Jenny Johnson
President and Chief Executive Officer at Franklin Resources
Thank you, Selene. Hello, everyone and thank you for joining us today to discuss Franklin Templeton's fourth quarter and fiscal year 2024 results. On today's call, I'm joined by Matt Nicholls, our CFO and COO and Adam Spector, our Head of Global Distribution. As presented in our fiscal year executive commentary, I will comment on the evolution of our business over the past several years, as well as highlights from our fourth quarter and fiscal 2024. After that, Matt will review our financial results and then we'd be happy to answer your questions. The investor presentation is a new format and includes information that will only be presented annually. In recent years, we have expanded our business in an intentional way, adding a wide range of capabilities to help clients achieve their investment goals through a variety of market conditions and cycles.
As I've traveled the world, meeting with clients and investors, I've seen first-hand that they recognize and appreciate the many steps we have taken to further diversify our business and position Franklin Templeton to succeed over the long-term. Our clients view us as a trusted partner with the ability to fulfill their comprehensive investment needs across public and private markets in investment vehicles of their choice. They appreciate our ability to customize their capabilities and meet their needs through innovative delivery and solutions. Franklin Templeton leverages the talent of our multiple specialist investment managers to deliver expertise to our clients across a wide range of investment styles and asset classes. Our investment teams benefit from Franklin Templeton's deep resources and scale with centralized investments in distribution, marketing, data and innovative technologies like blockchain and artificial intelligence.
Furthermore, [Technical Issues] our model benefits our corporate shareholders with no single specialist investment manager at our firm contributing more than 10% of adjusted operating revenue. And most of our specialist investment managers are diversified within themselves as well. Most recently, we have been investing in AI, blockchain and other important areas relevant to the future of the industry that will benefit our teams and clients.
Now turning to the investor presentation, beginning on slide seven and eight, it's notable how much Franklin Templeton has evolved this business over the past five years and where we are focused going forward. Over the past five years, we have increased and accelerated the diversification of our AUM via organic growth and targeted acquisitions into higher-growth areas of client demand. Since the beginning of 2019, we have completed significant acquisitions in areas of growth and to position the firm to offer more choice to more clients in more places and those acquired specialist investment managers now represent 64% of AUM and 55% of adjusted operating revenue. In that period, our institutional AUM increased from 25% to 45% and we are now well-balanced between institutional and wealth management. We have made great strides across a number of key focus areas for the company.
Turning to slide nine and starting with investment management, we have now a full spectrum of investment capabilities to help clients meet their varied financial goals. This year, the acquisition of Putnam Investments added strong capabilities such as target date and stable value, which are important in the retirement and insurance channels. And we demonstrated the power of Franklin Templeton's distribution, which led to a $11 billion in net flows into Putnam products. This is an example of combining outperforming investment performance with powerful distribution resources.
Our focus is on continuing to improve investment performance, as well as optimizing the range of our investment product offerings. We are also in a position to leverage the breadth of our investment capabilities across both public and private market and we see opportunity as these markets begin to converge. For example, Franklin has been putting late stage venture into mutual funds for over a decade and Franklin's global allocation fund includes private credit strategies.
As a leading manager of alternative assets with approximately $250 billion in AUM, we offer key capabilities, including alternative credit, secondary private equity, real estate hedge fund and venture. Since fiscal year 2019, alternative asset AUM has increased by over five times through three sizable acquisitions and organic growth. I'm proud to note that since becoming part of Franklin Templeton, each alternative specialist investment manager has expanded and diversified across strategies, vehicles and clients.
Specifically on the role of alternatives in wealth management. The wealth management channel has approximately only 5% of AUM allocated towards alternatives. But depending on the client's liquidity need, it can be much higher. Institutions, for example, have been allocating up to 40% for years. Our global distribution footprint, investor education platform and dedicated alternative specialist team combined with our breadth of investment capabilities make us a relevant force in the wealth management channel. This year, we're pleased that we establish the alternatives by Franklin Templeton brand in the wealth management channel in the US and look to broaden it in EMEA and Asia. Over the next five years, our goal is to fundraise at least $100 billion across private market and look to add additional capabilities, for instance, in infrastructure as well as to globalize certain strategies.
Next, turning to distribution. We are one of the most comprehensive global asset managers with clients in over 150 countries. Offering clients a diverse range of investment vehicles is not just beneficial, but essential in today's marketplace. Over the last five years, we have seen meaningful growth in retail SMAs and both ETF and custom indexing AUM has grown by over three times. In particular, this fiscal year, growth accelerated in retail SMAs, ETFs and Canvas AUM each reaching record highs. Our ETF business grew by 89% in the year, with positive net flows for the 12th consecutive quarter with net flows at or exceeding $1 billion for eight consecutive quarters. And in fact, in the last two quarters, that number has been over $3 billion each.
Total assets stand at $31 billion across active and indexed strategies from just zero a few years ago. Canvas AUM increased by 94% from the prior year to $10 billion and has generated positive net inflows in every quarter since its acquisition in 2021. We increased the number of partner firms by almost 70% from one year ago. Over the next five years, we are looking to scale ETF AUM by three times and Canvas assets by five times. Today, we are a leading provider of retail SMAs with $145 billion in assets, an increase of 29% from the prior year.
Going forward, we are focused on expanding our product offerings. For example, we launched a retail SMA variant of our flagship Franklin Income Fund and launched tax managed option strategies utilizing Canvas. Investment Solutions AUM almost doubled in size to $89 billion from the prior year with the additions of K2 and Putnam's target date funds and through organic growth. Franklin Templeton Investment Solutions will remain a critical component of our growth strategy by leveraging our capabilities across public and private asset classes to deliver customized solutions to meet our clients' demands.
Over the next five years, we aim to more than double our solutions platform. Additionally, our breadth and depth of investment capabilities, engagement, capital resources and value-added services positions us well as a valuable partner. This year, we've been delighted to establish new multi-billion dollar relationships with clients in each of our regions and strategic partnerships will remain an important aspect of growth in the future.
Turning to slide 10, two other important growth areas are Private Wealth Management and Digital and Technology. In the Private Wealth Management segment, Fiduciary Trust International has a clear opportunity due to the unprecedented intergenerational transfer of wealth. This will be the largest wealth transfer in history with $84 trillion set the path from older generations to their heirs through 2045. $53 trillion will transfer from households in the baby boomer generation. Fiduciary is a fully-integrated wealth platform with investment advisory, trust and estate planning, tax planning and custody services. It has an impressive client retention rate of approximately 98%. Since 2019, fiduciary doubled its AUM, reaching an all time high of $39 billion and had positive net flows annually for the past three years.
Going-forward, we look to double the size of this business through organic investments and targeted acquisitions. This represents both a standalone opportunity by owning a wealth manager and also a broader distribution opportunity. Investing in innovation and cutting-edge technologies continues to be of strategic importance for the firm. We have made important investments in value-added services, including technology and digital wealth in order to be on the forefront of innovation in areas increasingly important to our clients and operations.
In addition, as early adopters of artificial intelligence, Franklin Templeton is working to responsibly employ AI to boost productivity, deliver greater value to clients and make our investment processes and operations more efficient. A great example is our partnership with Microsoft that was announced last quarter. We are working collaboratively to build an advanced financial AI platform that will help embed artificial intelligence into our sales and marketing processes, creating more personalized support for our clients.
In the digital asset space, we continue to look for new ways to leverage blockchain technology. For example, we launched the first US registered fund to use a public blockchain to process transactions and record share ownership in 2021. And this year, we launched Franklin Bitcoin ETF and Franklin Ethereum ETF, making it easier for clients to access investment opportunities with our digital asset solutions. Looking-forward, there are many more exciting advancements that are underway in this space. Matt will cover capital management, operational integration and expense management shortly.
Turning to the market performance during our fiscal year, global equities rose by more than 30%, while global bonds increased by nearly 12%. Throughout much of the year, large-caps outperformed small-caps, driven by top technology and communication services firm with growth stocks exceeding value stocks. Investor enthusiasm around artificial intelligence was the major theme over the past 12 months. Moderating inflation and declining bond yields helped the magnificent seven stocks advance 53%, while the broader technology sector notched a 52% gain.
In our fourth quarter, there was also a corresponding shift in equity market leadership beyond the magnificent seven. In fact, only two of the seven stocks in this group have meaningfully outperformed the S&P year-to-date through October. Broader market participation is encouraging for active managers. Eight of the 11 sectors outpaced the broader S&P 500 during the quarter versus two sectors, technology and communication services have outperformed over the prior nine months. Both previous winners were laggards in the most recent quarter.
Investors focus has shifted from inflation to concerns about the durability of the global economic expansion and by extension, the outlook for corporate profits. And while the Federal Reserve's decision to cut interest rates by 50 basis points in mid-September makes a soft landing in 2025 more likely, the market's push for deeper monetary easing may elevate volatility in the coming quarters. The market expects the Fed to cut rates again this week and this seems like a reasonable assumption. Recent Fed speak signals greater comfort with the latest progress on disinflation. There is, however, uncertainty on the outlook for the labor market as it is difficult to disentangle the temporary impact of strike actions and hurricanes from the most recent week jobs data.
As the Fed's rate cutting cycle proceeds, we expect traditional Fixed Income sectors to take their place as a primary source for yield, as cash begins to look less attractive. While spreads are tight at their current levels, we are not anticipating a sharp deceleration in activity and our Fixed Income managers continue to find opportunities at attractive yields. Meanwhile, in private markets, our specialist investment managers continue to see strong investment opportunities in alternative credit, secondary private-equity and select real estate segments. And demand for differentiated expertise is at a premium, as these markets continue to gain interest. For example, we're excited by opportunities in alternative credit, particularly in real-estate debt where BSP manages $8 billion and given the need for liquidity in private equity, we see strong interest in secondary private equity at Lexington.
Turning now to fiscal 2024 results in terms of investment performance, mutual fund investment performance improved in the one, three and 10-year periods from the prior year. Composite investment performance improved in the five and 10-year and stayed essentially flat in the three-year period from the prior year. On flows, long-term net outflows were $32.6 billion for the fiscal year and reinvestment distributions were $20.7 billion. Excluding Western Asset Management, long-term net inflows were $16 billion compared to net outflows of $5.2 billion in the prior year. We saw a 25% increase in long-term inflows from the prior year to $319 billion. We're pleased to see that gross sales have improved across all asset classes in public markets, as well as across every region and in both retail and institutional distribution channels.
From a regional perspective, our international business continues to grow and we have seen continued momentum with positive long-term net flows for the year and AUM surpassing $500 billion. Gross sales in the US increased by 31%, EMEA by 23%, APAC by 19% and the Americas by 24%. And from a client type perspective, retail sales improved 27% and institutional sales increased by 21%. From an asset class perspective, turning to Alternatives on slide 12, in fiscal year 2024, private markets fundraised $14.8 billion, in line with our target. Lexington closed its flagship fund with $22.7 billion in total capital commitments raised primarily in 2022 and 2023, ranking among the largest funds raised to date in the global secondary private equity market and with approximately 20% raised in the wealth channel.
Benefit Street Partners closed its flagship private credit fund and its special situations fund with $4.7 billion and $850 million in total capital commitments raised, respectively with each fund exceeding targets. Clarion Partners AUM remained stable despite weakness in the real-estate sector in the year. We believe that there is increasing sentiment that worst is behind us. For example, the ODCE benchmark turned positive and there is the beginning of a pick-up in transaction volume, strengthening confidence for potential for transactions in fiscal year 2025.
Going-forward, we are well-positioned in the sector with minimal office exposure of 7% and well-performing products in strong sectors such as industrial, multi-family and life science. In addition, we're excited about new areas of growth that include European Logistics fund and investing in new alternative strategies in the US, including self-storage, student housing, medical and senior living property types.
Turning to public markets, multi-asset net flows were $8 billion, driven by positive net flows in the Franklin Income Fund, Canvas and Franklin Templeton Investment Solutions. On slide 18, you can see equity sales improved each quarter this year and grew 53% year-over-year, excluding reinvested distributions. In addition, Fixed Income long-term inflows increased year-over-year by 26%.
Now turning to Western Asset, as you are aware, we launched an internal investigation focusing on certain past trade allocations of treasury derivatives by former Co-CIO, Ken Leech in select Western Asset Managed strategies. The DOJ, SEC and CFTC are conducting parallel investigations and those investigations are ongoing. On August 21st, we announced that Ken Leech was on a leave of absence following receipt of a wells notice from the SEC. We take this matter extremely seriously and are fully cooperating with the government. Since the announcement of the investigations, Western Asset has experienced significantly higher net outflows of $37 billion in the fourth quarter and $49 billion for the fiscal year. However, today, the Western team of more than 100 highly experienced investment professionals led by Mike Buchanan, who was promoted to sole CIO from Co-CIO continues to manage approximately $330 billion in AUM across 88 marketed strategies.
The team continues to focus on investment performance and providing leading client service. Mike has been with Western nearly two decades and has over three decades of industry experience. Since the beginning of the investigations, Western's assets trading policies have been reviewed by third party experts. Per this review, despite being aligned with industry standards, Western has further enhanced its training policies and practices. In addition, Franklin Resources is working with Western's management team to explore ways to assist Western Asset, including adjustments to economic arrangements, operational and revenue synergies. This may entail changes that are similar to what we have successfully implemented with our other public market specialists investment managers, while maintaining investment process independence. And I'm sure that you understand with an ongoing investigation, we are unable to provide any further information or address questions on this matter at this time.
Aside from Western Asset, we think it's important to highlight the breadth of our Fixed Income investment management expertise, including Franklin Templeton Fixed Income, Brandywine Global and Templeton Global Macro, which have non-correlated investment philosophies. As of September 30th, these specialist investment teams managed an aggregate $266 billion in Fixed Income assets and generated positive net flows of $6.4 billion in the fiscal year. Furthermore, Franklin Templeton Fixed Income comprised the largest component of our one but not yet funded pipeline.
Speaking of the pipeline, this quarter, our institutional pipeline of one but unfunded mandates was $15.8 billion. While new wins replenished our fundings, the $2 billion decrease from the prior quarter included a change in value in a client mandate at Western. The pipeline remains diversified by asset class and across our specialist investment managers. Finally, this year, we acquired Putnam Investments, which has exceeded our expectations. Since closing on January 1, Putnam's AUM has grown 21% to $180 billion. Putnam continues to deliver a strong track record of investment performance. The transaction also enhanced our presence in retirement and insurance markets with AUM in these channels at $645 billion.
Let me wrap-up by saying, we take pride in the efforts we've made over the past few years to further grow and diversify our business. We have navigated challenges, created new opportunities and upheld the high standard that have defined us for over 75 years. Finally, I would like to thank our employees around the world for their unwavering dedication and commitment to always putting our clients first. It's their hard work that is the driving force behind our success.
Now I'd like to turn the call over to our CFO and COO, Matt Nicholls, who will review our financial results for the fiscal quarter and year. Matt, over to you.
