Franklin Templeton, the old school value investor that has experienced four straight years of investor outflows as customers defected to low-cost passive ETFs, will cut 5% of its staff to goose profits by saving $75 million in overhead, Bloomberg reported Monday.
The company, which, with $712 billion AUM, is one of the largest American asset-management firms, offers more than 200 mutual funds aimed at retail investors. This approach has fallen out of favor in recent years, according to one Bloomberg analyst.
"They have a strong investment culture," said Alison Williams, a Bloomberg Intelligence senior analyst who follows banks and asset managers.
"They’re just in the wrong space. They’re an active manager. They sell to the retail channel. They tend to be more value-focused, but that’s been out of favor in recent years."
The company, which is presently run by the third generation of the Johnson family (the firm was founded in 1947 by Rupert Johnson), has said the layoffs are necessary for the 'long-term health' of the firm.
"Our industry remains in the midst of rapid change, which has put pressure on our business in recent years," Chief Executive Officer Greg Johnson and President Jenny Johnson said in the memo. "These are difficult decisions, but necessary ones for the long-term health and strength of the organization."
The company started with voluntary buyout offers for eligible US employees age 50 or older who have at least 10 years of experience with the company. The firm has nearly 10,000 employees.
The cuts at Franklin Templeton mirror similar cutbacks at industry leaders BlackRock and State Street, which each run massively successful ETF businesses. Those firms are cutting employees from senior managers on down, citing advances in automation that will help them save on costs.
As the FT pointed out last year, Franklin's AUM declined by 20% between July 2014 and July 2018 after four years of heavy outflows. Its European funds, long among the Continent's most popular retail investment products, dropped out of the top 20 Morningstar rankings last year. Franklin has been among the hardest hit active managers in recent years.
In an ominous sign, the story about the cuts appeared ahead of its Q1 earnings report on Friday, when Franklin is expected to post net income of $313.4 million, or 62 cents a share, for the quarter ended in March, according to analysts surveyed by Bloomberg.