Q2 2024 Franklin Resources Inc Earnings Call

Okay.

Selene Oh: Welcome to Franklin Resources' earnings conference call for the quarter ended March 31st, 2024. Hello, my name is Sylvia, 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, Chief Communications Officer and Head of Investor Relations for Franklin Resources. You may begin.

Sylvie: Welcome to Franklin Resources earnings Conference call for the quarter ended March 31, 2024, Hello, My name is Sylvie and I will be your call operator today.

Sylvie: This conference is being recorded and at this time all participants are in a listen only mode.

Sylvie: I would now like to turn the conference over to your host Selene, Oh, Chief Communications Officer, and head of Investor Relations for Franklin Resources, you may begin.

Selene Oh: 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 or 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.

Selene: Good morning, and thank you for joining us today to discuss our quarterly results statements made on this conference call regarding Franklin resources, 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.

Selene: Brett 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.

Selene Oh: These and other risks, uncertainties, and other important factors are 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.

Glad in more detail and frankly 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: Hello, everyone, and thank you for joining us today to discuss Franklin Templeton's results for the second fiscal quarter of 2024. I'm joined by Matt Nichols, our CFO and COO, and Adam Spector, our Head of Global Distribution. We'll answer your questions in just a few minutes, but first, I'd like to review some highlights from the quarter.

Thank you Celine Hello, everyone and thank you for joining us today to discuss Franklin Templeton's results for the second fiscal quarter of 2024, I'm joined by Matt Nicholls, our CFO and COO and Adam Specter, our head of global distribution.

Jennifer M. Johnson: Well answer your questions in just a few minutes, but first I'd like to review some highlights from the quarter.

Jennifer M. Johnson: In terms of public equity markets, 2023 was, to some extent, a tale of two markets, the Magnificent Seven and the S&P 493, with the former contributing the lion's share of returns. So far in 2024, in the public equity markets, we've seen a significant dispersion emerge in performance among the Magnificent Seven, leading to a better environment for fundamental research to capture alpha, and when augmented by robust risk management, can deliver compelling portfolio results for clients.

In terms of public equity markets 2023 was to some extent a tale of two markets the magnificent seven.

Jennifer M. Johnson: The S&P 493, with a former contributing the lion share of returns.

So far in 2024, and the public equity markets, we've seen a significant dispersion emerge in performance among the magnificent seven.

Jennifer M. Johnson: Leading to a better environment for fundamental research to capture alpha and when augmented by robust risk management can deliver compelling portfolio results for clients.

Jennifer M. Johnson: Given the current backdrop, we believe equity allocations should, in general, tilt towards sectors and regions that are being overlooked due to the heavy concentration in the largest companies. In addition, the theme of artificial intelligence will likely continue to be a significant stock driver, both positive and negative, for the haves and have-nots over time. Meanwhile, on interest rates, consensus estimates currently indicate a notable decrease in the number of expected cuts for 2024 by the Federal Reserve from six to now two.

Given the current backdrop, we believe equity allocation should in general tilt towards sectors and regions that are being overlooked due to the heavy concentration in the largest companies in.

Jennifer M. Johnson: In addition, the theme of artificial intelligence will likely continue to be a significant stock driver both positive and negative for the haves and have nots overtime.

Jennifer M. Johnson: Meanwhile, on interest rates consensus estimates currently indicate a notable decrease in the number of expected cuts for 2024 by the Federal reserve from six to now too.

Jennifer M. Johnson: FedSpeak increasingly signals openness to delaying rate cuts to later in the second half of this year on the back of improving economic growth and slower disinflation, against this background, while cash may continue to look attractive in the very near term.

Jennifer M. Johnson: Fed speak increasingly signals openness to delaying rate cuts to later in the second half of this year on the back of improving economic growth and slower disinflation.

Jennifer M. Johnson: Against this background, what cash may continue to look attractive in the very near term fixed income opportunities will likely provide a better total return option over high yielding cash equivalents as the cutting cycle commences.

Jennifer M. Johnson: Fixed income opportunities will likely provide a better total return option over high-yielding cash equivalents as the trimming cycle commences. Looking at private markets, secular trends and macro tailwinds continue to create opportunities in alternative credit, secondary private equity, and select areas of real estate. In addition, investor demand for private market exposure is increasing given its diversification benefits, potential for higher risk-adjusted returns, and as a hedge against inflation. Broadly speaking, these signals point to a complex market environment that creates opportunities for active management.

Jennifer M. Johnson: Looking at private markets secular trends.

Jennifer M. Johnson: Macro tailwind continued to create opportunities in alternative credit secondary private equity and select areas of real estate.

Jennifer M. Johnson: In addition, investor demand for private market exposure is increasing.

Jennifer M. Johnson: Given its diversification benefits potential for higher risk adjusted returns and as a hedge against inflation.

Jennifer M. Johnson: Broadly speaking these signals point to a complex market environment that creates opportunities for active managers.

Jennifer M. Johnson: This quarter, my executive team and I had the opportunity to travel extensively outside the U.S. to meet with many of our key clients to hear firsthand what is on their minds and how Franklin Templeton can better serve them.

Quarter, My executive team and I had the opportunity to travel extensively outside the U S to meet with many of our key clients to hear firsthand what is top of mind and how Franklin Templeton can better serve them.

Jennifer M. Johnson: As a global active manager with $1.6 trillion in assets under management and operating in 35 countries around the world, we believe that Franklin Templeton is positioned to take advantage of the money in motion by assisting our clients with a broad range of investment capabilities across public and private assets in vehicles of choice. We were also pleased to learn that our clients recognize the steps we have taken over the past few years to further diversify and strengthen our presence in important markets and distribution channels outside the U.S. We again saw aggregate positive net flows in non-U.S. regions, which now have approximately $490 billion in assets under management.

Jennifer M. Johnson: As a global active manager with one six trillion in assets under management and operating in 35 countries around the world. We believe that Franklin Templeton is positioned to take advantage of the money in motion by assisting our clients with a broad range of investment capabilities across.

Public and private assets in vehicles of choice. We were also pleased to learn that our clients recognize the steps we have taken over the past few years to further diversify and strengthen our presence in important markets and distribution channels outside the U S.

Jennifer M. Johnson: [noise] weekend saw aggregate positive net flows in non U S regions, which now have approximately 490 billion in assets under management. Furthermore, a number of our clients continue to progress towards working with fewer asset managers and in this regard expect not only a broad range of.

Jennifer M. Johnson: Furthermore, a number of our clients continue to progress toward working with fewer asset managers and, in this regard, expect not only a broad range of investment capabilities but also other services, including technology, portfolio construction, customization, and thought leadership.

Jennifer M. Johnson: Investment capabilities, but also other services, including technology portfolio construction customization and thought leadership.

Jennifer M. Johnson: At Franklin Templeton, we leverage the skills of multiple specialist investment managers to deliver expertise across a wide range of investment styles and asset classes. Our investment teams benefit from Franklin Templeton's scale with centralized investments in content, technology, data, and most recently, artificial intelligence, where we're excited about collaborating with leaders in technology on AI platforms. Moreover, the diversity of our model benefits our corporate shareholders, given that no single specialist investment manager at our firm represents more than 12% of adjusted operating revenue, and most of our specialist investment managers are diversified within themselves as well.

Jennifer M. Johnson: At Franklin Templeton, we leverage the skills of multiple specialist investment managers to deliver expertise across a wide range of investment styles and asset classes.

Jennifer M. Johnson: Our investment teams benefit from Franklin Templeton scale with centralized investments in content technology data and most recently artificial intelligence, where we're excited about collaborating with leaders in technology on AI platforms.

Jennifer M. Johnson: Moreover, the diversity of our model benefits, our corporate shareholders given that no single specialist investment manager at our firm represents more than 12% of adjusted operating revenue and most of our specialist investment managers are diversified within themselves as well.

Jennifer M. Johnson: Turning to highlights from the quarter, ending AUM increased by 13% to $1.64 trillion from the prior quarter and increased by 16% from the prior year quarter due to the addition of Putnam, as well as positive markets and net inflows. Average AUM increased by 13% and 11% to $1.58 trillion from the prior quarter and the prior year quarter, respectively.

Jennifer M. Johnson: Highlights from the quarter, ending AUM increased by 13% to 1.64 trillion from the prior quarter and increased by 16% from the prior year quarter due to the addition of Putnam as well as positive markets and net inflows average AUM increased by 13% and 11%.

Jennifer M. Johnson: At 1.58 trillion from the prior quarter and the prior year quarter, respectively.

Jennifer M. Johnson: Investment performance continues to be strong and resulted in 62%, 51%, 62%, and 69% of our strategy composite AUM outperforming their respective benchmarks on a 1, 3, 5, and 10 year basis, benefiting from the addition of Putnam. In terms of mutual funds, investment performance resulted in 51%, 60%, 44%, and 56% of mutual fund AUM outperforming their peers on a 1, 3, 5, and 10-year basis, and performance strengthened versus peers across the 3, 5, and 10-year time periods, quarter over quarter.

Jennifer M. Johnson: Investment performance continues to be strong and resulted in 62%, 51%, 62% and 16, 9% of our strategy composite au am outperforming their respective benchmarks on a 135 and 10 year basis benefiting from the addition of Putnam.

Jennifer M. Johnson: It was a mutual funds investment performance resulted in 51%, 60%, 44% and 56% of mutual fund AUM outperforming their peers on a 135 and 10 year basis and performance strengthened versus peers across the three five and 10 year time periods quarter over quarter.

Jennifer M. Johnson: Our long-term net flows were $6.9 billion in the quarter, including reinvested distributions of $3.1 billion, and $13.7 billion was funded out of the $25 billion allocation from Great West. Long-term net inflows were spread across asset classes, investment vehicles, and geography. Fixed income, multi-asset, and alternative assets led the way from an asset class perspective, and we continue to see growth in our separately managed account, ETF, and Canvas offerings. Each has achieved at least four consecutive quarters of net inflows, and all are at record high AUM.

Jennifer M. Johnson: Our long term net flows were $6 9 billion in the quarter, including reinvested distributions of $3 1 billion and $13 7 billion was funded out of the 25 billion allocation from great West.

Jennifer M. Johnson: Long term net inflows were spread across asset classes investment vehicles and geographies.

Jennifer M. Johnson: Fixed income multi asset and alternative assets led the way from an asset class perspective, and we continue to see growth in our separately managed accounts ETF and canvas offerings.

Jennifer M. Johnson: Each have achieved at least four consecutive quarters of net inflows and all are at record high a U M. Long term inflows of 85 billion increased by 23% from the prior quarter and 37% from the prior year quarter, excluding reinvested distributions, which are seasonally Ella.

Jennifer M. Johnson: Long-term inflows of $85 billion increased by 23% from the prior quarter and 37% from, excluding reinvested distributions which are seasonally elevated in the prior quarter and inflows from Great West. Long-term inflows increased by 17% from the prior quarter and 15% from the prior year quarter. In terms of flows by asset class, fixed income net inflows were $8.3 billion. We saw client interest reflected in positive net flows into core bond, highly customized corporate bond, multi-sector, municipal, and high-yield strategies.

Jennifer M. Johnson: They did in the prior quarter and inflows from great West long term inflows increased by 17% from the prior quarter and 15% from the prior year quarter.

Jennifer M. Johnson: In terms of flows by asset class fixed income net inflows were $8 3 billion. We saw client interest reflected in positive net flows into core bond highly customized corporate bond multi sector municipal and high yield strategies.

Jennifer M. Johnson: Equity net outflows were $5.3 billion. We saw positive net flows into large cap value and smart beta. Excluding reinvested distributions, which are seasonally elevated in the prior quarter, equity net outflows improved by 29% from the prior quarter.

Jennifer M. Johnson: Equity net outflows were $5 3 billion, we saw positive net flows into large cap value and smart beta excluding reinvested distributions, which are seasonally elevated in the prior quarter equity net outflows improved by 29% from the prior quarter.

Jennifer M. Johnson: Multi-asset net inflows were $2.9 billion, driven by Franklin Templeton Investment Solutions, the Franklin Income Fund, and Canvas, our custom indexing solution platform. Alternative net inflows were $1 billion, driven by growth into private market strategies, which were partially offset by outflows in liquid alternative strategies. BenefitStreet Partners, Clarion Partners, and Lexington Partners each had net inflows in the current quarter with a combined total of $1.4 billion. As we mentioned last quarter, in January, Lexington Partners closed its latest flagship global secondary fund with $22.7 billion of total capital commitment.

Jennifer M. Johnson: Multi asset net inflows were $2 9 billion driven by Franklin Templeton investment solutions, the Franklin income fund and canvas or custom indexing solution platform.

Jennifer M. Johnson: Alternative net inflows were 1 billion driven by growth into private market strategies, which were partially offset by outflows in liquid alternative strategies benefit Street partners Clarion partners and Lexington partners. Each had net inflows in the current quarter with a combined total of $1 4 billion.

As we mentioned last quarter in January Lexington partners closed its latest flagship global secondary fund with $22 7 billion of total capital commitments.

Jennifer M. Johnson: Fund 10 ranks among the largest funds raised to date and significantly exceeds Lexington's private secondary fund, which closed with $14 billion in 2020. And we were delighted that approximately 20% of the capital raised in the fund came from the Wealth Management Channel. Also in January, BenefitStreet Partners closed its fifth flagship private credit fund with $4.7 billion of total capital commitment.

Jennifer M. Johnson: Fund 10 ranks among the largest funds raised to date and significantly exceeded Lexington is private secondary fund, which closed with 14 billion in 2020, and we were delighted that approximately 20% of the capital raised in the fun came from the wealth management channel.

Jennifer M. Johnson: Also in January benefit Street partners closed its fifth flagship private credit fund with $4 7 billion of total capital commitments, reflecting the strong demand for the asset class B S. P exceeded its fundraising target. We believe the current market opportunity and backdrop for U S direct lending and alternative credit in.

Jennifer M. Johnson: Reflecting the strong demand for the asset class, BSP exceeded its fundraising target. We believe the current market opportunity and backdrop for U.S. direct lending and alternative credit, in general, is attractive, and BSP has significant underwriting experience, loan structuring expertise, and a focus on deep due diligence, which provides us with a competitive advantage. In the Wealth Management Channel, Alternatives by Franklin Templeton has increased the number of product offerings and expanded platform placement, increasing market share and growing our client base.

Jennifer M. Johnson: General is attractive and BSP has significant underwriting experience loan structuring expertise and focus on deep due diligence, which provides us with a competitive advantage.

Jennifer M. Johnson: And the wealth management channel alternatives by Franklin Templeton has increased the number of product offerings and expanded platform placements, increasing market share and growing our client base our distribution force of more than 350 individuals partners with our 50 person group of alternative asset specialists to educate financial.

Jennifer M. Johnson: Our distribution force of more than 350 individuals partners with our 50 person group of alternative asset specialists to educate financial advisors and their clients on the potential benefits of private market investing. We expect a busy next 12 months across private markets. From an investment vehicle perspective, ETF AUM ended the quarter at $24 billion and generated net inflows of approximately $1.6 billion, representing another quarter of net inflows exceeding $1 billion and the 10th consecutive quarter of positive net flows. SMAAUM ended the quarter at $138 billion and generated positive net flows of nearly $3 billion, representing the fourth consecutive quarter of net inflows.

Risers and their clients on the potential benefits of private market investing we expect a busy next 12 months across private markets.

Jennifer M. Johnson: From an investment vehicle perspective, ETF AUM ended the quarter at 24 billion and generated net inflows of approximately $1 6 billion, representing another quarter of net inflows exceeding $1 billion and the 10th consecutive quarter of positive net flows SMA.

Jennifer M. Johnson: AUM ended the quarter at 138 billion and generated positive net flows of nearly 3 billion, representing the fourth consecutive quarter of net inflows.

Jennifer M. Johnson: Canvas generated net inflows of over $750 million with a robust pipeline and AUM increasing by 23% from the prior quarter to over $7 billion. Investment Solutions leverages its capabilities across public and private asset classes to pursue strategic partnerships. This quarter, Investment Solutions generated positive net flows with assets under management of over $75 billion, including the addition of Putnam. This quarter, our institutional pipeline of one but unfunded mandates was $20 billion, a significant increase from the prior quarter and does not include the remaining allocation from Great West Life Co.

Jennifer M. Johnson: Canvas generated net inflows of over 750 million with a robust pipeline and a AUM increasing by 23% from the prior quarter to over $7 billion.

Jennifer M. Johnson: Investment solutions Leverages, our capabilities across public and private asset classes to pursue strategic partnerships. This quarter investment solutions generated positive net flows with assets under management of over 75 billion, including the addition of Putnam.

Jennifer M. Johnson: This quarter, our institutional pipeline of one but unfunded mandates was 20 billion a significant increase from the prior quarter and does not include the remaining allocation from great West Lifeco. The pipeline is one of the strongest it's been and remains diversified by asset class and across.

Jennifer M. Johnson: The pipeline is one of the strongest it's been and remains diversified by asset class and across our specialist investment managers. With the close of our acquisition of Putnam on January 1st, we are a $1.64 trillion investment manager. We're pleased with the positive reaction from our clients, and in the quarter, Putnam contributed positive net flows, and its AUM increased by 8% to $160 billion, or 18% since our announcement in May last year.

Ross our specialist investment managers.

Jennifer M. Johnson: With the close of our acquisition of putting them on January 1st.

Jennifer M. Johnson: We are a 1.64 trillion investment manager we've been pleased with the positive reaction from our clients and in the quarter Putnam contributed positive net flows and it's a AUM increased by 8% to 160 billion or 18% since our announcement in may last year with our.

Jennifer M. Johnson: With our expanded capabilities, our AUM in the insurance and retirement channels now exceeds $650 billion. Putnam's investment performance continued to be strong, with 89% or higher of mutual fund AUM outperforming peers in the 1, 3, 5, and 10 year periods, and 91% of mutual fund AUM in funds that are rated 4 or 5 stars by Morningstar. We were also thrilled to see that Barron's ranked Putnam the number one fund family for one and five-year performance and number five for the ten-year period.

Jennifer M. Johnson: Expanding capabilities are a U M in the insurance and retirement channels now well exceeds 650 billion.

Jennifer M. Johnson: <unk> investment performance continued to be strong with 89% or higher of mutual fund AUM outperforming peers in the 135, and 10 year periods and 91% of mutual fund AUM in funds that are rated four or five star by Morningstar.

Jennifer M. Johnson: We were also thrilled to see that Barron's ranked Putnam the number one fund family for one and five year performance and number five for the 10 year period. Since the closing. We're also pleased to see that Putnam's average monthly gross sales has increased by approximately 30% demonstrating the.

Jennifer M. Johnson: Since the closing, we're also pleased to see that Putnam's average monthly gross sales increased by approximately 30%, demonstrating the strength of Franklin Templeton's distribution. Turning briefly to financial results, adjusted operating income was $419.6 million, an increase of 0.6% from the prior quarter and a decrease of 4.7% from the prior year quarter. As always, we continue to focus on disciplined expense management while also continuing to invest in growth and innovation for the benefit of our clients and shareholders.

Jennifer M. Johnson: <unk> of Franklin Templeton's distribution, turning briefly to financial results. Adjusted operating income was $419 6 million, an increase of <unk>, 6% from the prior quarter and a decrease of four 7% from the prior year quarter.

Jennifer M. Johnson: As always we continue to focus on disciplined expense management, while also continuing to invest in growth and innovation for the benefits of our clients and shareholders before I turn the call over to you for your questions I would like to thank our employees for their many contributions and always staying laser focused on our clients' financial future now.

Jennifer M. Johnson: Before I turn the call over to you for your questions, I would like to thank our employees for their many contributions and always staying laser focused on our clients' financial. Now, let's open it up to your questions. Operator. Thank you.

Speaker Change: Let's open it up to your questions operator.

Speaker Change: Thank you.

If you would like to ask a question.

Speaker Change: Please press star one on your telephone keypad the confirmation tone will indicate your line is in the question queue.

Speaker Change: If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad, we request that you limit to one initial question and one follow up.

Selene Oh: Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. The confirmation tone will indicate your line is in the question queue. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. We request that you limit yourself to one initial question and one follow-up. One moment, please, for your first question, which will be from. Craig Siegenthaler at Bank of America. Please go ahead.

Speaker Change: One moment. Please for your first question.

Speaker Change: Which will be from.

Speaker Change: Craig Siegenthaler at Bank of America. Please go ahead.

Speaker Change: Yeah.

Craig William Siegenthaler: Thanks, Good morning, everyone.

Craig William Siegenthaler: First we have a big picture net flow question lots of ins and outs in this 7 billion, especially with the $14 billion and from great West. So how should we think about the core.

Craig William Siegenthaler: Core net flow run rate, if we back the $14 billion out of the 7 billion of long term net flows.

Craig William Siegenthaler: Thanks. Good morning, everyone. First, we have a big picture NetFlow question, lots of ins and outs in the $7 billion, especially with the $14 billion in from Great West. So how should we think about the core NetFlow run rate if we back the $14 billion out of the $7 billion of long-term NetFlow?

Craig William Siegenthaler: Hum.

Speaker Change: So Craig Thanks for the question let me.

Craig William Siegenthaler: Let me answer that question in first kind of how we're positioning ourselves and I will I promise you I will get to get to those points and Adam can add some additional cover a color.

Speaker Change: So the way we're positioning the firm I think of it as in four key secular trends.

Jennifer M. Johnson: So, Craig, thanks for the question. Let me answer that question first, kind of how we're positioning ourselves. And I promise you, I will get to those points, and Adam can add some additional color.

That.

Speaker Change: Has driven our acquisition strategy and what we think will drive flows now and in the future. So the first obviously is our movement to alternatives are we think that you know, it's not going away private credit sure to stay banks are going to let the same way that they've done in the past private equity is here to stay.

Jennifer M. Johnson: So the way we're positioned to firm, I think of it as four key secular trends that have driven our acquisition strategy and what we think will drive flows now and in the future. So the first, obviously, is our movement to alternatives. We think that, you know, it's not going away.

Speaker Change: And so if you look at our breadth of capabilities from Lexington, Clarion B S. P. L cetera, We think we have the broadest alternatives capability of any traditional asset manager I am.

Jennifer M. Johnson: Private credit's here to stay, but banks aren't going to lend in the same way that they've done in the past. Private equity is here to stay, and so if you look at our breadth of capabilities from Lexington, Clarion, BSP, and Alcentra, we think we have the broadest alternative capability of any traditional asset manager. And from a flow standpoint, obviously, well known in the institutional space, what's really important is that in the wealth channel, there's a desire to go from about a 5% allocation to a 15% allocation.

Speaker Change: And from a flow standpoint, obviously, well known in the institutional space, what's really important is that the in the wealth channel. There's a desire to go from about a 5% allocation to a 15% allocation and what's significant there. If you just take the four biggest wire houses a 1% increase in allocation is.

Speaker Change: $130 billion are and what we're excited about is that as we mentioned in the prior comments in the opening comments Lexington is 20% of that fund raised was in the wealth channel and believe me that was years of learning.

Speaker Change: It starts and stops in blocking and tackling learning about education educating our own team educating the advisers, who are selling can be able to be successful in that and we think we can take that same strategy with any of our alternatives. The second I'm gonna named four of them. The second is just customization.

Jennifer M. Johnson: And what's significant there, if you just take the four biggest wire houses, a 1% increase in allocation is $130 billion. And what we're excited about is that, as we mentioned in the prior comments and the opening comments, Lexington's 20% of that fundraise was in the wealth channel. And believe me, that was years of learning, you know, starts and stops and blocking and tackling, learning about education, educating our own team, educating the advisors who are selling to be able to be successful in that. And we think we can take that same strategy with any of our alternatives. The second, and I'm going to name four of them.

Speaker Change: We're seeing from technology advances.

Speaker Change: Clients want either specific vehicles or the portfolios to be customized and so if you look at this quarter's trends things like our SMA, which is a positive you know Legg Mason made us a top three SMA provider, you're seeing more and more flows going into Sma's etf's, while we were.

Speaker Change: We're late arguably to the passive ETF space, we were actually early in the active ETF space and today at our $24 billion in Etfs. The largest category is actually active Etfs and we're seeing that in markets like Europe, where the regulatory environments change, there's a greater demand now for Etfs and we're having success in our like Green bond in <unk>.

Jennifer M. Johnson: The second is just customization. You're seeing from technological advances that clients want either specific vehicles or their portfolios to be customized. And so if you look at this quarter's trends, things like our SMA, which is positive, you know, Legg Mason made us a top three SMA provider. You're seeing more and more flows going into SMAs. ETFs, while we were late, arguably, to the passive ETF space, we were actually early in the active ETF space.

Speaker Change: Paris aligned so a lot of the ESG Etfs are doing very well in Europe, and then finally in kind of that customization and vehicle being vehicles gnostic as the direct indexing and you know not only we're seeing positive flows consistently with canvas, but we added 11, new partners to the 88 partners that we have.

Speaker Change: Kansas and once you get embedded in firmed up in the pipes you continue to see flow. So it's just a great opportunity, but I think what gets US. Most excited about campus is the fact that as you're seeing this trend towards greater Sma's, Kansas was built as a technology platform. Some of the direct indexing were more about people who focused.

Jennifer M. Johnson: And today, at our 24 billion in ETFs, the largest category is actually active ETFs. And we're seeing that in markets like Europe, where regulatory environments change, there's a greater demand now for ETFs. And we're having success with our ESG ETFs, like Green Bond and Paris Align. So a lot of the ESG ETFs are doing very well in Europe. And then, you know, finally, in kind of that customization vehicle, being vehicle agnostic is the direct indexing.

Speaker Change: On tax optimization. This is truly a technology platform. So we can see taking a traditional active portfolios of being able to tax optimize as well as tilting in and you have to have the right technology for that the third big trend I think is really global distribution, you're over 1 billion people that are entering the middle.

Speaker Change: Class a 87% of those are in Asia, and so we've got that massive global distribution, we were in Taiwan and 1985, we are the first foreign manager in India, we have local asset management capabilities in emerging markets like in the Middle East, China, India, Brazil, as well as local.

Jennifer M. Johnson: And, you know, not only are we seeing positive flows consistently with Canvas, but we added 11 new partners to the 88 partners that we have with Canvas. And once you get embedded in the pipes, you continue to see flows.

Jennifer M. Johnson: So it's just a great opportunity. But I think what gets us most excited about Canvas is the fact that, as you're seeing this trend towards greater SMAs, Canvas was built as a technology platform. Some of the direct indexing was more about people who focused on tax optimization.

Capabilities and a lot of developed markets and so we think were really uniquely positioned to take advantage of that trend and as a matter of fact this quarter you saw non U S flows were positive outside the U S. And then the fourth and you know obviously really important is the technology and technological advances and that's where I would.

Jennifer M. Johnson: This is truly a technology platform. So we can see taking traditional active portfolios and being able to tax optimize as well as tilting. And you have to have the right technology for that.

Speaker Change: Say you know I think the players so.

Speaker Change: So far if you played the AI move you've been playing paying playing in that picks and shovels of of artificial intelligence. It's gonna be the firms that really figure out how to make this work for them to make it a competitive advantage that's important you'll hear it about an announcement later this week, where we are announcing a strategic partnership on somebody I work that we're doing with one of those big players.

Jennifer M. Johnson: The third big trend, I think, is really global distribution. You have a billion people that are entering the middle class. 87% of those are in Asia. And so, you know, we've got that massive global distribution. We were in Taiwan in 1985.

Speaker Change: And then the secondaries blockchain and you know we came out with a token is first wanted to have a 40 act shareholder system on the public blockchain, we came out with a token as money market funds in 2021. So the first to do that we are actually a node validate or in the space with 11 different nodes is an error.

Jennifer M. Johnson: We were the first foreign manager in India. We came out with a tokenized money market fund in 2021. So the first to do that, we are actually a node validator in the space with 11 different nodes. It's an area we know well, and we think it's going to be really significant. We announced a partnership with a UAE-based firm to leverage. They're going to leverage our blockchain technology shareholder servicing systems to launch a stable coin, and we'll be managing the portfolio there. So as you bring those together, now to answer your question, it's gonna be, it's about execution, right?

Speaker Change: Yeah, we know well and we think it's going to be really significant we announced a partnership with a UAE based firm.

Speaker Change: To leverage that they're going to leverage our blockchain technology shoulder servicing systems to launch a a stable coin and we will be managing the portfolio there.

Speaker Change: So as you bring those together now to answer your question, it's going to be it's about execution right and I can tell you I think we've found it was probably Oh, it's a challenge when you take you you do 10 different acquisitions and you're trying to choose best athlete for your distribution team and we genuinely believe we put together the best.

Jennifer M. Johnson: And I could tell you, I think we found it was probably, you know, it's a challenge when you take, you do 10 different acquisitions, and you're trying to choose the best athlete for your distribution team. And we genuinely believe we put together the best team, but there are headwinds to that where you've, you know, you get a new wholesaler in a region, and you've broken relationships maybe with the prior wholesale And so it takes time to build those relationships back, but we feel like we're really seeing that pay off this quarter. You can see it in our pipeline. I mean, to go from 13 billion to 20 billion and not have it, that's not a great West life.

Speaker Change: [noise] team, but there are headwinds to that where you. You know you you you get a new wholesaler in a in a regionally and you've broken relationships, maybe with a prior wholesalers our clients and so it takes time to build those relationships.

Speaker Change: Back, but we feel like we're really seeing that pay off this quarter you see it in our pipeline I mean to go from 13 billion to 20 billion and not have a that's not any great west life. That's just.

Jennifer M. Johnson: That's just, you know, good solid wins in the pipeline growth. An interesting statistic is our core sales. We define core sales as sales less than a hundred million. So these are the ones that just get on an advisor's platform, and they continue to just allocate to you. So excluding Putnam, those are up 14%. And again, those are where that wholesaler is out there meeting.

Speaker Change: Good solid wins in the pipeline growth interesting statistic is our core sales and we define core sales are sales less than 100 million. So these are the ones that just you get out on advisors off platform and they continue to just allocate to you. So excluding putnam those are up 14%.

Speaker Change: And again, those are where our that wholesalers out there meeting and so you know the good success. There and then if you look at inflows, excluding reinvested distributions of great West life, they're up 17%. So were positive in all those vehicles were positive outside the U S a where we.

Jennifer M. Johnson: And so, you know, the good success there. And if you look at inflows, excluding reinvested distributions, a great West life, they're up 17%. So we're positive about all those vehicles. We're positive outside the U.S. We've got good pipeline strengths.

Speaker Change: We've got good pipelines strikes.

Jennifer M. Johnson: And then you take a firm like Putnam, and this is where we've talked about this, and I think you see it with Putnam, where the big distribution companies or big distributors are saying they want to consolidate the number of partners. And so you take a Putnam; we've actually grown Putnam sales by 30% since the acquisition. And that's just really in some cases where we're a preferred partner with a distributor, and they weren't, and now they get the benefit of being part of that preferred partnership.

Speaker Change: And then you take a firm like partner I mean, this is where we've talked about this and year you I think you see it with Putnam, where the big distribution.

Speaker Change: Companies are big distributors are saying they want to consolidate the number of partners.

Speaker Change: And so you take a putnam, we've actually grown putting themselves by 30% since the acquisition and that's just really in some cases, where we were we're a preferred partner with a distributor and they work and now they get the benefit of being part of that preferred partnership, it's where our 350 plus client facing wholesalers.

Jennifer M. Johnson: It's where our 350-plus client-facing wholesalers can be out there telling the phenomenal story of the performance of the Putnam funds. And so to see a 30% increase in really the first quarter of Putnam because of bringing it all together, that distribution is really exciting. So long-winded answer, Craig, but I think we feel like all that we've put together is coming together in distribution.

Speaker Change: Can be out there telling the phenomenal story of the performance of the Putnam's funds and so you know to see a 30% increase in really the first quarter of of Putnam because of bringing it together that distribution is really exciting. So you know what.

Speaker Change: Long winded answer Craig, but I think we're we feel like all that we've put together is coming together in distribution now.

Jennifer M. Johnson: Thanks, Jenny. We're looking forward to seeing your announcement later this week. We have a follow-up on alternative flows. Over the last eight quarters, we added it up. Franklin had $13 billion in all inflows, and I know this excludes realizations, too. If we add up Lexington 10 and BenefitStreet 5 combined, they added $27 billion. So all inflows looked to have been maybe negative $14 billion in excess to Flagship Fundraises. So a similar question, but honing in on the alternative investments business, how should we think about the alternative going forward, the net flow trajectory, just given that dynamic?

Speaker Change: Thanks, Jenny we're looking forward to senior AI announcements later this week.

Speaker Change: We have a follow up on all flows.

Speaker Change: Yes, eight quarters, we added it up Franklin had a 13 billion of order inflows and I know this excludes realizations too if we add up Lexington, 10 and benefit Street five.

Speaker Change: Combined they added $27 billion so.

Speaker Change: Clothes looked at then maybe negative 14 billion excess two flagship fund raises so.

Speaker Change: A similar question, but on the alts business, how should we think about the or.

Speaker Change: For net flow trajectory, just given that dynamic.

Jennifer M. Johnson: So, I think there's a little bit of noise in the ALTS numbers. If you just look at calendar years 2022 and 2023, we talked last time about how we raised $40 billion in the private markets. But the reality in our alternatives business, we raised $55 billion, and 80% of it was private markets. But the net change in AUMs, you saw $40 billion added to the private markets AUM net, net of realizations, distributions, market, everything.

Speaker Change: So I think it's there's a little bit of noise in the alts numbers. If you just look in calendar year 'twenty to 'twenty, two and 'twenty twenty-three, we talked last time about how we raised 40 billion in the private markets, but the reality in our alternatives business, we raised 55 billion and 80% of it was.

Private markets, but the net change in <unk> you saw a 40 billion added to the private markets AUM net net of realizations distributions market everything but.

Speaker Change: But 16 billion negative in the liquid alts portfolio, which represents about 6% of our alts portfolio now so that's where you know you're you're shifting from much. The good news is it's the higher fee private markets that have had that had solid inflows in that window, but it was a little bit masked by the lower fee liquid alts.

Jennifer M. Johnson: But $16 billion negative in the liquid ALTS portfolio, which represents about 6% of our ALTS portfolio now. So, that's where, you know, you're shifting from much of the good news is it's the higher fee private markets that have had solid inflows in that window, but it was a little bit masked by the lower fee liquid ALTS. Now, fast forward to this fiscal year. So, in the first two quarters, first of all, we said that we would be raising between $10 and $15 billion. That was our, that's our goal for the year. We're on track for that.

Speaker Change: Now fast forward to this Oh I'll go this fiscal year. So the first two quarters are first of all we said that we would be raising between 10 and 15 billion that was our that's our goal for the year. We're on track for that we've raised about $7 3 billion in the private markets and another just under $2 billion in the law.

Speaker Change: We'd alts, but if you net out distributions realizations, FX and market and to be honest market you only they only.

Jennifer M. Johnson: We've raised about $7.3 billion in the private markets and another just under $2 billion in the liquid ALTS. But if you net out distributions, realizations, FX, and market, and to be honest, market, the only negative market was real estate with Clary, and the others were all positive. We'd say it nets out to flat. So, you know, again, kind of a gross number there, but if you take away the distributions, realizations, and FX, FX was actually pretty significant. Matt can probably give you more details on this, but we have netted flat so far in this fiscal year.

Speaker Change: Negative market was real estate with Clarion the others were all positive.

Speaker Change: Say it nets to flat so you know.

Speaker Change: Again kind of a gross number there, but if you take away the distributions realizations and FX FX was actually pretty significant Matt Matt can probably give you more details on this but we netted flat so far in the AR in this fiscal year.

Speaker Change: Yeah.

Speaker Change: Just for perspective.

Matt: For the last quarter that we're just reporting on.

Matt: Realizations and distributions was $2 6 billion for example, and we have negative ex FX of another $1 billion.

Matthew Nicholls: Yeah, Craig, just for perspective, for the last quarter that we're just reporting on, realizations and distributions were 2.6 billion, for example, and we had negative FX of another billion. But we do, you know, we get these questions, and I think we're going to try and improve our disclosure on this to try and help the questions around this. Now we've got the bulk of our alternative assets together. Remembering in previous quarters, we've always said, you know, when we were much smaller, we always said, look, realizations and distributions, they're just not significant enough to report and break down the explanation of AUM, but they're now getting to the point where we're going to start providing that level of detail. For information, you know, the last quarter, again, again, the one we're reporting on was 2.6 billion in realizations and distributions. 1 billion, you know, negative F, Craig. The only thing I would add is that

Speaker Change: But we do we get these questions and I think where we're going to try and improve.

Speaker Change: Our disclosure on this to try and help with the question around this now we've got the bulk of our alternative assets together.

Speaker Change: Remembering in previous quarters. We've always said you know when we were much smaller we've always said look realizations and distributions just not they're just not significant enough to report and breakdown.

The exploration of AUM, but they're now getting to the point, where we're going to start.

Speaker Change: Providing that level of detail, but just.

Speaker Change: For information here last quarter, because again, when we report here almost $2 6 billion of realizations and distributions and.

Speaker Change: 1 billion.

Speaker Change: Negative FX.

And Craig the only thing I would add is that the other thing we've been able to do really is to work more closely with our distribution partners on the wealth management side over the last few quarters.

Speaker Change: And we're able to secure a calendar spots further into the future than we ever thought was possible and I think that speaks well to our future fund raising as well.

Jennifer M. Johnson: And Craig, the only thing I would add is that the other thing we've been able to do really is to work more closely with our distribution partners on the wealth management side over the last few quarters, and we're able to secure calendar spots further into the future than we ever thought was possible. And I think that speaks well to our future fundraising as well.

Speaker Change: Great. Thanks, everyone.

Speaker Change: Thank you next question will be from Glenn Schorr of Evercore. Please go ahead.

Glenn Paul Schorr: Hi, Thank you.

Glenn Paul Schorr: So wanted to talk about fixed income a little bit.

So I see.

Glenn Paul Schorr: <unk> funded status is much much better and rates are higher.

Glenn Paul Schorr: The $8 3 billion of flows in the quarter, but I don't know if how much of that came from great west or something else. So maybe you could talk about that and then bigger picture.

Glenn Paul Schorr: Thank you. The next question will be from Glenn Schorr at Evercore. Please go ahead.

Glenn Paul Schorr: Is this do you feel this is the beginning of a broader trend that the long awaited fixed income flows maybe you can give us a little bit of insight from whether it be rfps client combos are where the consultants.

Jennifer M. Johnson: Thank you. I like the $8.3 billion in flows in the quarter, but I don't know if how much of that came from Great West or something else. So maybe you could talk about that and then, bigger picture, do you feel this is the beginning of a broader trend of the long-awaited fixed income flows? Maybe you can give us a little bit of insight from whether it be RFPs, client convoys, or consultants if we're at the precipice of some larger flows into fixed income. Thanks.

Glenn Paul Schorr: If we're at the precipice of some larger flows into fixed income.

Speaker Change: Yeah. Thanks, Scott So interestingly, let's face. It is long is people believe rates have peaked and potential would come down, but they're gonna go longer duration right. So.

Speaker Change: The only thing is you're now starting to hear the noise for the first time were actually people think.

Speaker Change: You know rates, maybe longer are higher for longer and somebody even as ive been talking about a potential rate increases so that could slow things, but let me give you that what we're seeing so we obviously had positive flows but just looking at the pipeline and the pipeline doesn't include any great West life. If you are at.

Jennifer M. Johnson: Yeah, thanks, Glenn. So, interestingly, let's face it, as long as people believe rates have peaked and potential to come down, they're going to go longer duration, right? So, the only thing is you're now starting to hear the noise for the first time where actually people think, you know, rates may be higher for longer, and somebody who's even talking about potential rate increases. So, that could slow things. But let me give you what we're seeing.

About 70 plus percent of the growth in the pipeline is fixed income and that crosses western Franklin and Brandywine have you actually add a b S. P. Because I always think private credit really should be thought of in the fixed income because the decisions around that are often.

Speaker Change: How you're thinking about your fixed income portfolio the growth in the pipeline, 97% of it comes from fixed income. So you know in six of our top 10 gross selling funds. The last this past quarter were in fixed income corporate bond core bond multi sector Muni is highly customized core plus so definitely demand.

Speaker Change: In the last quarter, but if you actually look at the pipeline going forward. The institutional pipeline you see very strong demand for fixed income.

Jennifer M. Johnson: So, we obviously had positive flows, but just looking at the pipeline, and the pipeline doesn't include any Great West Life, if you add, well, about 70 percent of the growth in the pipeline is fixed income, and that crosses Western, Franklin, and Brandywine. If you actually add BSP, because I always think private credit really should be thought of in fixed income, because the decisions around that are often how you're thinking about your fixed income portfolio, the growth in the pipeline, 97% of it comes from fixed income.

And I would say that it's also pretty broad based if you take a look at that funding pipeline, it's really across all four of the fixed income firms, we have which all have very significant.

Speaker Change: Right now and if you take a look at the products we're offering.

We're positive in core and high yield in munis was our best selling segment. So really broad based fixed income appeal not just one product.

Yeah in there also.

Speaker Change: If they're also positioned differently in terms of their view on where rates are going so that means we're we've had performance weaknesses.

Jennifer M. Johnson: So, you know, six of our top 10 growth selling funds in the last, this past quarter were in fixed income, corporate bond, core bond, multi-sector munis, highly customized core plus. So, there was definitely demand in the last quarter, but if you actually look at the pipeline going forward, the institutional pipeline, you see very strong demand for fixed income.

Speaker Change: It's being offset not always fully but being partially offset by strength in other parts of the franchise.

And while the institutional business that you asked about is strong. We're also positive in ETF SMA Muni ladders to lots of different fixed income vehicles doing well for us.

Speaker Change: Yeah.

Yeah.

Speaker Change: This is the time to follow up on that same topic is.

Speaker Change: Allocations changed a lot in other words I hear you on the on the flows that's very bullish commentary for the forward look.

Jennifer M. Johnson: And I would say that it's also pretty broad-based. If you take a look at that funding pipeline, it's really across all four of the fixed-income firms we have, which all have very significant pipelines right now. And if you take a look at the products we're offering, you know, we're positive and core in high-yield, and munis were our best-selling segment. So really broad-based fixed-income appeal, not just one product.

Speaker Change: But if you took a snapshot of a year ago and two year year ago allocations to where we are now and maybe two years forward do you think we'll see a major.

Speaker Change: Fixed income shift or I know, it's a lot broader than that but we will fix income allocations will be a lot higher two years out.

Again, I think it depends on your view on rates.

Speaker Change: You know and as I think Adam or Matt mentioned.

Jennifer M. Johnson: Yeah, and they're also positioned differently in terms of their view on where rates are going. So that means where we've had performance weaknesses, it's being offset, not always fully, but being partially offset by strength in other parts of the franchise.

Speaker Change: Yeah.

E U.

Speaker Change: Our fixed income teams are all.

Spread up.

Bread out as far as their view on where rates go the Franklin frankly, guys, probably think a little bit higher for longer western is.

Speaker Change: Probably more aggressively position for rate cuts.

Speaker Change: So I think it really depends on your views I do think if rates stay here for longer it has impacts on returns on equity markets as far as expectations are you know private markets as well.

Jennifer M. Johnson: And while the institutional business that you asked about is strong, we're also positive on ETFs and SMAs, muni ladders, so lots of different fixed income vehicles are doing well for us.

Speaker Change: So.

Speaker Change: You know Glenn I think again, I think it's going to depend on where people where they think they should position our portfolio I don't know Adam do you want to add anything.

Jennifer M. Johnson: Kids, just a tiny follow-up on that same topic is, have allocations changed a lot? In other words, I hear you on the flows. That's very bullish commentary for the forward look. But if you took a snapshot of a year ago and two years ago allocations to where we are now and maybe two years forward, do you think we'll see a major equity fixed income shift? Or, I know it's a lot broader than that, but will fixed income allocations be a lot higher two years out?

Adam: I think it depends on the client right you mentioned more fully funded pension plans right. If we get a wave of more immunization going on we're going to see that drive fixed income flows at the same time really in every channel around the world. What do we say has moved towards alternative that money is coming out of all of the other traditional buckets. So I think both of those are kind of.

Adam: Meeting with each other and pushing fixed income allocations in the opposite direction.

Speaker Change: Thank you for all that I appreciate it.

Jennifer M. Johnson: Again, I think it depends on your view on rates. You know, and as I think Adam or Matt mentioned, our fixed income teams are all kind of spread out as far as their view on where rates go. You know, the Franklin guys probably think a little bit higher for longer.

Speaker Change: Yeah.

Speaker Change: Thank you next question will be from Dan Fannon at Jefferies. Please go ahead.

Daniel Thomas Fannon: Good morning, Thanks for taking my question I guess, Matt maybe we could start with some expense questions. So curious about what the delta was in comp versus your guidance and then as we think about the seasonal impacts of some of the of this quarter. How much do you expect to roll off as we go into <unk> and then maybe update us on.

Jennifer M. Johnson: Western is probably more aggressively positioned for rate cuts, so I think it really depends on your views. I do think if rates stay higher for longer, it has impacts on returns on equity markets as far as expectations, you know, private markets as well. So, you know, Glenn, I think, again, it's going to depend on where people think they should position their portfolios. I don't know, Adam, do you want to add anything? Yeah, I think it depends.

Daniel Thomas Fannon: I'm kind of a full year outlook for expenses.

Matt: Yeah. Thank you. Thank you Dan So a couple of things on expenses around the second quarter, we'll get to the comp and benefits in the second of all just like to say that I'm not.

Matt: Notwithstanding the higher resets are around compensation.

Matt: Ananda resets around compensation, but I'll talk about in a minute.

Matt: And meaningfully higher markets. If you exclude Putnam, which was the main addition, we had in the quarter our expenses would have been flat so notwithstanding.

Adam Benjamin Spector: Yeah, I think it depends on the client, right? You mentioned more fully funded pension plans, right? If we get a wave of more immunization going on, we're going to see that drive fixed income flows. At the same time, really, in every channel around the world, what we see is a move towards alternative where money is coming out of all of the other traditional buckets. So I think both of those are kind of competing with each other and pushing fixed income allocations in the opposite direction.

Higher performance fees phase than we expected.

Matt: We're counting the resets and we expected in high markets than we expected our expenses for the quarter would've been flat when you actually put them. So hopefully that demonstrates some discipline.

Matt: In terms of your specific question around comp and benefits for the second quarter.

Matt: The difference is I would say, it's around almost half of its the performance fee a little bit less than half is performance fee increase relative to where we thought it would be and then there's this.

Glenn Paul Schorr: Thank you for all that. I appreciate it.

Daniel Thomas Fannon: Thank you. The next question will be from Dan Fannon at Jeffreys. Please go ahead.

Speaker Change: Hi, Hi, I would put it.

Daniel Thomas Fannon: Good morning. Thanks for taking my question. I guess, Matt, maybe we could start with some expense questions. So, curious about what the delta was in comp versus your guidance. And then, as we think about the seasonal impacts of this quarter, how much do you expect to roll off as we go into 2Q? And then maybe update us on kind of the full year outlook for expenses.

Speaker Change: We were expecting kind of a reset FICO obsession, but theyre just higher than we thought they would be so.

Speaker Change: Things like the 401k mutual fund units and and compensation deferred compensation plans, our vacation accruals. They were all when you add all those things up.

Speaker Change: Plus the performance fee a delta it adds up to about $30 million. So when you add the 30 million to I think I guided 815 on the call that gets you to pretty much where the 844 is where we ended up.

Matthew Nicholls: Yeah, thank you. Thank you, Dan.

Matthew Nicholls: So a couple of things on expenses around the second quarter. I'll get to comp and benefits in a second. But I'd just like to say that, you know, notwithstanding the higher resets around compensation, calendar resets around compensation that I'll talk about in a minute, and, you know, meaningfully higher markets, if you exclude Putnam, which was the main addition we had in the quarter, our expenses would have been flat. So, notwithstanding higher performance fees than we expected, higher calendar resets than we expected, and higher markets than we expected, our expenses for the quarter would have been flat when you exclude Putnam. So hopefully, that demonstrates some discipline there.

Speaker Change: Ended up.

Speaker Change: So that explains.

Speaker Change: Explains that part of your question in terms of the.

Speaker Change: The annual guide.

Speaker Change:

Speaker Change: Last quarter, we guided to a full point.

Speaker Change: <unk>.

Speaker Change: Billions of dollars.

Speaker Change: And that's.

Speaker Change: Excluding performance fees.

Speaker Change: But including the double rent that we've talked about around out in New York City consolidation exercise.

Speaker Change: I would increase that just slightly to $44 six four to 465 billion very narrow range, so less than 1% higher and thats really driven by.

Matthew Nicholls: In terms of your specific question around comp and benefits for the second quarter, the difference is, I'd say it's around almost half of it's the performance fee, a little bit less than half is a performance fee increase relative to where we thought it would be. And then there are these, there's these high, I would sort of, we were expecting calendar resets in compensation, but they're just higher than we thought they'd be. So things like the 401k, mutual fund units in deferred compensation plans, and vacation accruals.

Speaker Change: The higher markets that we've experienced if markets come back down again.

Speaker Change: We've been experiencing a very recently in the first part of this quarter.

Speaker Change: It wouldn't surprise me if our annual guide remains flat, but right now all else remaining equal we'd expect it to be just slightly.

Speaker Change: Higher.

Speaker Change: For the for the annual guide.

Speaker Change: Great.

Speaker Change: Helpful and then maybe just the <unk>.

Speaker Change: Follow up on that with regards to the effective fee rates I think you had talked about it coming into the mid 30 eights as the year progressed, so I guess, given where mixes of U M levels. All the dynamics that go into that how how do you see that trending.

Matthew Nicholls: They were all, when you add all those things up, plus the performance fee delta, it adds up to about $30 million. So when you add the $30 million to, I think I guided 815 on the call, that gets you to pretty much where 844 is where we ended up. So that explains that part of your question in terms of the annual guide. Last quarter, we guided to 4.6 billion dollars.

Speaker Change: Thank you for the question so.

Speaker Change: <unk> for the quarter dropped to 38.5 and I believe that's exactly how we guided for the quarter and we were able to do that because we had a pretty good feel for the mix that were coming in in terms of flows.

Speaker Change: And I think I also pointed out that you know, we're a basis point a higher than usual, let's call. It a or the effective fee rate for the last quarter was inflated by a basis point based on the Lexington.

Matthew Nicholls: And that excluding performance fee. But including the double rent that we've talked about around our New York City consolidation exercise And I would increase that just slightly to probably four point six four to four point six five billion very narrow Range so less than 1% higher, and that's really driven by The higher markets that we've experienced if markets come back down again If we as we've been experiencing very recently in in the first part of this quarter It wouldn't surprise me if our annual guide remains flat, but right now all else remain equal expected to be just slightly higher, for the annual guide.

Lexington catch up phase.

Speaker Change: Going forward on an annual basis, I would say that our <unk> should remain in the 38 is probably in the mid 30 eights.

It'll be slightly higher than that driven by episodic alternative asset fees as we've experienced over the last 12 months and highlighted that it is clearly I think in our results.

Speaker Change: And then the other thing that will help it be higher as you know.

Speaker Change: A larger percentage of alternative assets at a higher percentage of equities.

Speaker Change: With the public markets going up as much as they did in the first quarter, obviously as a percentage overall alternative assets came down a bit.

Matthew Nicholls: Right, that's helpful. And then maybe just to follow up on that with regard to the effective fee rate, I think you had talked about it coming into the mid-38s as the year progressed. So, I guess, given where mix is, AUM levels, all the dynamics that go into that, how do you see that trend? Yes, thank you for the question.

Speaker Change: So that brought the F O pressured down slightly and then yeah, we had quite a few successes as Jenny mentioned in her remarks.

Speaker Change: In Etfs canvas separately managed accounts and all these things are.

Speaker Change: Although the rate businesses, but it's less about fee erosion per se I'd say, it's just more about the business mix. So for the next quarters specifically.

Matthew Nicholls: Yes, thank you for the question. So the EFR for the quarter dropped to 38.5 and I believe that's exactly how we guided for the quarter and we were able to do that because we had a pretty good feel for the mix that were coming in in terms of flows and I think I also pointed out that you know we were a basis point higher than usual let's call it or the effective fee rate for the last quarter was inflated by a basis point based on Lexington catch-up.

Speaker Change: We'd expect if all it's a pretty big even in the high 37, So it's a high 37 to 38.

But this is because of the success.

Speaker Change: We didn't anticipate as much success with Putnam cause the overall apartment businesses or is it lower effective fee rate, they're kind of in the mid mid 30 fives.

Speaker Change: Foster inflows from great West life at the lowest fee and.

As we communicated hopefully clearly enough, but are those the $25 billion of a U N that we expect to come in from great Great West life that will ultimately when we get it all in that would be in the mid teens.

Matthew Nicholls: Going forward on an annual basis, I would say that our EFR should remain in the 38s, probably in the mid 38s. It'll be slightly higher than that driven by episodic alternative asset fees as we've experienced over the last 12 months and highlighted those clearly, I think, in our results. And it can, and the other thing that will help it be higher is, you know, a larger percentage of alternative assets and a higher percentage of equity.

Speaker Change: But the initial the initial amount that we've got and they're all in the lower fee categories things like investment grade credit for example for general account.

Speaker Change: But then on top of that we expect continued growth in our Etfs.

Speaker Change: Canvas and separately managed accounts all of which are all lower fee rates now the reason why we keep the guide for the year in the 30 eights is because we have a view again as Jenny mentioned.

Matthew Nicholls: With the public markets going up as much as they did in the first quarter, obviously, as a percentage overall, our alternative assets came down a bit, so that brought the EFR pressure down slightly. And then we had quite a few successes, as Jenny mentioned in her remarks, in ETFs, Canvas, separately managed accounts, and all these things are lower fee-rate businesses. We expect the EFR to probably be even in the high 37s, so let's say high 37s to 38.

Speaker Change: Our alternative asset fund raising.

Speaker Change: Capabilities and expectations for the next 12 months, let's call. It so on an annual basis, we expect the mix of business.

Speaker Change: Around alternative assets equities fixed income and then these other areas of growth that I, just mentioned to offset the fee reductions that that at times in various quarters could go into the high 30 Sevens.

Matthew Nicholls: But this is because we didn't anticipate as much success with Putnam because the overall Putnam business is a low effective fee rate; they're kind of in the mid, mid-35s, faster inflows from Great West Life at the lower fee end, as we communicated, hopefully clearly enough, that the $25 billion of AUM that we expect to come in from Great West Life will, ultimately, when we get it all in, be in the mid-teen But the initial amount that we've got in, they're all in the lower fee categories, you know, things like investment grade credit, for example, for general account. But on top of that, we expect continued growth in our ETFs. Canvas, and separately managed accounts, all of which have lower fee rates.

Speaker Change: But that's just based for that one quarter on the mix that one quarter, but for the year, we expect to remain fairly stable in the in the 38 area.

Speaker Change: Great. Thank you.

Speaker Change: Thank you.

Speaker Change: Next question will be from Ken Worthington at Jpmorgan. Please go ahead.

Hi, good morning, and thanks for taking the question.

Kenneth Brooks Worthington: On the institutional pipeline when you win in institutional fixed income mandate are you getting a bunch of cash are you getting a portfolio of securities that you transition and then re manage.

Kenneth Brooks Worthington: And do you get a sense of where the assets are are coming from if its going into fixed income investor.

Kenneth Brooks Worthington: Investors going from rates to credit or are they going from equities to fixed income are they going from cash to fixed income or are they just switching managers because of performance. So any view on on what you've seen in this pipeline that's driving the.

Matthew Nicholls: Now, the reason why we keep the guide for the year in the 38s is because we have a view, again, as Jenny mentioned, of our alternative asset fundraising capabilities and expectations for the next 12 months. So on an annual basis, we expect the mix of business around alternative assets, equities, fixed income, and then these other areas of growth that I just mentioned to offset the fee reductions that, at times, could go into the high 37s. But that's just based on that one quarter's mix, that one quarter, but for the year, we expect to remain fairly stable in the 38 area.

Kenneth Brooks Worthington: Fixed income success, you're having.

Speaker Change: Yeah, you might not like the answer but the answer is yes, I think we're seeing all of those things right. So often people will switch managers because of the performance we.

Speaker Change: We see people beginning to extend duration out.

Speaker Change: Those are usually funded by cash we see some of the plus sectors being added to those are funded and a mix of different ways.

Kenneth Brooks Worthington: The next question will be from Ken Worthington at J.P. Morgan. Please go ahead.

Speaker Change: And then of course on the retail side, it's typically a sale of the funds. So you really don't know where that's coming from.

Kenneth Brooks Worthington: Hi, good morning, and thanks for taking the question. On the institutional pipeline, when you win an institutional fixed income mandate, are you getting a bunch of cash? Or are you getting a portfolio of securities that you transition and then remanage? And do you get a sense of where the assets are coming from?

In terms of how folks fun things are I would say that the mix, we see three different ways.

Speaker Change: We see it being funded in cash we see.

Jennifer M. Johnson: If it's going into fixed income, is it investors going from rates to credit? Are they going from equities to fixed income? Are they going from cash to fixed income? Or are they just switching managers because of performance? So any thoughts on what you've seen in this pipeline that's driving the fixed income success you're having?

Speaker Change: See people using a transition manager and then sometimes we'll see folks fund to us.

Speaker Change: With securities and ask us to get to the new point by a certain time. The other interesting thing we see in terms of how accounts are funded.

Speaker Change: Is actually outside of fixed income on the canvas side, where we see significant use cases for canvas as a tool to aid in the funding of accounts for taxable accounts, we're able to do that.

Jennifer M. Johnson: You might not like the answer, but the answer is yes. I think we're seeing all of those things, right? So often, people will switch managers because of performance. We see people beginning to extend duration out, which is usually funded by cash. We see some of the plus sectors being added to.

Speaker Change: More tax efficient way.

Speaker Change: Okay, great. Thank you.

And just on Etfs, how are you thinking about Etfs outside the U S. You are having nice success in your franchise within the states.

Jennifer M. Johnson: Those are funded in a mix of different ways. And then, of course, on the retail side, it's typically a sale of a fund, so you really don't know where that's coming from. In terms of how folks fund things, I would say that's a mix. We see three different ways. We see them being funded in cash. We see people using a transition manager. And then sometimes we'll see folks fund us with securities and ask us to get to the new point by a certain time.

Speaker Change: How do you think about leveraging the brand or are you thinking about leveraging the brands you have and the ETF franchise that you've already built.

Speaker Change: Yeah, our etfs outside of the U S have grown in two important ways. One I don't think this was the point of your question, but our single country Etfs, So etfs that focus on a country. Even if they are sold in the U S. That's been a huge success for us where we're able to price those very competitively, but also in terms of Etfs that we're selling outside of the U S.

Jennifer M. Johnson: The other interesting thing we see in terms of how accounts are funded is actually outside of fixed income on the Canvas side, where we see significant use cases for Canvas as a tool to aid in the funding of accounts for taxable accounts. We're able to do that in a much more tax efficient way.

Speaker Change: Regardless of investment mandate.

Speaker Change: Seen real growth.

Speaker Change: There in Canada and in EMEA in particular, some of that is the single country flow as Jenny mentioned in her remarks, we have seen.

Kenneth Brooks Worthington: Okay, great. Thank you.

Adam Benjamin Spector: And just on ETFs, how are you thinking about ETFs outside the U.S.? You're having nice success with your franchise within the States. How are you thinking about leveraging the brand, or are you thinking about leveraging the brand you have and the ETF franchise that you've already built? Yeah.

Speaker Change: Some of the more sustainably oriented products.

Speaker Change: Go quite well green bonds, Paris aligned S&P 500 would be two that are examples of that outside of the U S. We continue to see.

Speaker Change: Mix of active passive and smart beta passive is still the most significant portion of the market, but active has by far the highest growth rate and just to put things into context I believe that if you look at our flow for this quarter about half of it or so was from outside of the U S. In terms of our ETF business.

Adam Benjamin Spector: Yeah, ETFs outside of the U.S. have grown in two important ways. One, I don't think this was the point of your question, but our single country ETFs, so ETFs that focus on a country, even if they're sold in the U.S., have been a huge success for us. We're able to price those very competitively. But also, in terms of ETFs that we're selling outside of the U.S., regardless of investment mandate, we've seen real growth there in Canada and in EMEA, in particular.

Speaker Change: So really trying to expand that to the best we can and seeing very good results.

Speaker Change: Great. Thank you.

Speaker Change: Thank you next question will be from Alex Blaustein at Goldman Sachs. Please go ahead.

Alexander Blostein: Hey, good morning, Thanks for the question as well, Jamie I was hoping to dig into your comments from the prepared remarks, when you talked about being quite busy over the next 12 months with respect to private markets.

Adam Benjamin Spector: Some of that is the single country flow. As Jenny mentioned in her remarks, we've seen some of the more sustainably oriented products go quite well. Green Bonds, Paris Align, and S&P 500 would be two examples of that. Outside of the U.S., we continue to see a mix of active, passive, and smart beta. Passive is still the most significant portion of the market, but active has by far the highest growth rate.

Alexander Blostein: Could you I guess expand on that a little bit and I'm, assuming wealth is going to be part of the answer. So when you think about the opportunity set in the wealth channel and lots of other folks coming in with offerings already and it seems like that part of the market is getting a little bit busier what.

Alexander Blostein: What are you guys doing to make sure you don't Miss the window an opportunity there. Thanks.

Speaker Change: Yeah. So I mean, we're in the market with a few different things and as Adam mentioned, where you are getting on calendars. This stuff is laid out.

Adam Benjamin Spector: And just to put things into context, I believe that if you look at our flow for this quarter, about half of it or so was from outside of the U.S. in terms of our ETF business. So really trying to expand that as best we can and seeing very good results.

Speaker Change: I think probably surprised early on to learn this I mean, sometimes up to two years in advance. So you know the areas that we're talking Ah Lexington, obviously has capabilities beyond their traditional.

Alexander Blostein: Thank you. The next question will be from Alex Blostein at Goldman Sachs. Please go ahead.

Speaker Change: Fun town, where they've got middle market and co invest offerings.

In the indicates that real estate Clarient top three biggest funds are all perpetual so theyre always fund raising although we definitely see kind of mute muted demand for real estate are they've got terrific performance and so I think when when things shift back Aw Clarion should do very well there because they have very little exposure to office.

Alexander Blostein: Hey, good morning. Thanks for the question as well. Jenny, I was hoping to dig into your comments from your prepared remarks when you talked about being quite busy over the next 12 months with respect to private markets. Could you, I guess, expand on that a little bit? And I'm assuming wealth is gonna be part of the answer. So when you think about the Opportunity Set and the Wealth Channel and lots of other folks coming in with offerings already, and it seems like that part of the market is getting a little bit busier, what are you guys doing to make sure you don't miss the window at Opportunity there?

Speaker Change: In the in the case of the private credit.

Speaker Change: Real estate debt is really interesting and were talking to several clients about that obviously CLO structured credit special situations.

Speaker Change: And then actually we've been successful I never know how much I can talk about but in our in venture our Franklin venture group is in the wealth channel right now raising money and you know first fund raise their hand, and it's going very well.

Jennifer M. Johnson: Yeah, so we're in the market with a few different things, and as Adam mentioned, we are getting on calendars. This stuff is laid out. We were probably surprised early on to learn this. I mean, sometimes up to two years in advance.

Speaker Change: So you know that you just had to between BSP and Lexington closed their flagship funds. So then you're in you know that they're digesting and investing in those cycles are they're doing more of their niche type strategies, but they are in markets with those and that you know that they will.

Jennifer M. Johnson: So, you know, the areas that we're talking about, Lexington obviously has capabilities beyond their traditional, you know, fund 10, where they've got middle market and co-invest offerings. In the case of real estate, Clarion's top three biggest funds are all perpetual. So they're always fundraising, although we definitely see kind of muted, muted demand for real estate. They've got terrific performance.

Speaker Change: As soon as those are deployed I think Lexington is probably deployed 60%.

Speaker Change: There are less 10, you know they'll come back into the market for another flagship but in the meantime, they've got their middle market and co invest.

Speaker Change: And I cannot emphasize enough.

Jennifer M. Johnson: And so I think when things shift back, Clarion should do very well there because they have very little exposure to office. In the case of private credit, real estate debt is really interesting, and we're talking to several clients about that. Obviously, CLOs, structured credit, special situations.

Speaker Change: <unk>.

Speaker Change: In the wealth channel.

Speaker Change: It's 50% the right the right product and 50% where he got the heft on the distribution side and I think that is often underestimated you know.

Speaker Change: Our 350 plus client facing.

Jennifer M. Johnson: And then actually, we've been successful. I never know how much I can talk about, but in our InVenture, our Franklin Venture Group is in the Wealth Channel right now raising money and, you know, our first fundraise there, and it's going very well. So, you know, you just had two, between BSP and Lexington, close their flagship funds. So then you're in, you know; they're digesting and investing in those cycles. They're doing more of their niche-type strategies, but they're in markets with those.

Speaker Change: Wholesalers internal external specialists included.

Speaker Change: Can sell to and advisers entire book if you don't have the breadth of capability that we have that's incredibly expensive because let's say you're just in alternatives manager, you're only selling to 5% to 10% of that advisers book and so it gets really expensive to build the breadth of capability that we have and the years of investment that we've done.

Jennifer M. Johnson: And, you know, they'll, as soon as those are deployed, I think Lexington's probably deployed 60% of their Lex 10, they'll come back into the market for another flagship. But in the meantime, they've got their middle market and co-invest. And I cannot emphasize enough. In the wealth channel, it's 50% the right product and 50% where you have the heft on the distribution side. And I think that is often underestimated.

Speaker Change: In the Academy you know again, there are catamaran is global where we've now been able to bring our alternatives by F. T, which is a website that has tons of training on how advisers should think about alternatives in their portfolios to supplement just that a wholesale being out there in the field I think has been really important.

Speaker Change: So very much focused on the wealth channel really excited about it I think we have a great suite of products to be able to meet the needs in that market and are in the distribution capability and expertise to be successful there.

Jennifer M. Johnson: You know, our 350 plus client-facing wholesalers, internal and external specialists included, can sell to an advisor's entire book. If you don't have the breadth of capability that we have, that's incredibly expensive. Because let's say you're just an alternatives manager; you're only selling 5 to 10% of that advisor's book. And so it gets really expensive to build the breadth of capability that we have. And the years of investment that we've done in the academy, you know, again, our academy is global, where we've now been able to bring Alternatives by FT, which is a website that has tons of training on how advisors should think about alternatives in their portfolios to supplement just that wholesale being out there in the field, I think has been really important.

Speaker Change: I Gotcha, Okay. All makes sense and then clarification for you guys on the pipeline.

Speaker Change: It sounds like there's a bunch of things in institutional pipeline as you discussed earlier is it could you guys help us just size the fee rate or the institutional pipeline, excluding great great West as you described it and then is it.

I guess is it fair to assume that the remaining piece of great West that's going to come in.

Speaker Change: We will be coming in at a much higher fee rates are kind of north of that team.

Speaker Change: <unk> basis points, just given that the backend or what's come through came at a pretty well for you right.

The pipeline is the fee rate is slightly up from.

Speaker Change: From last quarter, but.

Speaker Change: Look anytime you want it's institutional so that's lower fee than your than your traditional fr and then number two it's heavily weighted in the fixed income well.

Speaker Change: The new stuff is heavily weighted in fixed income, but probably overall pipeline I don't know its Adam 60, plus percent probably fixed income right.

Jennifer M. Johnson: So, very much focused on the wealth channel and really excited about it. I think we have a great suite of products to be able to meet the needs of that market and the distribution capability and expertise to be successful there.

So yeah.

Speaker Change: I don't.

Speaker Change: I don't know if we give guidance on the actual numbers in the pipeline, but it's.

Speaker Change: David Matt have we given guidance there I would say a guidance and that's consistent with our institutional fee rate.

Jennifer M. Johnson: I gotcha. Okay, all makes sense now. And then clarification for you guys on the pipeline. It sounds like there's a bunch of things in the institutional pipeline, as you discussed earlier, and could you guys help us just size the fee rate of the institutional pipeline, excluding Great Great West, as you described it, and then, is it, I guess, is it fair to assume that the remaining piece of Great West that's going to come in will be committed at a much higher fee rate? So kind of north of that, you know, teenish basis points, just given that the back end, or what's come through, came at a pretty low rate.

Speaker Change: Yeah.

Got it.

Speaker Change: Okay.

It's in the mid to high twenties, Alex and then.

Speaker Change: It can be it's it's it's gone from anything from the mid to high Twenty's to our overall effective fee rate, depending on the culture and depending on the type of the.

Speaker Change: The nature of the pipeline at a particular time.

Speaker Change: And then the towards your second question, yes. The additional flows we expect to come in will be.

Higher on average on the rest of the.

Speaker Change: With life.

Speaker Change: Flow.

Speaker Change: And that's expected over the next 12 months as we've said we will of course put that detailed into a monthly flow. So you can see that and then will provide detail on the effective fee rate when we when we have these calls and provide updated information.

Speaker Change: Great. Okay perfect. That's what I was looking for I appreciate it.

Jennifer M. Johnson: The pipeline is the fee rate is slightly up from last quarter, but you know, look, anytime you want, it's institutional. So that's a lower fee than your traditional EFR.

Thanks, Alex.

Speaker Change: Next question will be from Bill Katz at TD Cowen. Please go ahead.

William Raymond Katz: Okay. Thank you very much and I apologize I'm under the weather so.

William Raymond Katz: In terms of if I start with your reported.

William Raymond Katz: Net flows of $6 seven and I back out the $3 one of dividends reinvested, which the industry doesn't include I get down about three and a half if I back out the initial capital from great West.

Jennifer M. Johnson: And then number two, it's heavily weighted in fixed income. Well, the new stuff is heavily weighted in fixed income, but probably the overall pipeline, I don't know, Adam is 60 plus percent, probably fixed income. So, you know, I never know if we give guidance on the actual numbers in the pipeline, but it's Matt, have we given guidance there? I would say it's consistent with our institutional fee rate.

William Raymond Katz: That's nice $10 billion.

William Raymond Katz: I then back out the $1 four from the three Alt managers, you highlighted I get to about 11, and then if I back out the canvas ETF in the SMA I think I get to about minus 18 billion for what I would consider to be a long only business.

Matthew Nicholls: Okay, it's in the mid to high 20s, Alex. And then, but it can be, it's gone from anything from the mid to high 20s to our overall effective fee rate, depending on the quarter and depending on the type and nature of the pipeline at a particular time. And then, to answer your second question, yes, the additional flows we expect to come in will be higher on average than the rest of the Great West Life flow.

Speaker Change: Is that math correct and B. If it is what's the go to plan here to sort of stabilize that part of the business.

Speaker Change: So I am I'm, not Mac Nichols I can't do the math that quickly he probably good so I couldnt quite follow all of that but I will tell you that the growth areas, where some of the things you wanted to pull out alternatives Etfs canvassed I think we've said consistently that those are our growth focus isn't that theyre growing a little faster.

Matthew Nicholls: And that's expected over the next 12 months, as we've said, we'll, of course, put that detail into our monthly flows. So you can see that, and then we'll provide detail on the effective fee rate when we have these calls and provide updated information.

Then the rest of the business if you take a look at.

Speaker Change: At the more traditional business and you look at our outflow rate art decay rate.

Speaker Change: Really been stable to improving so I think over the last few years, we've been able to do a very good job at protecting ourselves on the downside and as we said earlier I think Jenny pointed to a notion that we talk about in terms of core sales.

Alexander Blostein: Great. Okay. Perfect. That's what I was looking for. Appreciate it.

William Raymond Katz: The next question will be from Bill Katz at TD Cowen. Please go ahead. Okay.

William Raymond Katz: Okay, thank you very much. I apologize; I'm under the weather.

William Raymond Katz: So, in terms, if I start with your reported net flows of 6.7, and I back out the 3.1 of dividends reinvested, which the industry doesn't include, I get down to about 3.5. And then if I back out the Canvas ETF and the SMA, I think I get to about minus $18 billion for what I would consider to be a long-only business. A, Is that math correct? And B, if it is, what's the go-to plan here to sort of stabilize that part of the business?

Speaker Change: Which is our smaller sales, which are which are up pretty consistently at about 14% on average so stable outflows incur.

Speaker Change: Increasing core sales, we're feeling pretty good about the traditional part of the business.

Speaker Change: And just to add look we vote.

It's been very open and honest that we'd been underrepresented in the retirement channel.

Speaker Change: As I mentioned on last quarter's call. We were ranked 14th on empower platform and you know it's similar in some of the others and with this acquisition of putting them in the relationship and the absorption of their retirement team.

Jennifer M. Johnson: So I am, I'm not Matt Nicholls; I can't do the math that quickly; he probably could. So I couldn't quite follow all of that.

Speaker Change: As well as their target date products are.

Speaker Change: A third of retirement flows go to the qualified investment plans and they've got phenomenal performance in their target date products as well as stable value.

Jennifer M. Johnson: But I will tell you that the growth areas were some of the things you wanted to pull out. Alternatives, ETFs, canvas, I think we said consistently that those were our growth focuses and that they're growing a little faster than the rest of the business. If you take a look at the more traditional business, and you look at our outflow rate, our decay rate, it's really been stable to improving. So I think over the last few years, we've been able to do a very good job at protecting ourselves on the downside.

Speaker Change: We think we are poised to.

Speaker Change: And again, if we just take out market share, it's a massive increase and the retirement channel is still a very traditional asset oriented channel.

Speaker Change: Traditional mutual funds equities and fixed income and we just think with our distribution capability not just to benefit from empower but taking that to all the different retirement platforms and gain more market share there.

Jennifer M. Johnson: And as we said earlier, I think Jenny pointed to a notion that we talked about in terms of core sales, which are our smaller sales, which are up pretty consistently at about 14% on average. So stable outflows, increasing core sales, we're feeling pretty good about the traditional part of the business.

Speaker Change: And then the Lafayette just add though is that this this area of trying to get to which we actually have a little bit there's not really a team, but we think of it as I think it's more like 10 that we go through but even when you when you get to those numbers, it's very concentrated in areas where performance.

Speaker Change: It's even more important than usual that's call. It so and in those areas performance has begun to improve certainly on the equity side in particular quite significantly. So we've seen quite a slowdown in those in those outflows on the fixed income side and a couple of years, we've had some weaknesses there as you know.

Jennifer M. Johnson: And I'll just add, look, we've been very open and honest that we've been underrepresented in the Retirement Channel. As I mentioned on the last quarterly call, you know, we were ranked 14th on Empower's platform. And, you know, it's similar in some of the others.

Speaker Change: But we see some improvement there too so it's fairly it's a fairly concentrated situation that you're referring to and one that.

Jennifer M. Johnson: And with this acquisition of Putnam and the relationship and the absorption of their retirement team, as well as their target date products, a third of retirement flows go to qualified investment plans, and they've got phenomenal performance in their target date products, as well as stable value. You know, we think we are poised to, and again, if we just take our market share, it's a massive increase. And the Retirement Channel is still a very traditional asset-oriented channel, traditional mutual funds, equities, and fixed income. And we just think with our distribution capability, not just to benefit from Empower, but to take that to all the different retirement platforms and gain more market share there.

Speaker Change: One that is performance improve if you see a correlation of slowdown in and outflows.

Speaker Change: Okay.

Bill I would add that.

William Raymond Katz: It's sometimes difficult to separate investment.

William Raymond Katz: Product from from the vehicle itself, we have a number of instances where <unk> and <unk>.

William Raymond Katz: Investment team is positive, but it's a positive because they're SMA their usage Etfs are all positive and the mutual fund might be negative. So is that the core business or not right at the traditional asset class they are gaining flow, but theyre gaining it because of the vehicle choice not necessarily because of the mutual fund is positive.

That makes some sense and just a follow up on all of that Matt maybe for yourself.

Speaker Change: Just your base fee rate. It just seems like it's bouncing around a little more than I would envision just given the sheer sizing of the platform. Today. So can you help me understand if you are going to be sort of in the 37% range plus for the next quarter and then you sort of bounce back into the fourth is that impute to a very high level of of flow.

Matthew Nicholls: And then the last thing I'd just add, Bill, is that this area you're trying to get to, which we actually have a little bit of, it's not really 18, but we think of it as, I think it's more like 10 that we got to, but when you get to those numbers, it's very concentrated in areas where performance is even more important than usual, let's call it that. So, in those areas, performance has begun to improve, certainly on the equity side, in particular, quite significantly, so we've seen quite a slowdown in those outflows.

Speaker Change: In the old managers and if that's the case is that just vehicles that are just turning on from capital raise or is that from new money coming in the door and if so where might that be thank you.

Well remember the annual the annual guide I gave included the first quarter or so where we had an elevated.

Matthew Nicholls: On the fixed income side in a couple of areas, we've had some weaknesses there, as you know, but we've seen some improvement there too, so it's a fairly concentrated situation that you're referring to, and one that... As performance improves, you see a correlation of a slowdown in output.

Speaker Change: Our <unk> for the reason that I explained around the the catch up phase and so on I think we were pretty close to 40 basis points at one point.

Speaker Change: We've been trying to be quite clear about that so you know.

Jennifer M. Johnson: And finally, Bill, I would add that it's sometimes difficult to separate investment product from the vehicle itself. We have a number of instances where an investment team is positive, but they're positive because their SMA, their usage, their ETFs are all positive, and the mutual fund might be negative. So is that the core business or not, right? It's a traditional asset class. They're gaining flow, but they're gaining it because of the vehicle choice, not necessarily because the mutual fund is positive.

Speaker Change: When you when you normalize that out you get into the 30 eights and then the only thing that's driving it down periodically from quote unquote for US is the areas of growth and when you add those areas of growth up and you're just a second ago, though when you went through your analysis on the.

The traditional side of the business versus other areas of growth when you start adding up Etfs canvas Sma's and then the flows from Putnam. The overall Putnam remembering that it's not just the flows coming from great West life when Putnam, it's the $160 billion, which is 17.

Jennifer M. Johnson: That makes a ton of sense. And just to follow up on all of that, Matt, maybe for yourself, just your base fee rate, it just seems like it's bouncing around a little more than I would anticipate, just given the sheer sizing of the platform today. So can you help me understand if you're going to be sort of in that 37% range plus for the next quarter, and then you sort of bounce back into the fourth?

<unk> percent higher than when we announced the transaction.

Speaker Change: And that set of multiple basis multiple point lower than the F. Our Frankfurt. So the fact that we'd be more successful in that.

Speaker Change: It has that's what's driven the fall down a little bit, but what where you would expect is that going into it but at least fiscal 2025, what we experienced at the beginning of fiscal 'twenty 'twenty four depending on what products, we have and everything that Jay just went through in <unk>.

Jennifer M. Johnson: Is that imputed to a very high level of flow in the alts managers? And if that's the case, are those just vehicles that are just turning on from capital raised? Or is that from new money coming in the door? And if so, where might that be? Thank you. Well, remember the annual the

Speaker Change: There is a possibility that it could.

Step back up again into the higher 38 based on the <unk>.

Matthew Nicholls: Well, remember that the annual guide I gave included the first quarter or so where we had an elevated EFR for the reasons that I explained around the catch-up fees and so on. I think we were pretty close to 40 basis points at one point. We've tried to be quite clear about that.

Speaker Change: <unk> alternative asset phase, but that's just an explanation around that.

Speaker Change: Go up a little bit more and then down a little bit more than than usual at those offsetting factors as basically a form of business mix plus the episodic activity out of alternatives.

Matthew Nicholls: You know, when you normalize that out, you get into the 38. And then the only thing that's driving it down periodically from quarter to quarter is the areas of growth. And when you add those areas of growth, and you just did a second ago, Bill, when you went through your analysis on the Transcription by https://otter.ai of AUM that set a multiple basis, multiple points lower than the EFR of Franklin.

Speaker Change: Yeah.

Speaker Change: Thank you for taking my questions.

Speaker Change: Bill I'll also answer because I think you asked the question on a little bit more of a breakdown about third quarter.

Speaker Change: I've already gone into some detail on the air for in terms of comp and benefits for the third quarter we.

Speaker Change: We expect that to be around $828 million that assumes performance fees of $40 million, that's lower than the previous quarters, driven by lower performance fees out of our real estate business for the reason that Jenny mentioned, it's important to note that the relative performance of claret is very strong but the absolute.

Matthew Nicholls: So the fact that we've been more successful in that is what's driven the EFR down a little bit. But what we'd expect is that going into at least fiscal 2025, the same as we experienced at the beginning of fiscal 2024, depending on what products we have and everything that Jane just went through and the odds, there's a possibility that it could step back up again into the higher 38 based on the episodic alternative asset fees.

Speaker Change: Valuation of British steaks as its come down that's impacted the extent to performance fees. So that's why we're guiding that down to $40 million.

Speaker Change: From from 50.

Speaker Change: I S. T. We expect it to remain at 150 occupancy 80 million as you all know that's going to come down.

Matthew Nicholls: But that's just an explanation around why it could go up a little bit more and down a little bit more than usual. It's those offsetting factors. It's basically a form of business mix plus the episodic activity out of alternatives. Thank you for taking all the questions.

Speaker Change: Later on in fiscal 2025, basically double rent going away for next quarter, you expect that to remain at ACC and then G&A, we expect it to be probably around $175 million it could be as high as 180, because we're planning on spending more in advertising, but it won't go it shouldn't go beyond that so.

Matthew Nicholls: Bill, I'll also answer because I think you had the question on a little bit more of a breakdown of our third quarter. I've already gone into some detail on the EFR. In terms of comp and benefits for the third quarter, we expect that to be around $820 million. That assumes performance fees of $40 million. That's lower than the previous quarters driven by lower performance fees from our real estate business for the reasons that Jenny mentioned. It's important to note that the relative performance of Clarion is very strong, but the absolute valuation of real estate, as it's come down, has impacted the extent of performance fees.

Speaker Change: Let's say 175 to 118.

Uh huh.

Speaker Change: And G&A.

Speaker Change: And I already provided the annual guidance earlier on based on that final question.

Speaker Change: Thank you.

Speaker Change: This concludes today's Q&A session I would now like to hand, the call back over to Jenny Johnson Franklin President and CEO for final comments.

Great well everybody. Thank you for participating in today's call and once again, we would like to thank our employees for their hard work and dedication in delivering this quarter.

Matthew Nicholls: That's why we're guiding that down to $40 million from $50. For IS&T, we expect it to remain at $150. Occupancy, $80 million. As you all know, that's going to come down later on in fiscal 2025 based on the double rank going away, but for next quarter, we expect that to remain at $80. And then G&A, we expect it to be probably around $175 million. It could be as high as $180 because we're planning on spending more on advertising, but it shouldn't go beyond that. So let's say $175 to $180 in G&A, and I already provided the annual guidance earlier based on Dan Fannon's...

Speaker Change: And we look forward to speaking to all of you again next quarter and everybody stay healthy.

Speaker Change: Thank you ladies and gentlemen, this does indeed concludes today's conference call. You may now disconnect your lines.

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Jennifer M. Johnson: Thank you. This concludes today's Q&A session. I would now like to hand the call back over to Jenny Johnson, Franklin's President and CEO, for final comments.

Jennifer M. Johnson: Great. Well, everybody, thank you for participating in today's call. And, you know, once again, we would like to thank our employees for their hard work and dedication in delivering this quarter. And we look forward to speaking to all of you again next quarter, and everybody stay healthy.

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Selene Oh: Thank you. Ladies and gentlemen, this does indeed conclude today's conference call. You may now disconnect your lines.

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Yes.

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