Under-pressure Franklin Templeton affiliate, Western Asset Management (WAMCO), has clocked-up about US$120 billion of net outflows since fraud allegations emerged at the fixed income firm last August.
In its December quarter results released last week, parent company, Franklin Resources, said WAMCO would likely see a further US$17 billion exit the manager in January following US$68 billion of net outflows in the final three months of 2024.
US regulators revealed last August that then WAMCO co-chief investment officer, Ken Leech, was under investigation for alleged fraud with criminal and civil charges formally laid in December.
Despite the outflows WAMCO still managers some US$260 billion including a small contribution from the Russell Investments NZ fixed income fund. WAMCO shares investment duties on the Russell NZ bond strategy with Harbour Asset Management: Russell also manages a small (0.5 per cent) in-house overlay on the NZ fund.
However, the Leech scandal saw Russell ditch WAMCO from some global fixed income strategies with Australian manager, Coolabah Capital, picking up a US$1.1 billion mandate in the aftermath.
Franklin has since moved to integrate most of the WAMCO operations into the parent company as a five-year agreement that largely left the manager to its own devices comes to a close.
Earlier in January four emerging-markets debt portfolio managers quit WAMCO, prompting new remuneration offers in a bid to retain investment staff.
Jenny Johnson, Franklin chief, said in a statement: “This past year has presented significant challenges for Western Asset Management and we are committed to supporting them. In the near term, we will integrate select corporate functions, creating efficiencies and giving access to broader resources, while ensuring Western’s investment team autonomy. These enhancements will be seamless for clients.”
The fixed income manager joined the US-listed multi-affiliate empire in 2020 when Franklin acquired the Legg Mason group – a collective that also included Brandywine Global, Martin Currie and Clearbridge.
Aside from the WAMCO damage, the broader Franklin business – including its 2024 purchase of Putnam Investments – “generated positive net flows in equity, multi-asset and alternatives, totaling a combined $17 billion during the quarter”, Johnson said.
“While long-term net outflows were $50 billion, excluding Western Asset Management, our long-term net inflows were $18 billion and positive in every asset class.”
The company told investors it would trim up to US$250 million of expenses coming into the 2026 financial year in news that triggered a more than 11 per cent bump in the Franklin share price.