Franklin Resources Inc. (BEN) Q2 2021 Earnings Call Transcript

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Franklin Resources Inc. (BEN -1.85%)
Q2 2021 Earnings Call
May 4, 2021, 10:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Welcome to Franklin Resources Earnings Conference Call for the quarter ended March 31, 2021. Hello, my name is Denise, and I will be your call operator today. As a reminder, this conference is being recorded. And at this time, all participants are in a listen-only mode.

I would now like to turn the conference over to your host, Selene Oh, Head of Investor Relations for Franklin Resources. You may begin.

Selene Oh -- Head of Investor Relations

Good morning, and thank you for joining us today to discuss our quarterly results. Statements made on 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 just described in more detail in Franklin's recent filings with the Securities and Exchange Commission, including in the Risk Factors and the MD&A sections of Franklin's most recent Form 10-K and 10-Q filings.

Now, I'd like to turn the call over to Jenny Johnson, our President and Chief Executive Officer.

Jennifer M. Johnson -- President and Chief Executive Officer

Thank you, Selene. Hello, everyone, and thank you for joining us today to discuss Franklin Templeton's second-quarter results. Greg Johnson, our Executive Chairman; Matt Nicholls, our CFO; and Adam Spector, our Head of Global Distribution, are also on the call with me today. We hope that everyone is well. We continue to operate our business effectively with over 95% of our employees working from home, broadly speaking, we are planning for a return to office in September, though our approach will be flexible and shaped by local requirement and the status of the pandemic in the countries where we do business.

We are encouraged by the number of vaccines that are now being distributed worldwide. Though the rollout rates obviously vary by country, the progress is very promising. Having said that, we have been deeply concerned by the suffering that has resulted from the surge in cases in India and other parts of the world. Our thoughts go out to our employees, to clients, who've been personally impacted by this terrible disease. Turning now to our second fiscal quarter. Today, we are pleased to report financial results that reflect our continued progress with revenue growth and margin expansion, resulting in a 6% increase in adjusted operating income to $581 million. Our financial flexibility remains strong, with cash and investments of $6.2 billion at March 31, net of $250 million of debt pay down in the quarter. After only two quarters as a combined company, we're experiencing organic growth in a number of key areas. We're now a more robust and diversified active management business, and we're encouraged and excited by our collective potential. Our merger has created a differentiated global firm which balances scale and specialization, and which we believe offers expanded opportunities for our stockholders, clients and employees, as well as the financial professionals with whom we partner.

Turning to performance. We're seeing an improvement in performance across a broad base of investment strategies from the prior quarter. More than two-thirds of our strategy composites outperformed their respective benchmarks for the four key time periods. A number of our mutual funds rated four stars or five stars by Morningstar increased to over 140 funds this quarter. Turning next to distribution highlights. We're encouraged by the positive results of our new sales initiative and efforts with deep relationships. More clients purchased both legacy Franklin Templeton and the legacy Legg Mason strategies as demonstrated by our merger wins during this quarter. Our expanded distribution efforts drove an increase in gross sales of 32% from the prior quarter across a broad array of fund, vehicles, and asset classes led by US retail. Long-term inflows increased by $15.9 billion or 19% quarter-over-quarter to $99.4 billion, excluding reinvested distribution. Second-quarter long-term net outflows improved to $4.2 billion compared to $4.5 billion in the prior quarter. Importantly, if you exclude reinvested distributions, net outflows improved by over $10 billion.

Our sales momentum continued with positive net flows in the Benefit Street Partners, Clarion Partners, ClearBridge, Fiduciary Trust International, Franklin Equity Group, Franklin Templeton Fixed Income, Martin Currie, Royce, and Western Asset. As we said on previous call, the firm has been focused on expanding our alternatives platform, and this quarter we did. Alternative strategies grew by $4 billion to $131 billion in assets under management, with contributions from real estate, private credit, and retail alternatives. Clarion Partners and Benefit Street Partners, both reached record AUM levels, and K2 Alternative Strategies also contributed to positive net flows. Fixed income inflows increased by 27% to $53.5 billion from the prior quarter due to positive contributions from a diverse group of fixed income strategies, including Core Bond, Core Plus, and Corporate. We are pleased that Western Asset experienced net inflows of almost $10 billion in the quarter, its highest level in over a decade. Equity inflows were $32.4 billion, consistent with the prior quarter, excluding reinvested distributions. We continue to see strong interest in our thematic equity strategies, and while it's still early days, we're seeing progress increase interest in our value strategies.

As of this quarter's end, our institutional pipeline has increased with a combined total of won but unfunded mandates of $13 billion and is diversified across all asset classes. Aside from our specific results for the quarter, we are also pleased to release our Corporate Social Responsibility Report in April. We established clear goals and priorities for fiscal year 2021, ESG investing key among them and we continue to make important strides to keep our diversity inclusion efforts at the forefront. Before we open it up to questions, I'd like to thank our outstanding teams around the globe, that could give you more extraordinary work every day on behalf of our clients and firm, and they've done so this past year under challenging circumstances. I'm grateful for everything they do.

Now your questions. Operator?

Questions and Answers:

Operator

Thank you. [Operator Instructions] Your first question comes from Dan Fannon with Jefferies. Your line is open.

Dan Fannon -- Jefferies -- Analyst

Thanks. Good morning. My question is on flows and just kind of the momentum. If you look at the backlog, which continues to grow, could you talk about the difference in the backlog this quarter versus last? And then, also, on the strength in Alternatives, if you could talk about the fundraising, if it's evergreen, or ongoing, or if there was some kind of specific closes that maybe drove the strength in this past quarter?

Adam B. Spector -- Executive Vice President, Global Advisory Services

Sure, I'll take that. It's Adam here. Thanks for the question. If you think about what's happening now and how flows are changing, the good news is that they're becoming far more diversified, which is actually what we've been planning to do. So, we're seeing good flows, equities, fixed alternatives, as well as in our Solutions business, and geographically diverse as well. The US remains by far the largest driver of flows, but we're seeing very good flows in Europe and the Americas as well. In terms of Alternatives, I'd say two things happened there, at the top end of the market we saw really healthy subscriptions into Clarion, K2, and others from the institutional market, but we are also really trying to address the democratization of Alternatives, and had some very healthy raises for BSP and others in the wires. And that's something that I think will continue throughout this year as we have other retail launches for other Alternative products throughout our system.

Dan Fannon -- Jefferies -- Analyst

Great. Thank you.

Operator

Okay, thank you. Your next question comes from Brennan Hawken with UBS. Your line is open.

Adam Q. Beatty -- UBS -- Analyst

Hi. Good morning and thank you. This is Adam Beatty in for Brennan. Just wanted to ask about some of the exchanges from equity into multi-asset, seemed like that had a bit of an effect in the quarter. And just the trend you were seeing throughout the quarter or maybe the trajectory? Do you expect a little bit more of that, given where the markets have been, and is there anything in terms of maybe a pull on the multi-asset side that either through marketing or distribution, where you're kind of accelerating that movement in some way? Thank you.

Adam B. Spector -- Executive Vice President, Global Advisory Services

Sure. Let me address that in two parts. First of all, in terms of the exchange, that is more of a one-time thing where we have essentially reclassified and tweaked how we manage an existing fund, so that caused a reclassification. So that's an accurate change for this quarter but not something that you should see happening quarter-over-quarter. In terms of Solutions, in general, though, that has become a focus. What we see at our largest distribution partners is that there is a focus on having their advisors fill on asset gathering and less on portfolio management, which means that the management teams, that our biggest partners are really looking to firms like Franklin, that are full-service offer active sleeves across the entire suite to provide models and solutions. And that's where we're seeing a significant pick up in our Solutions business and would imagine that would continue throughout the year.

Adam Q. Beatty -- UBS -- Analyst

Great. Thanks for broadening the answer. Appreciate it.

Operator

Thank you. Your next question comes from Robert Lee with KBW. Your line is open.

Jeffrey Drezner -- KBW -- Analyst

Hi. This is Jeff Drezner on for Rob. Quick question for -- in regards to gross sales for fixed income. There is a large step up there, but then there was a bit of a sharper drop in equity gross sales. I'm wondering if you could provide any color? I know some of your peers have been showing some more equity size [Phonetic].

Adam B. Spector -- Executive Vice President, Global Advisory Services

Yeah. We're seeing good demand in fixed income and in equity. In fixed income, Western just had an absolutely fabulous quarter, and I think that's what drove a lot of the top-line on fixed income. From an equity standpoint, the great news is that, with the value coming back in the marketplace from a return perspective, we feel that we are quite well balanced in terms of our -- both of the value and growth. The majority of our inflows in equities continue to be on the growth side, in things like DynaTech. ClearBridge is large-cap growth, but we have very strong product on the value side, and we're starting to see a pickup there as well.

Matthew Nicholls -- Executive Vice President, Chief Financial Officer

Also, if you exclude reinvested distributions from the chart, the sales were about flat. And, in fact, the net flows improved into equities when you actually reinvested distributions.

Jeffrey Drezner -- KBW -- Analyst

Great. Thanks. And if I could just quickly follow with one more, just in terms of capital management, maybe your thoughts on acquiring additional high net worth businesses and maybe just a general outlook on -- in the acquisition?

Jennifer M. Johnson -- President and Chief Executive Officer

Yeah, I'll take that -- [Speech Overlap]

Matthew Nicholls -- Executive Vice President, Chief Financial Officer

I mean -- oh, go ahead, Jenny. Good.

Jennifer M. Johnson -- President and Chief Executive Officer

We've stated that we want to continue to grow Fiduciary Trust. And so, as we're looking at those potential acquisitions, we're usually looking not only for assets and expanding our distribution there, but geographic benefit maybe in a location that we're not located, as well as capabilities. So, as you know in the last two -- with the P&L, we got really a top ESG manager and Penn. Trust with the Special Needs Trust. So, it is still an area of focus for us and we will continue to look to acquire there.

Operator

Thank you. Your next question comes from Ken Worthington with JP Morgan. Your line is open.

Ken Worthington -- JP Morgan -- Analyst

Hi. Good morning. The Biden administration has proposed higher dividend and capital gains taxes for the high net worth, if these proposals go through, do you think they could or would have an influence on your business, either the types of products that are sold or the distribution channels through which they are sold? Thanks.

Jennifer M. Johnson -- President and Chief Executive Officer

So, we look at ourselves as a firm. Our expertise is our investment management capability. We want to be flexible in delivering that and whatever vehicle our clients would like to receive it in. So, that can be a mutual fund, that can be an ETF, a CIT, a separately managed account. So, there is no question that there is a lot of discussion out there that you know the mutual fund has some tax inefficiencies that an ETF doesn't have and that there is the potential to us see a shift there. However, you were probably already seeing a bit of that shift as many fee-based advisors prefer the ETF vehicle. So, we want to -- if that happens, you're likely to continue to see an acceleration in that shift. What we have been hearing for the last couple of years from our distributors is you need to be able to package all of your products in any of these vehicles and be agnostic to it, so that you can meet the demands of our varying distribution groups.

Adam B. Spector -- Executive Vice President, Global Advisory Services

And what I would add to that, Jenny, is that we believe we will see increased demand for our muni capabilities, where we have a really strong capability at both Franklin Templeton Fixed Income as well as at Western. And in general, as taxes take a larger bite of the apple, Active Management becomes more and more important, which we think is in our favor as well.

Ken Worthington -- JP Morgan -- Analyst

And, Jenny, you mentioned the ETF wrapper. Since you guys control Precidian, is that something that you're seeing benefit them in terms of either leads or a bit new business inquiries? Any flavor there?

Jennifer M. Johnson -- President and Chief Executive Officer

So, I think it's a -- the jury is still out a little bit on whether people want a true kind of blind trust for their active management capabilities. I think there is a view that many of the products, it's OK to have some transparency even on the active side. We do certainly, and certainly, in fixed income. But I think there is, if you -- you take a small-cap strategy, you're going to need to have that in some kind of blind trust and in ETFs. So, I think that Precidian has the opportunity to benefit, but I don't think it will be at the level, maybe when it was launched, where people thought it would -- that all active ETFs would be in that kind of packaging for an ETF.

Ken Worthington -- JP Morgan -- Analyst

Thank you very much.

Operator

Thank you. Your next question comes from Michael Carrier with Bank of America Merrill Lynch. Your line is open.

Sean Colman -- Bank of America -- Analyst

Good morning. This is actually Sean Colman on for Mike. Can you guys update us on your distribution efforts or placing legacy Legg Mason products into retail products? And did that have a major impact on the improved gross flows in the quarter?

Adam B. Spector -- Executive Vice President, Global Advisory Services

Sure. One of the two things that I think we need to be successful is cross-selling. The other is getting our general and specialist model right. So, from a cross-selling perspective, if you take a look at the two organizations pre-merger, Franklin had much more of a strength in the regional broker-dealer channel. Legg, was a little stronger in the wires, there were some geographic differences as well. One of our major, major efforts is to make sure that we take advantage of that complementary nature of the two businesses. So, if you take a look at what's happened so far, year-to-date, we've cross-sold to about 5,000 new advisors, advisors who either owned only legacy Franklin and bought legacy Legg product or vice versa. And that cross-selling is having a pretty significant impact.

Another way to look at that, geographically, if to think about the presence that Franklin had in Canada or the Americas where Legg was a little lighter, we're now at about 25% ahead of last year's sales in those regions for legacy Legg Mason. So yes, kind of that cross-selling has had a significant impact.

Sean Colman -- Bank of America -- Analyst

Thank you.

Operator

Thank you. Your next question comes from Alex Blostein with Goldman Sachs. Your line is open.

Shariq -- Goldman Sachs -- Analyst

Hi. This is Shariq [Phonetic] filling in for Alex. My question is on the expense guide. In the commentary, [Technical Issues] was mentioned as to subject to market conditions. So just wanted to get a sense as to what are the market assumptions and flows estimates that you have taken into consideration for the rest of the year?

Matthew Nicholls -- Executive Vice President, Chief Financial Officer

So, in terms of the market, we're assuming a flat market, we don't make any additional market overlay assumptions in our guidance. In terms of the flow trajectory, we're assuming something similar to what we've been experiencing and the improvements that we've been experiencing over the last two quarters. And so, that's why our guidance remains consistent with what we described last quarter. What's pushed it up slightly, in terms of the -- we mentioned $3.75 billion to $3.8 billion for adjusted expenses. What's pushed that up slightly is the -- obviously, the continued momentum in the market, but also our performance has improved, our flows have improved, and our results have improved. So, by definition that does have an upward pressure on compensation, in particular. But we have other offsets in our cost structure on -- in that regard.

Shariq -- Goldman Sachs -- Analyst

Understood. Yeah, just a follow-up on that. So assuming that this flow trajectory and the markets continue to grind higher, what's the sensitivity of this guide to kind of go up for the rest of the year?

Matthew Nicholls -- Executive Vice President, Chief Financial Officer

I think we -- for the third quarter, we feel good about the continued $3.75 billion to $3.8 billion. We'll provide further guidance for the fourth quarter and 2022 when we reach that point.

Shariq -- Goldman Sachs -- Analyst

Got it. Thank you so much.

Matthew Nicholls -- Executive Vice President, Chief Financial Officer

Thank you.

Operator

Thank you. Your next question comes from Brian Bedell with Deutsche Bank. Your line is open.

Brian Bedell -- Deutsche Bank -- Analyst

Great. Thanks. Good morning, folks. I just wanted to -- [Speech Overlap] good morning -- talk about the fixed income business broadly. Obviously, when we get, I mean can -- do you have a backup in yields or risings [Phonetic], long-term yield environment? On retail bond funds that tends to close at least a temporary downdraft or eat [Phonetic] its spike up in redemptions in terms of the NAV, then again, if you just get hit on that, but can you talk about -- for the institutional side, It can be a different dynamic. So, can you talk about what clients are saying about that or what if there are concerns about that or what you perceive is client demand, if we do a spike up in yields for Western is -- would you see a temporary sort of elevated redemptions on that or do you think that's actually positive that were [Technical Issues] for a long-term [Indecipherable]?

Jennifer M. Johnson -- President and Chief Executive Officer

I mean, in particular, in the institutional side, I mean, let's face it, pensions, insurance companies, we need fixed income as part of our portfolio, both from a cash flow perspective as well could -- potentially get than [Phonetic] volatility. So we have about 43% of our AUM in fixed income and there are multiple fixed income franchises within Franklin Templeton and they all manage it differently. So, we go anywhere from treasury, is obviously the private credit with the BSP, and so they're all managed differently. With a rising rate environment, obviously, you're going to have an impact on the duration component of the fixed income portfolio. But if you take Western, for example, only 4% of their AUM is actually in government bonds. So, the rest of it, they're doing -- they're managing across sectors, bank loan, high yield, emerging markets. And if you have a running rate environment, chances are that's a better economy -- economic environment, and chances are those -- the credit component and the sector component outperform.

So, when you look at -- and we actually did a study at Western and looked back to 2,000, and there were 30 times where you had a significant short-term -- or a significant period of rate increase which defined by greater than 15 basis points in a month and was extended. And in that, Western tended to underperform in the short term, but then significantly outperform in six months to nine months, and 12 months, because what ended up -- and that's versus obviously benchmark and peers, and that's because the credit sector component kicked in on the performance. So, institutional clients understand that and are willing to kind of work through, at least that's been our experience.

Adam B. Spector -- Executive Vice President, Global Advisory Services

[Speech Overlap] And the other thing I would add is that as rates rise, we would expect to see some money coming out of lower fee cash and very ultra-short products in the more core products, which will have a positive impact for us.

Brian Bedell -- Deutsche Bank -- Analyst

Yeah, no, that's great, If I can sneak in another one on those -- the Schwab, the advisor engine platform integration with Schwab, [Indecipherable] that you mentioned and any view on how that might impact the sales trend through the Schwab Advisor Network going forward from where it's been?

Jennifer M. Johnson -- President and Chief Executive Officer

Our strategy is to -- as the world has moved on the retail side to more of a fee-based environment with somewhere between 75 -- about 75% flows kind of go in that direction. It has pushed because there's obviously transparencies on what the client is paying the advisor, push the advisor to be more of a wealth manager. So our goal is to provide additional tools beyond just investment capabilities to help that advisor via wealth manager, deepens our relationships with that. So in the case of Advisor engine, there are tools within Advisor engine, and it may support the -- the CRM system juncture, that an advisor that's sitting on the Schwab platform and custody on the Schwab platform may want to use some of those tools force some of the clients or all of their clients. And they won't use it unless you have integrated to the custody level.

So, it remains to be seen how that plays out but that's essentially our goal is to just make it as easy for our financial advisory do business with us and to provide those additional types of services that, for example, like GOE, which ends up providing Goals-based investment models, so that you deepen the relationships and hopefully have stickier assets with the advisors.

Brian Bedell -- Deutsche Bank -- Analyst

That's great color. Thank you.

Operator

Thank you. Your next question comes from Patrick Davitt with Autonomous Research. Your line is open.

Patrick Davitt -- Autonomous Research -- Analyst

[Speech Overlap] I think, the last, you answered all my questions. Thank you. I'm good.

Operator

Your next question comes from Craig Siegenthaler Credit Suisse. Your line is open.

Kareem Afifi -- Credit Suisse -- Analyst

Hi. Good morning, everyone, and thank you for taking my questions. And this is actually our Kareem Afifi filling in for Craig. My first question is on flows. I was wondering if you could expand on the reason behind the $6 billion in fixed income institutional redemption? Was it performance-related or did the client want to move the money in-house? And also, does this particular client have other mandates with Franklin Templeton? Thank you.

Adam B. Spector -- Executive Vice President, Global Advisory Services

You know why clients make particular moves? I think you never quite know. I would say, in general, with some large sovereign institutions, we do see a trend to in-source some places. I think this was just not the right mandate for them at the right time. That client still does have significant assets with us as an institution and we feel solid with the overall relationship. We just happened to lose one piece of the overall relationship there, a lot of money, but only a portion of our overall relationship.

Kareem Afifi -- Credit Suisse -- Analyst

Got it. Thank you very much. And if I could sneak one more. Can you maybe comment on the sustainability of retail flows, given the large government stimulus and strong equity market, which may be making current activity levels unsustainable?

Adam B. Spector -- Executive Vice President, Global Advisory Services

Look, I can only tell you what we're doing, not what the government is going to do from a stimulus policy, and I'm feeling really confident about what we're doing in sales. We post-merger really brought the best of the two firms together. We feel really confident in the field force we have out there. We've got folks in new territories now for six months. We're seeing the results of that interaction. We've put a specialist generalist model in place and I see no abatement in terms of the activity we're having, the level of engagement we're having. And feel really, really good about where we are from flows. If you look at US retail, it's by far the largest segment of our overall business. It's the place we put the most attention post-merger to make sure we get the integration right and we're seeing huge benefits. So I'm feeling pretty good about the future.

Kareem Afifi -- Credit Suisse -- Analyst

Thank you very much.

Operator

Thank you. Your next question comes from Michael Cyprys Morgan Stanley, your line is open.

Stephanie -- Morgan Stanley -- Analyst

Hi. Good morning. This is Stephanie [Phonetic] filling in for Mike. My question is around the fee rate, given the improvement in performance fees this quarter, do you think the outlook for generating performance fees has improved into the rest of the year? And then just any help on how we should think about the fee rate exiting the quarter and trending from here?

Matthew Nicholls -- Executive Vice President, Chief Financial Officer

Yeah, I mean look, the fee rate this quarter was supported by a couple of quite large low fee redemptions. We had growth in alternatives, we had good support inequities. So, it solidified where the current rate is. We feel quite good for the year to say that the high end of our guidance at 38 basis points, potentially, 38 basis points to 39 basis points is the right way to model it for the entire year.

Stephanie -- Morgan Stanley -- Analyst

Great. Thank you. And then, just one quick one on cryptocurrencies. Do you see a commercial opportunity in crypto? If so, how are you approaching the opportunity from types of products or investment that you might be considering? Thank you.

Jennifer M. Johnson -- President and Chief Executive Officer

So I'm not a huge fan of things like Bitcoin because I think over time, govern it -- crypto got so big, governments would want to step in and regulate because they like to control the currency. So, I'll put that sort of out there first. That is not to be confused with tokenization both of assets, because I think that that will unlock the illiquid assets that become interesting and also tokenized coins that help facilitate the business model, and that's different. There's nothing backing a Bitcoin but there is something backing a coin that actually has a functional capability. So, I think there's a lot of education that's going to happen out there around tokenization. And I do think that blockchain will completely change sort of how this -- how our industry -- how the financial services industry operates their back office. I think it has, as I said, it has a real capability of democratizing illiquid assets that some would argue might even take some of the premium out of alternative space over a long period of time. But that would be my guess [Phonetic] for that question.

Matthew Nicholls -- Executive Vice President, Chief Financial Officer

I just would add one other thing on the wealth side. Having the capability to field, let's call it, digital assets, in general, is going to probably be important for the future. So, we are focused there on the capability front in that regard.

Jennifer M. Johnson -- President and Chief Executive Officer

Yes.

Stephanie -- Morgan Stanley -- Analyst

Great, very helpful. Thank you.

Operator

Thank you. [Operator Instructions] Your next question comes from Brian Bedell with Deutsche Bank. Your line is open.

Brian Bedell -- Deutsche Bank -- Analyst

Great. Thanks for taking my follow. Now, ESG, I mean you have some detail in the commentary on that. I just wanted to see if you're able to assess what the flows were into ESG dedicated products or what you call specific focus for the quarter? And then, the $175 billion that you mentioned with specific focus. Just wanted to drill in on that a little bit. I think Legg Mason -- but if I'm not mistaken, is the bigger part of that. Not sure if you can go into some color on some of the bigger parts of that $175 billion that you're including in that. Does it include any exclusionary product for example?

Jennifer M. Johnson -- President and Chief Executive Officer

Let me give you my little spill on ESG while Adam looks up a little more detail on the actual flows in some of those. So, first of all, we would -- 93% of our AUM the ESG factor. So we think it's here to stay. We don't think anybody could be an active manager without ESG and all of our investment teams incorporate ESG factors into their investment process. And we think that one of the reasons we're so far along and that is, one, as an active manager, we think that the data out there is not particularly good and it requires engagement by investment teams with companies to actually gather the data. And number two, having a large presence in both Europe and Australia, where really these trends kind of started, we had to develop these products way before they became really important in the US. And we think that, again, despite the industry coalescing around things like SASB and TCFD, right now, it really in credit requires engagement of an active manager to do true ESG kind of screening.

When you look at Europe, they have something called the Article 6, Article 8, and Article 9. Article 6 is you do the screen. So, our 93% of ourAUM would qualify in that. In Article 8, we have 25 products there. And Article 8 is I have a tilt toward the ESG factors, and Article 9 is really impact. And we have [Indecipherable] on there. We are seeing good flows into our two Paris-aligned climate ETFs. Our European Total Return and our Templeton Global Climate are both reaching $1 billion, good flows into our Social Infrastructure Fund. I know, ClearBridge US Equity Sustainability Fund has been in net sales for the last 12 months. So, to answer a little bit of your question, we're seeing flows in a broad set of products. And what's interesting, I think, you're seeing is the supply side of ESG is really increasing as you hear like Europe, one-third of their COVID relief fund will go in the Green Bonds, which is doubling the size of the market, obviously with a pipe in infrastructure. If that gets passed, you're going to see increase there. And so, there will be a lot more supply which will continue to drive this.

And, Adam, I don't know if you want to add any additional details to that?

Adam B. Spector -- Executive Vice President, Global Advisory Services

I think, Jenny, you hit on all of the high points. I would just say that the great thing about our ESG capabilities is that, yes, we have it in the traditional asset classes, equities, fixed income, but also in Solutions and Alternatives. And it's in alternatives in places like K2, Clarion, etc., where we're also seeing significant flows. And I think that combination of ESG and also is going to be a real winner for us.

Brian Bedell -- Deutsche Bank -- Analyst

The -- to -- to put off one -- if I just back up, the one-time redemption of the $6 billion in the India fund, we would have about $3 billion of positive flows for the quarter. [Indecipherable] fair to say, ESG funds would have driven on a net basis a significant portion of that? Positive $3 billion? [Phonetic]

Matthew Nicholls -- Executive Vice President, Chief Financial Officer

I don't think we know the answer that [Speech Overlap] You're right on the $3.4 billion there, yeah.

Brian Bedell -- Deutsche Bank -- Analyst

Yeah. Okay, great. Thank you.

Operator

And thank you. That ends our Q&A session. I would like to hand the call back over to Jenny Johnson, Franklin's President and CEO, for final comments.

Jennifer M. Johnson -- President and Chief Executive Officer

Okay. Well, thank you, everybody, for participating in today's call. Through the work that we've done over the past year, we've built a really truly differentiated investment firm and our progress highlights why we are more confident than ever about our future. Once again, I'd like to thank all our employees for their significant efforts, dedication, and client focus. And we look forward to speaking with all of you again, next quarter. So, thank you, everybody.

Operator

[Closing Operator Remarks]

Duration: 36 minutes

Call participants:

Selene Oh -- Head of Investor Relations

Jennifer M. Johnson -- President and Chief Executive Officer

Adam B. Spector -- Executive Vice President, Global Advisory Services

Matthew Nicholls -- Executive Vice President, Chief Financial Officer

Dan Fannon -- Jefferies -- Analyst

Adam Q. Beatty -- UBS -- Analyst

Jeffrey Drezner -- KBW -- Analyst

Ken Worthington -- JP Morgan -- Analyst

Sean Colman -- Bank of America -- Analyst

Shariq -- Goldman Sachs -- Analyst

Brian Bedell -- Deutsche Bank -- Analyst

Patrick Davitt -- Autonomous Research -- Analyst

Kareem Afifi -- Credit Suisse -- Analyst

Stephanie -- Morgan Stanley -- Analyst

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