in Asia. Call. Our Japanese pipeline is really building, it's more diversified and we're adding new clients there. Our Australian retail business is incredibly strong.
I think we're something like months in a row in net positive flow in Australian retail. So really starting to see Asia turnaround and that's been the reason that's been call. In terms of your other question about what do we see in the future, I really think of call. Distribution is having one part that's really the machine build that's working, and that's the kind of continual grind call today. And that's just going well for us really across the board.
So the machine is working. We're working really well in terms of the central distribution teams with our Sims distribution teams. Call. We're executing on our plan. It's the big chunky stuff that just hasn't been breaking our way lately call.
And that's what's been really impacting some of the negative numbers. We've got a lot though in the pipeline, call. A lot of deals we're working on and I think those bigger things will start to break for us shortly.
Thank you so much.
Our next question comes from Glenn Schorr with Evercore.
Hello. So I want to finish up on that thought. I like I could see the increased diversification of your flows. I like the anecdote you gave us on 15 of the top call. 20 net growth on Galves are your largest 20.
I am curious about the large 20 though also, meaning plus they're large. Call. And I noticed gross sales are still down on the quarter on quarter, you said seasonality. But how should we think about what to expect on both call. Gross sales and net flows, given that the biggest funds aren't contributing.
I want to take away from
all the efforts that you
took out on the diversification front, they're great, but the big funds don't call.
So two things. 1, there really is a seasonal effect. We've gone back for as far as we have data for the combined companies. And this quarter, it was always the smallest for gross sale. Call.
So, there is a seasonal effect that's historic. In terms of the largest funds, right, if you think about things like Western Core call call. So a number of the largest funds still are growing. So we do think that we have the right balance between the absolute largest call. Funds growing, but it's not only the largest funds that are growing.
We've got a number of funds that are under, say, call $2,000,000,000 where we see a lot of momentum. And I think that speaks really, Glenn, to the longer term stability of the business. And one of the things we're trying to focus on is to really build a stable base for years to come. And I think when you're too focused in one geography and one vehicle type and one call. That creates a little instability in the business.
So we're glad that a few of those seeds funds are still growing or net call positive, but we want to add diversification to the mix as well.
Awesome. Thanks so much. Appreciate it.
Our next question comes from the line of Alex Blostein with Goldman Sachs.
Hey, good morning, everybody. Thanks for taking the question. Call. I wanted to start with your outlook for the closed end fund market. We obviously saw you in the market last quarter with a product.
Call. Some of your peers have been fairly active there as well. Is the market environment conducive to do more of those kind
of things? And then if so, maybe talk
a little bit about the strategies where that would make most sense.
Yes. I think what we've seen is now that there's an ability to kind of structure closed end funds in a way That's a little different than they were done years ago. There's really significantly more receptivity to the vehicle. I think it works well for investors, for the to the Investor Manager as well as for the distributors. So I think we're going to see more of them.
Certainly, when you have the $1,000,000,000 plus raise, call. You want to do more, we're currently in discussion with a number of distributors for a range of different products and I think you'll see us The market again.
Great. And then lots of discussion on the call obviously around the diversification of the business call and kind of really building out and scaling some things that you guys have built or acquired over the last couple of years. As I think about the call.
Capital return profile on
a forward basis from an M and A perspective, maybe give us your kind of updated thoughts there as well, how big overall organic opportunity be as part
So we've kept and we've always said this that we've kept a strong balance sheet because we want to be opportunistic call and have the ability. It is we believe we have the broadest product lineup in the industry. And call. From an acquisition to go out and do a large scale acquisition, we would only be adding assets as opposed to capabilities. Call.
And often there's a strategic buyer that will spend more than we will when you're just adding some assets. Call. So it's probably unlikely, but we never say never. If the right opportunity came up, we'd be open to it. Having said that, we've been, I think, pretty call.
Clear on the areas that we're focused on expanding. We want to grow our alternative business. It is a major priority for us. Call. We view that when we think about kind of growth opportunities, it's growing our alts.
While we're $141,000,000,000 and I think bigger than most people call. Realize as far as our Alt business, it's still less than 10% of our AUM, and we think that there's more opportunity to grow there. Call. We've already stated that we like the high net worth business. It's to be sure we trust again as one of the premier callers in that space being again celebrating their 90 years, a very fragmented market, and we'd like to do more acquisitions there.
Call. I thought the capabilities that a fiduciary has, so their trust and tax planning, generation education, all those things are now being call. And so you'll see as we said, I think when we were $20,000,000,000 that we would we'd see ourselves going to $50,000,000,000 We're already at $33,000,000,000 and we continue to look to expand there. Call. And then I would just say that if there are opportunities we'd like to have more scale in places like ETFs, call.
We love our ETF franchise. We think we have a phenomenal team. If something came up in a particular region that could be interesting to us. Call today at 50% active. We actually think we've got really good products in that space.
And then I would call. We've talked about in the past on the FinTech side, these will be more smaller investments or acquisitions. There'll be things that are specifically designed call to help our distribution capabilities, things like our investment in Embark, that was designed specifically for greater penetration on distribution. Call. It turned out to be a good investment too, but those types of things are you'll continue to see us focus there.
Call. Yes.
And then I think, Kevin, it's perfectly, I think just a little bit more on the ops side. I mean, I think, Alex, call. The way we sort of think about the alternatives business is that's probably about 15% of our adjusted revenue at the moment, and we would like that to be significantly more than that. Call. We think it's great what we have, and we're very pleased with the growth rate, both organically and the ability to bolt things on such as the REIT transaction, which is a benefit Street Partners.
But yes, there's we've got real missing We've got real missing components of the overall alternative asset strategy group that we've sort of formed, which is The grouping of companies in the alternative asset space. For example, we have nothing in the equity alternative asset arena. So we're very focused on that. We think we're a very good home, and we think we've got the right structure to put in place to make it very attractive for those companies out there. And another call.
Jenny, you already mentioned wealth and distribution. The other thing I would think about around this is in a way, in many ways, it's a capital allocation question. And with our income profile now, if you take the call. Very important dividend into account, a couple of $100,000,000 of share repurchases to make sure we at least offset compensation grants. Yes.
It leaves us with $1,000,000,000 to invest approximately in the firm, in that unlevered. Call. And that will be fully invested in the firm. In terms of acquisitions, in terms of investing in the business, across all the sins, I think we mentioned in our prepared remarks, for For example, we've allocated $440,000,000 of new seed and co invest capital since call. We announced the acquisition.
That's already turned into over $4,000,000,000 of AUM. So it's almost like a tenfold call. Return on in that regard in terms of turning it from an AUM return perspective. So we see a lot of opportunities there and we're being very disciplined about how we think about that. Call.
The size of our balance sheet gives us more confidence to spend that money each year. And frankly, we're call very active across these areas strategically.
Our Our next question comes from the line of Michael Cyprys with Morgan Stanley.
Hey, good morning. Thanks for taking the question. I I was just hoping to dig in a little bit more on the alternative opportunity set, Alts products within the retail channel. If you could just talk a little bit about how you guys are thinking call. About the opportunities that there would seem that there could be opportunities for Clarion with a private REIT, with Benefit Street with a private PC.
I know You have some public entities there. Can you just elaborate on the opportunity set? Which products can make the most sense and how big could this be for Franklin?
Call. It sounds like you work in our alternatives marketing group because I think you've really hit on 2 of the most important opportunities for us call. I think the other thing that we really need to do is to work with our distribution partners to understand hedge fund business in the retail channel, I think that could be really strong, but BSP, Clarion, Obviously, 2 of the biggest offerings. I would also say that in some more of the traditional asset classes like fixed income, call. There are ways to structure things so that it has more of an alternative call.
As well as, the characteristics that one would expect from alternative investments in a more traditional asset class, and we're seeing that in the retail channel as well. Call.
And Adam, I would just say that you take a Clarion, I mean, one of the call. The feedback we're getting from some of our large distribution partners is a concern that they have a real concentration in managers and they want diversification. Call. And here you got Clarion at $60,000,000,000 plus with unbelievable performance coming out of this call. And really has only been institutional distribution.
And so we just think there's just Tremendous upside there because there's a desire on the distribution side to diversify their managers call. And we've got the distribution team to support the alternatives business and really the products there.
And the final thing I would add is that the fundraising in that channel tends to be Kind of a multi pronged thing. You bring a fund period 1 and then you can come back to market a year later, X number of quarters. Call.
And then the other sort of additional point is that there are some call. Very attractive alternative asset strategies that we don't yet own because we don't have the capability that we think is very logical connection with a large call.
And we don't talk about it, but I think we showed a little bit. Call. We have a very strong venture group and while they're small in the individual private funds, they actually came out of our growth franchise call because of the ability to put some illiquid assets in mutual funds. And so they're probably I don't know that, I think it's about 2,000,000,000 call. Inventure Investments, albeit, a large part of it within our traditional kind of mutual fund, call.
But they're now starting to be selected as a lead against very competitive other VCs on offering. So we're really excited because we think there's
call. This concludes for today's Q and A session. I would now like to hand the call back over to Jenny Johnson, Franklin's President and CEO, for final comments.
Yes. I just want to thank everybody for their time today and call. We appreciate you guys taking the time to the call and want to wish everybody through this next phase call of the Delta variant, everything to stay healthy through these times. So thanks, everybody.
Call. Thank you. This concludes today's conference call. You may now disconnect.