Q3 2025 Franklin Resources Inc Earnings Call

Matt Nicholls: Welcome to the Franklin Resources earnings conference call for the quarter ended June 30, 2025. Hello, my name is Maria, and I will be your call operator today. As a reminder, this conference is being recorded. At this time, all participants are in a listen-only mode. I would now like to turn the conference over to your host, Selene Oh, Head of Investor Relations for Franklin Resources. You may begin.

Welcome to the Franklin Resources earnings conference call for the quarter ended June 30, 2025.

Maria: 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. 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.

Hello, my name is Maria and I will be your call operator. Today, as a reminder, this conference is being recorded. At this time, all participants are in listen-only mode. I would now like to turn the conference over to your host, Selene Oh, head of Investor Relations for Franklin Resources. You may begin.

Jenny Johnson: Thank you, Selene. Welcome, everyone, and thank you for joining us today as we review Franklin Templeton's third fiscal quarter results. I am here with Matt Nicholls, our CFO and COO, and Adam Spector, our Head of Global Distribution. We will answer your questions momentarily, but before we do that, I would like to highlight some key developments and themes from the quarter. Over the past few years, Franklin Templeton continues to evolve into one of the world's largest and most diversified investment managers with a full spectrum of capabilities across public and private markets. At the core of this evolution is our commitment to being a trusted partner for what is ahead, helping clients navigate the complexity of global markets with confidence and experience. From individual investors and financial professionals to institutions, we are focused on delivering customized solutions to achieve their long-term financial goals.

Good morning, and thank you for joining us today to discuss your 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. These and other risks uncertainties and other important factors are just described in more detail in Franklin's, recent filings with the Securities and Exchange Commission, including in the risk factors, and the mdna sections of Franklin's most recent form, 10 K and 10q filings. Now, I'd like to turn the call over to Jenny Johnson our president and chief executive officer.

Thank you Selene, welcome everyone, and thank you for joining us today as we review Franklin pebble's. Third fiscal quarter results. I'm here with Matt Nichols our CFO and coo and Adam Spectre are head of global distribution. We'll answer your questions momentarily. But before we do that, I'd like to highlight some key developments and themes from the quarter

for years, Franklin, Templeton continues to evolve into 1 of the world's largest and most Diversified investment managers with a full spectrum of capabilities of public and private markets.

At the core.

Revolution Is our commitment to being a trusted partner for what's ahead. Helping clients navigate the complexity of global markets with confidence and experience.

Jenny Johnson: We do this by leveraging the breadth and depth of our specialist investment teams who bring differentiated expertise. We offer our strategies through a broad range of investment vehicles, from mutual funds and ETFs to SMAs and private fund structures. As more asset owners seek multifaceted partnerships with fewer firms that can deliver across asset classes, styles, and regions, we believe our business is well-suited to meet that demand. In today's fast-moving and interconnected investment landscape, Franklin Templeton's global reach is increasingly important. Our capabilities span U.S. and international markets, including emerging markets, positioning us to meet evolving client needs as they allocate and reallocate across regions and through market cycles. Almost 40 years ago, we opened our first office outside of North America in Taiwan, and we were one of the first global firms to build local asset management capabilities.

From Individual investors and financial professionals to institutions. We are focused on delivering customized solutions to achieve their long-term financial goals.

We do this by leveraging, the breadth and depth of our Specialists investment teams, who bring differentiated expertise.

And we offer our strategies through a broad range of investment vehicles, from mutual funds and ETFs to SMAs and private fund structures.

As more asset owners, seek, multifaceted Partnerships with fewer firms, that can deliver across asset classes. Styles and regions, we believe our business is well suited to meet that demand.

In today's fast-moving and interconnected investment landscape.

Franklin, templeton's Global reach is increasingly important.

Our capabilities span us and international markets, including Emerging Markets, positioning us to meet evolving client needs, as they allocate and reallocate across regions and through Market Cycles.

Jenny Johnson: We currently operate in over 30 countries, and our clients are located in over 150 countries. Our goal is to manage each local business combined with global scale, focusing on local investing and client needs. Today, we have approximately $500 billion, or roughly 30% of our AUM in countries outside the U.S. From our legacy as pioneers in international and income investing to leadership in emerging areas like AI, tokenization, and blockchain, we are committed to keeping our clients on the forefront of investment opportunity across markets and technologies globally. Innovation is and has always been central to who we are. Our investment teams around the world collaborate closely to provide forward-looking insights and identify new opportunities.

Almost 40 years ago, we opened our first office outside of North America in Taiwan, and we were one of the first global firms to build local asset management capabilities. We currently operate in over 30 countries, and our clients are located in over 150 countries. Our goal is to manage each local business combined with global scale, focusing on local investing and client needs. Today, we have approximately $500 billion, or roughly 30% of our AUM, in countries outside the U.S.

Emerging areas, like Ai, tokenization and blockchain. We're committed to keeping our clients on the Forefront of investment opportunity across markets and Technologies globally. Innovation is and has always been Central to Who We Are.

Jenny Johnson: A great example of this is the Franklin Templeton Institute, which plays a central role in delivering timely research, thought leadership, and educational resources to help clients interpret and respond to fast-moving market developments. Turning to public equity markets, it has been a tale of two quarters to start calendar 2025. Despite a turbulent April, global equity markets rebounded sharply from Liberation Day setbacks, with the S&P 500 posting one of its fastest ever post-war recovery, rising 25% from its April lows and ending the quarter up nearly 11%. The sharp recovery was led by large-cap growth stocks, including most of the Magnificent Seven. The top-performing sectors were IT, communication services, industrials, and consumer discretionary, along with the other major domestic indexes. The small-cap Russell 2000 index rebounded in the second quarter, gaining 8.5%. International markets have shined so far in calendar 2025, but the outperformance versus the U.S.

Our investment teams are on the world collaborate closely to provide forward-looking insights and identify New Opportunities. A great example of this is the Franklin Templeton Institute which plays a central role in, delivering timely research, thought leadership, and educational resources, to help clients interpret and respond to fast-moving Market developments.

Turning to public equity markets, it's been a tale of two quarters to start calendar 2025.

Despite a turbulent April, global equity markets rebounded sharply from Liberation Day setbacks, with the S&P 500 posting one of its fastest ever post-war recoveries, rising 25% from its April lows and ending the quarter up nearly 11%.

The sharp recovery was led by large cap growth stocks including most of the Magnificent 7.

The top performing sectors, were it communication Services Industrials and consumer, discretionary along with the other major domestic indexes, the small cap, Russell 2000 Index, rebounded. In the second quarter, gaining 8.5%,

Jenny Johnson: was largely in Q1. Through June, the MSCI EIFA is up 19%, helped by a weaker U.S. dollar and expectations that U.S. tariffs will not meaningfully alter the corporate earnings outlook. Emerging markets similarly outperformed. After holding up much better in the first quarter of the calendar year, value stocks lagged growth in this quarter. Large-cap growth outperformed large-cap value by 14% in Q2. Our investment teams remain cautiously constructive on the outlook for the U.S. equity market. While the market remains supported by solid fundamentals, caution stems from the market's already strong advance from its lows and ongoing geopolitical and policy uncertainty. Turning to public fixed income markets and rates, following Liberation Day, the quarter opened with a higher-than-expected tariffs announcement, which sparked a temporary market sell-off and a spike in volatility. Subsequent data, however, suggested that the U.S. economy has remained resilient.

International markets, have shined so far in calendar 2025, but the outperformance versus the US was largely in q1.

Through June, the MSEA is up 19%, helped by a weaker U.S. dollar and expectations that U.S. tariffs will not meaningfully alter the corporate earnings outlook for emerging markets. Similarly, emerging markets outperformed after holding up much better in the first quarter of the calendar year. Value stocks lagged growth in this quarter, with large-cap growth outperforming large-cap value by 14% in Q2.

Jenny Johnson: Economic activity continued to unfold at a healthy pace, even though volatility in exports and imports makes headline GDP numbers less informative than usual. The labor market remains at or close to full employment, and while tariff hikes have fed through into the prices of specific goods, they have not had a broader impact on inflation. All this seems consistent with the fact that exports and imports play a relatively smaller role in the U.S. than in many other economies. Market conditions stabilized during the quarter as investors' worst fears proved unfounded, and risk assets recovered with global credit spreads spiking but then trending significantly lower. Lower-rated sectors outperformed, as did non-U.S. markets, with the U.S. dollar seeing its largest quarterly decline since 2022.

Our investment teams remain cautiously constructive on the outlook for the US Equity Market, while the market remains supported by solid fundamentals, caution stems from the markets already. Strong advance from its lows and ongoing geopolitical and policy uncertainty. Turning to public fixed income markets and rates following Liberation day, the quarter opened with a higher than expected tariffs announcements, which sparked a temporary market. Selloff and a spike in volatility subsequent data. However, suggested that the US economy has remained resilient economic activity, continued to unfold at a healthy Pace, even though,

Volatility in exports and imports makes headline GDP numbers less informative than usual. The labor market remains at or close to full employment. While tariff hikes have fed through into the prices of specific goods, they have not had a broader impact on inflation. All this seems consistent with the fact that exports and imports play a relatively smaller role in the U.S. than in many other economies.

Market conditions stabilized during the quarter as investors' worst fears proved unfounded, and risk assets recovered. Global credit spreads spiked but then trended significantly lower.

Jenny Johnson: The Fed has maintained interest rates unchanged at its May, June, and July meetings, noting that while there are some downside risks to growth, labor markets remain robust and inflation is still above target. We continue to expect at most one more rate cut by the Fed this year, with additional monetary easing possible should growth begin to deteriorate. Tariff-driven price pressures and a still large fiscal deficit seem likely to exert some upward pressure on yields. Financial markets will likely continue to anticipate and push for more monetary easing than what we are forecasting, likely resulting in a prolonged rollercoaster ride of market volatility. In private markets, quarterly volatility in global equity markets continued to act as a constraint on IPOs and M&A activity. As a result, continuation funds and secondary private equity were the primary sources for investor liquidity, where Lexington Partners provides scaled solutions, expertise, and leadership.

Lower-rated sectors underperformed, as did non-US markets with the US dollar. We are seeing its largest quarterly decline since 2022.

Meetings noting that while there are some downside risks to growth labor markets, remain robust. Inflation is still above Target. We continue to expect it. Most 1 more rate cut by the fed this year with additional monetary easing, possible should growth begin to deteriorate.

Tariffs driven price, pressures, and a still large fiscal deficit, seemed likely to exert some upward pressure on yields financial markets will likely continue to anticipate and push for more monetary easing that what we are forecasting, likely resulting in a prolonged roller coaster ride of Market volatility.

Jenny Johnson: The trends shaping the private equity landscape, growing net asset values, significant dry powder, longer holding periods, and shifting distribution patterns point to a secondary market opportunity that is poised to remain attractive for years to come. Private credit remained an area of conviction, though even here, LPs are deploying more selectively. The macro backdrop, characterized by higher base rates, modest spread widening, and potential credit deterioration, has made quality underwriting and structure more important than ever. Increased market volatility, while challenging, also creates an attractive backdrop for our alternative credit businesses like direct lending, real estate credit, and special situations. In these markets, where there is greater dispersion between the best and worst credits, Benefit Street Partners is well-positioned given its conservative approach to underwriting and our deep portfolio management expertise. Real estate capital markets' activity remains muted with greater volume and perceived stronger property types.

Facility in private markets, quarterly volatility in global Equity markets continue to act as a constraint on IPOs and m&a activity as a result continuation funds. And secondary private Equity were the primary sources for investor liquidity where Lexington Partners provide scaled Solutions, expertise and Leadership the trends shaping, the private Equity landscape growing. Net asset values, significant dry powder longer holding periods and shifting distribution patterns point to a secondary Market opportunity. That is poised to remain attractive for years to come.

Here LPS are deploying more selectively, the macro backdrop characterized by higher base rates modest, spread widening and potential credit deterioration has made quality underwriting and structure more important than ever.

Increased market volatility, while challenging, also creates an attractive backdrop for our alternative credit businesses like direct lending, real estate credit, and special situations.

In these markets, where there is greater dispersion between the best and worst credits, Treat Partners is well positioned given its conservative approach to underwriting and our deep portfolio management expertise.

Real estate.

Jenny Johnson: Top-performing property sectors include industrial, multifamily, and self-storage, which continue to have solid long-term underlying property fundamentals. For the fourth quarter in a row, overall property indices showed modestly positive performance, signaling more evidence of reaching a bottom after two years of decline. As sentiment changes for real estate, Clarion continues to be well-positioned, with over 60% of AUM in the industrial and logistics sectors and less than 6% in the office sector. Our overall view of private markets remains constructive. While there may be subtle shifts within private markets, the changing trade policies and elevated geopolitical risks haven't altered our long-term outlook. We continue to favor secondary private equity, real estate, and commercial real estate debt as key areas of opportunity.

Stronger property types.

Top-performing property sectors include industrial, multifamily, and self-storage, which continued to demonstrate solid long-term underlying property fundamentals.

For the fourth quarter in a row overall property, indices showed modestly, positive performance, signaling more evidence of reaching a bottom after 2 years of decline as sentiment changes for Real Estate, Clarion continues to be well, positioned with over 60% of AUM in the industrial and Logistics sectors and less than 6% in the office sector.

Jenny Johnson: In today's environment of heightened volatility, shifting trade policies, and geopolitical uncertainty, diversification and active management are not just prudent but essential to mitigate potential risks and maximize returns. Diversification across various asset classes, regions, and sectors can, of course, help cushion the impact of market volatility. As a diversified active manager, we have the capabilities across public and private assets to customize solutions to help investors achieve their long-term financial goals. Turning now to our business results, our third fiscal quarter saw progress across asset classes, investment vehicles, and geographies, highlighting the strength of our diversified global platform. Our assets under management ended the quarter at $1.61 trillion. AUM increased from the prior quarter due to the impact of positive markets and strengthening flows, partially offset by long-term outflows at Western Asset Management.

Our overall view of private markets remains constructive, or there may be subtle shifts within private markets, the changing trade policies. And elevated geopolitical risks have an altered. Our long-term Outlook, we continue to favor, secondary private Equity, Real Estate and Commercial Real Estate debt as key areas of opportunity.

In today's environment of heightened, volatility shifting, trade policies, and geopolitical uncertainty diversification. And active management are not just prudent, but essential to mitigate potential risks and maximize returns diversification across various asset classes regions and sectors can of course, help cushion the impact of Market volatility. And as a diversified active manager, we have the capabilities across public and private assets to customize solutions, to help investors to achieve their long-term financial goals.

Hey, now to our business results. Our third

Video progress, across asset, classes, investment, vehicles, and geographies highlighting the strengths of our Diversified Global platform.

Jenny Johnson: Our institutional pipeline of won but unfunded mandates rose by net $4 billion to a record $24.4 billion. It included $14.8 billion in new wins, reflecting strong client demand across all asset classes, and was diversified across specialist investment managers in multiple regions. This quarter, we saw notable mandates in fixed income from our partners in the insurance sector. We remain encouraged by increased client engagement on potential opportunities ahead. Long-term net outflows totaled $9.3 billion, representing a marked improvement from the prior quarter's outflows of $26.2 billion. Excluding Western Asset Management, long-term net inflows were $7.8 billion this quarter and $7.4 billion in the prior quarter. This quarter represents the seventh consecutive quarter of positive net flows, excluding Western, demonstrating growing momentum across our business.

Our assets under management. Ended the quarter at 1.61 trillion AUM increased from the prior quarter, due to the impact of positive markets and strengthening flows. Partially offset by long-term outflows at Western Asset Management.

Our institutional pipeline of 1, but unfunded mandates Rose by net 4 billion to a record. 24.4 billion it included. 14.8 billion in new, winds reflecting, strong client, demand across all asset classes and was Diversified across specialist investment, managers in multiple regions.

This quarter. We saw notable mandates in fixed income from our partners in the insurance sector. We remain encouraged by increased client engagement, on potential opportunities ahead.

Long-term net outflows totaled $9.3 billion, representing a marked improvement from the prior quarter's outflows of $26.2 billion.

Excluding Western Asset Management, long-term net inflows were 7.8 billion. This quarter and 7.4 billion in the prior quarter.

Jenny Johnson: Multi-asset and alternatives continue to have strong, consistent performance and generated another quarter of positive net flows, resulting in a combined $4.3 billion for the quarter. Multi-asset flows have been positive for 16 consecutive quarters. In addition, we saw improving flow trends in fixed income and equities. Equity net outflows were $645 million as market volatility impacted growth strategies more than others. Given our diverse global equity capabilities, we benefited from the broadening of markets into both value and non-U.S. strategies, generating positive net flows into large-cap value, international, and emerging markets strategies. Putnam continues to be a strong contributor with positive net flows since acquisition across mutual funds, SMAs, and ETFs. Fixed income net outflows improved to $13 billion this quarter. Excluding Western, fixed income net inflows were $3.5 billion, driven by Franklin Templeton Fixed Income and Brandywine Global.

Quarter represents the seventh consecutive quarter of positive net flows, excluding Western, demonstrating growing momentum across our business.

Multi-Asset and Alternatives continued to have strong, consistent performance and generated another quarter of positive net flows, resulting in a combined $4.3 billion for the quarter. Multi-Asset flows have been positive for 16 consecutive quarters.

In addition, we saw improving flow trends in fixed income and equities. Equity net outflows were $645 million as market volatility impacted growth strategies more than others. Given our diverse global equity capabilities, we benefited from the broadening of markets into both value and non-U.S. strategies, generating positive net flows into large-cap value, international, and emerging markets strategies.

Putinem continues to be a strong contributor with positive, net flows since acquisition across, mutual funds, smas and ETFs.

Jenny Johnson: Flight to safety generated positive flows into munis, stable value, and short duration strategies. Excluding Western, fixed income has generated positive net flows for six consecutive quarters. Western net outflows also moderated on a quarterly basis and are the lowest since the September quarter of 2024. In addition, money market balances have continued to grow as the Federal Reserve holds the target overnight rate at about 4%. We have had cash management net inflows for four out of the five last quarters, with $2.7 billion in each of the last two quarters, increasing our cash management AUM to $72 billion. This quarter, we continued to successfully execute our long-term corporate priorities, which reflect key areas of long-term growth. Fundraising and alternatives generated $6.2 billion for the quarter, of which private markets assets totaled $5.3 billion.

for 3.5 billion driven by Franklin pebbleton fixed income and Brandy Wine global

flight to safety. Generated positive flows into munis stable value and short duration strategies.

excluding Western fixed income has generated positive net flows for 6 consecutive quarters Western net, outflows also moderated on a quarterly basis and are the lowest since the September quarter of 2024

In addition money market, balances have continued to grow as the Federal Reserve holds the target overnight rate at about 4%. We've had cash management, net inflows for 4 out of the 5 last quarters with 2.7 billion in each of the last 2 quarters, increasing our cash management AUM to 72 billion.

Jenny Johnson: This brings alternative asset fundraising to $19 billion fiscal year to date, including $15.7 billion in private markets, placing us at approximately the middle of our annual guidance range, with one more quarter to go. Fundraising was diversified across alternative specialist investment managers and reflected client demand in secondary private equity, alternative credit, and real estate from institutions, as well as from the wealth channel. In June, we announced an agreement to acquire a majority interest in APIRA Asset Management, a Pan-European private credit firm with approximately $5.7 billion in AUM. The transaction will expand our direct lending capabilities across Europe's lower middle market and reflects our continued commitment to growing our global alternatives platform, which had $258 billion in AUM at quarter-end. APIRA is complementary to our existing global alternative credit offerings. Alongside Benefit Street Partners in the U.S.

We continue to successfully execute our long-term corporate priorities, which reflect key areas of long-term growth, fundraising, and alternatives. Generated $6.2 billion for the quarter, of which private markets assets totaled $5.3 billion. This brings alternative asset fundraising to $19 billion fiscal year to date, including $15.7 billion in private markets, placing us at approximately the middle of our annual guidance range with one more quarter to go.

Fundraising was diversified across alternative specialist investment managers and reflected client demand in secondary private equity, alternative credit, and real estate from institutions, as well as from the wealth channel.

In June, we announced an agreement to acquire a majority interest in a pure asset management firm: a pan-European private credit firm with approximately $5.7 billion in AUM.

The transaction will expand. Our direct lending capabilities across Europe's lower Middle Market and reflects our continued commitment to Growing our Global Alternatives platform which had 258 billion in AUM. At quarter end.

Up here is complimentary to our existing Global alternative credit offerings.

Jenny Johnson: and El Centro in Europe, APIRA further diversifies our firm's geographic exposure and capabilities within the private credit asset class. This acquisition brings our pro forma private credit AUM to nearly $90 billion. On both a relative and absolute basis, Alternatives by Franklin Templeton, our alternatives business in the wealth management channel, has been a strong contributor over the course of this year. We have invested heavily in this business to meet the growing demand in this critical area. Over the past few years, we have focused on designing suitable products, investing in client education, and supporting wealth advisors. Our substantial distribution resources and coverage model includes a dedicated alternative specialist team that we have significantly expanded over the past two years.

Alongside benefits Street Partners in the US and El Sentra in Europe appear. Further diversifies our firm's Geographic exposure and capabilities within the private credit asset class.

This acquisition brings, our pro-forma private credit AUM to nearly 90 billion.

On both a relative and absolute basis. Alternatives by Franklin Templeton are alternatives business. In the wealth management channel, has been a strong contributor over the course of this year.

Jenny Johnson: Our perpetual secondary private equity funds, Franklin Lexington Private Market Fund, are nearing $2.5 billion in gross sales fiscal year to date, and we are excited to expand into new markets in Europe and Asia, leveraging our global distribution footprint. Additionally, our two other primary alternative managers, Benefit Street Partners and Clarion Partners, each have perpetual funds with at least $1 billion in AUM. These are semi-liquid perpetual vehicles and are open to ongoing subscriptions. Over the long term, we believe there is a significant opportunity for alternatives in wealth management, especially given the average wealth management client has approximately 5% or less of their portfolio allocated to alternatives, and depending on the client's liquidity needs, it could be much higher. Institutions, for example, have been allocating 30% or more. It is essential for us to provide opportunity for broader client participation in the investment returns generated in private markets.

We have invested heavily in this business to meet the growing demand in this critical area. Over the past few years, we have focused on designing suitable, products investing in client, education and supporting Wealth Advisors. Our substantial distribution resources and coverage model includes a dedicated alternative Specialist Team that we have significantly expanded over the past 2 years.

Our Perpetual secondary private Equity Funds Franklin Lexington. Private markets funds are nearing 2.5 billion in gross sales. Fiscal year to date and we are excited to expand into new markets in Europe and Asia. Leveraging, our global distribution footprint.

2 billion in AUM. These are semi-liquid. Perpetual vehicles and are open to ongoing subscriptions.

Over the long term, we believe there is a significant opportunity for Alternatives in Wealth Management.

Especially given the average wealth management client has approximately 5% or less of their portfolio, allocated to Alternatives. And depending, on the client's liquidity needs, it could be much higher.

Jenny Johnson: In addition, we're developing products with strategic partners in the retirement channel for private market investments to be included in defined contribution retirement plans. Client demand also continued across investment vehicles. Our ETF platform achieved its 15th consecutive quarter of positive net flows, attracting $4.3 billion, and reached a new high of $44.1 billion in AUM, 19% growth from the prior quarter. We have over 13 ETFs with over $1 billion in AUM across equities and fixed income, and since acquisition, Putnam's ETF lineup has more than tripled in AUM, reflecting the strength of our global distribution platform. Retail SMAs had another quarter of positive net flows, and AUM is up 8% to $156.3 billion, a new high watermark for our retail SMAs. Our leading SMA franchise saw continued progress, driven by growth in Putnam, Franklin Templeton Fixed Income, Canvas, and Franklin Income.

Institutions, for example, have been allocating 30% or more. It is essential for us to provide opportunities for broader client participation in the investment returns generated in private markets.

In addition, we're developing products with strategic Partners in the retirement channel for private Market Investments to be included in defined contribution, retirement plans.

Client demand also continued across investment vehicles. Our ETF platform achieved its 15th consecutive quarter of positive. Net flows attracting 4.3 billion, and reached a new high of 44.1 billion in AUM. 19% growth from the prior quarter.

We have over 13 ETFs with over $1 billion in AUM, across equities and fixed income. Since the acquisition, Putin's ETF lineup has more than tripled in AUM, reflecting the strength of our global distribution platform.

Flows. And the AUM is up, 8% to 156.3 billion.

Jenny Johnson: Canvas, our custom indexing platform, attracted notable inflows, with Canvas AUM of $13.7 billion increasing 20% from the prior quarter. The platform has been in positive inflows since acquisition. As I mentioned earlier, one of Franklin Templeton's strengths is our global presence in international markets are an integral part of our growth strategy. Our international business continues to expand with positive net flows for the quarter. Speaking of international markets, in May, I joined senior leaders in the Middle East to engage directly with government officials, policy leaders, and some of the region's most influential institutional investors. The visit reinforced Franklin Templeton's long-term commitment to helping shape global capital markets in the region. This quarter, we worked with two of Saudi Arabia's leading institutions to invest in the country's financial markets, broadening investment offerings for both Saudi and international investors.

A new high water mark. For our retail estimates, our leading SMA franchise saw continued progress driven by growth in putham Franklin, Templeton, fixed income, canvas, and Franklin income.

Canvas our custom indexing platform attracted notable.

Of 13.7 billion increasing 20% from the prior quarter.

The platform has been in positive inflow since acquisition.

Mentioned earlier when a Franklin Templeton strengths is our Global presence. In international markets, are an integral part of our growth strategy. Our international business continues to expand with positive, net flows for the quarter. Speaking of international markets in May, I joined senior leaders in the Middle East to engage directly with government officials, policy leaders, and some of the Region's most influential institutional investors.

The visit reinforced Franklin templeton's long-term commitment to helping shape, Global Capital markets in the region.

Jenny Johnson: We continue to be selected as a trusted partner to official institutions in emerging markets, including central banks and sovereign wealth funds. This quarter, we became the trustee and manager of the $1.7 billion National Investment Fund of the Republic of Uzbekistan. This strategic mandate builds on our 15-year track record of managing mandates in frontier and emerging markets. We were also honored to be recognized as the Asset Manager of the Year by the publication Central Banking, reflecting the progress we are making with this client base. This quarter, we launched an intraday yield feature on Benji, our tokenized money market fund, making investing faster, more transparent, and accessible 24/7.

From Banks and Sovereign wealth funds. This quarter, we became the trustee and manager of the 1.7 billion, National investment fund of the Republic of usbekistan. This strategic mandate Builds on our 15-year track record of managing mandates in Frontier and Emerging Markets. We are also honored to be recognized as the asset manager of the Year, by the publication Central Banking reflecting the progress. We are making with this client base.

Jenny Johnson: This is another example of how Franklin Templeton has always been at the forefront of change, whether it is providing investors with access to new investment opportunities, improving how they manage their money, or leveraging new technology to make it more efficient. Before I turn to investment performance, I wanted to provide a brief update on July flows. While it is early and we will formally report preliminary July AUM and flows next week, Western Asset's long-term net outflows are expected to be approximately $3 billion for the month of July and had ending AUM of approximately $236 billion. Excluding Western, we expect long-term net inflows of approximately $3 billion. Now, in terms of investment performance, over half of our mutual fund AUM is outperforming its peer median across the 3, 5, and 10-year periods.

This quarter, we launched an intraday yield feature on Benji our tokenized money market fund making investing faster more transparent and accessible 24/7. This is another example of how Franklin Templeton has always been at the Forefront of change. Whether it's providing investors with access to new investment opportunities improving, how they manage their money or leveraging, new technology to make it more efficient.

Before I turn to investment performance, I wanted to provide a brief update on July flows.

Well, it's early, and we will formally report preliminary July AUM and flows next week. Western's long-term net outflows are expected to be approximately $3 billion for the month of July, with ending AUM of approximately $236 billion.

Excluding Western we expect long-term, net inflows of approximately 3 billion. Now, in terms of investment performance,

Jenny Johnson: The one-year would also be in the top half, excluding one of our largest funds managed for yield. Similarly, over half of the strategy composite AUM is outperforming its benchmarks over the same time periods. Compared to the prior quarter, mutual fund investment performance increased in the 3, 5-year and 10-year periods and declined in the one-year period, again primarily due to the categorization of one of our largest funds managed for yield. Turning briefly to financial results, adjusted operating income was $378 million, flat from the prior quarter, driven by lower compensation expenses offset by the impact of Western outflows and lower average AUM. We continue to focus on expense discipline and operational efficiencies. Our balance sheet remains strong, providing flexibility to pursue strategic investments and return capital to shareholders.

Period, median, across the 3 5 and 10 year periods.

The 1 year would also be in the top half, excluding 1 of our largest funds managed for yield.

Similarly, over half of the strategy. Composite AUM is outperforming its benchmarks over the same time periods.

Compared to the prior quarter, mutual fund investment performance increased in the 3-, 5-, and 10-year periods, while it declined in the 1-year period, again primarily due to the categorization of one of our largest funds, managed for yield.

Turning briefly to financial results.

Adjusted operating income was $378 million, flat from the prior quarter, driven by lower compensation expenses, offset by the impact of Western outflows and lower average AUM.

Continue to focus on expense discipline and

operational efficiencies.

Jenny Johnson: Finally, at Franklin Templeton, our collective purpose is clear: to help our clients all over the world achieve the most important financial milestones of their lives. Central to our approach is a deep understanding of each client's goals, allowing us to serve as a trusted partner through the complexities of the financial markets. We have built a resilient business that is diversified across investment teams, asset classes, vehicles, and regions, delivering value to all stakeholders. I would like to express my thanks to our talented and dedicated employees around the world whose client-first mindset drives our continued success. Now, let's open the call to your questions. Operator?

Are balance sheet, remains strong, providing flexibility to pursue strategic Investments and return Capital to shareholders. Finally, at Franklin Templeton, our Collective purpose is clear.

To help our clients all over the world achieve the most important financial milestones of their lives.

Central to our approach is a deep understanding of each client's goals, allowing us to serve as a trusted partner through the complexities of the financial markets.

We have built a resilient business that is Diversified across investment teams, asset classes, vehicles, and regions, delivering value to all stakeholders. I'd like to express my thanks to our talented and dedicated employees around the world whose Client First mindset, drives our continued success.

Now, let's open the call to your questions, operator.

Operator: Thank you. If you would like to ask a question, please press star one on your telephone keypad. The confirmation tone will indicate that 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 your questions to one and a follow-up to allow additional participants on this call this morning. Our first question comes from Glen Shore with Evicor. Please proceed with your question.

Keypad, the confirmation tone will indicate that 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 your questions to 1 and a follow-up to allow additional participants on this. Call this morning.

Adam Spector: Hi, thanks very much. I want to talk about private credit in general. I like what you have done with APIRA, and it seems like dedicated for European direct lending. The bigger picture question is, how do you integrate, how do you grow organically, and then how do you integrate something like APIRA into the broader private credit platform? Can these products and strategies stand alone, or do you need to have that fully integrated across all asset classes solution throughout private credit? I am just trying to think about where you are building towards. Thanks so much.

Our first question comes from Glenn Shore with evacore, please proceed with your question.

Hi. Thanks very much.

Um, so once so I guess private Credit in in general, I I like what you've done with a pair of um and it and it seems like dedicated for European direct lending. The bigger picture question is, is

Jenny Johnson: Yeah, thanks, Glen. First of all, remember that we also acquired Western Asset, and I think that has gone very well. It reports up under BSP reporting into David Manlow, and their big CLO managers. It has really grown our CLO capabilities. We do not want to be viewed as an asset manager that just acquires and has these things stand alone. If you look at what we think our real growth story and opportunity, it is the integration of these things. There will be parts of Benefit Street Partners that will be standalone. They just raised a $2.9 billion fund, but they will also, through sourcing, leverage the broader part of the organization, leverage it for distribution. We really are looking, when we close Benefit Street Partners, as a single $900 billion private credit manager as opposed to BSP Special Situations Fund II, Western Asset, and Benefit Street Partners.

How do you integrate have you grow organically? And then how do you integrate something like a pair into the broader private credit platform and and and can these products and strategies stand alone or do you need to have that fully integrated across all asset classes Solutions? Uh, throughout procreate, I'm just trying to think about where you're building towards. Uh, thanks so much.

You know, I mean, first of all, remember that, we also Acquired elentra and I think that has gone very well. Uh, uh, it reports Up Under bsp reporting into David manlow. Um, and you know, they're big cllo managers. It's really uh, grown our cllo capabilities. Uh, you know,

Jenny Johnson: They have got broad capabilities. Honestly, what is happening in private credit is sort of your more core type private credit is becoming a little bit more commoditized. Having that expertise in, say, like middle market direct lending, which Benefit Street Partners is, or asset-backed or real estate debt, those are really, really important. You want to be able to globalize that kind of expertise. The answer is we really think of it as one private credit group.

We don't we don't want to be viewed as an asset manager that just acquires and has these things stand alone. If you look at what we think our real growth story and opportunity, it's the integration of these things. And so there'll be parts of of a period that'll be Standalone. They have they just raised a a 2.9 billion dollar fund, uh, but they will also through sourcing, uh, you know, Leverage The broader part of the organization, leverage it for distribution. Uh and and so you know, we really are looking when we closed a period as a single 900 billion dollar private credit manager, as opposed to, you know, bspl Sentra and and Aura. Um you know and they've got broad capabilities and and honestly what's happening

sort of your

board type private credits becoming a little bit more commoditized. And so having that expertise and say like Middle Market, direct lending, which appear is or asset backed or real estate debt. Those are really really important uh and you want to be able to globalize that kind of expertise. But to the answer is we really think of it as 1 private credit group.

Adam Spector: Okay, thanks, Jenny.

Okay. Thanks. Jenny.

Operator: Our next question comes from Bill Katz with TD Cowen. Please proceed with your question.

Adam Spector: Great, thank you very much. Maybe this is a big picture question for you. I think you have been at the vanguard of tokenization. I am curious to think beyond maybe just the short-termism of whether or not it helps a specific asset class. How do you see this shifting the potential economic value proposition with the distribution partners? Thank you.

Our next question comes from, Bill Cass with TD con, please proceed with your question.

Great, thank you very much. Um, maybe a super big picture uh, question for you. I think you've been at the sort of the Vanguard of tokenization. Um, I'm sort of curious to think Beyond maybe just these short termism of whether or not it helps a specific asset class. How do you see this? Shifting, the potential economic value, proposition with the distribution Partners. Thank you.

Jenny Johnson: Let me answer that. We think that it will fundamentally change the rails of the financial system. Why do we think that? Let me just use our tokenized money markets fund as an example. We launched this in 2021. We are still the only asset manager in the world who provides digitally native exposure on-chain as opposed to shadowing onto, from your old system, shadowing onto the blockchain. That gives us a lot of additional capability that enhances what we can do for clients with that single product. I am going to start kind of small and then go broader. We just launched intraday yield. If you hold our Benji money market fund, you will see what you earned that day, and it will be posted to your account that same day.

it's for that, in a

You know, we think that it will fundamentally change the rails of the financial system. So why do we think that? Um Let me let me just use our tokenized money market fund as an example. So you know, we launched this in 2021. We are still the only asset manager in the world who provides digitally native exposure on chain as opposed to shadowing, uh, onto, you know, from your old system shadowing onto the blockchain, that gives us a lot of additional capability, uh, that that enhances what we can do for clients with that single product. So I'm going to, I'm going to start kind of small and then go broader. So, you know, we just launched intraday yield, if you hold our Benji, money market fund, you will see what you earned that day and it'll be posted.

Jenny Johnson: If you use us, if you use the Benji product that is collateral and you only hold it for 4 hours and 32 minutes, you are going to get 4 hours and 32 minutes of yield. It is really because blockchain is so efficient that it enables those enhanced services. When we say, and when the S.E.C. approved that product, they had us run, and we were still running the transfer agency in-house. They had us run a parallel process, and we were astonished even by the difference in cost to actually run transactions on-chain versus on the old transfer agency system. If you take that more broadly, there is going to be a tremendous amount of opportunities. What does blockchain do? It does three things. It has a source of truth of ownership. It has the ability to execute smart contracts, and it has a payment mechanism.

It goes to your account that same day if you use us, as if you use the Benji product as collateral. And if you only hold it for 4 hours and 32 minutes, you're going to get 4 hours and 32 minutes of yield. Um, so it really could—blockchain is so efficient that it enables those enhanced services.

Jenny Johnson: Why is that important? If you think about the players in the financial system, there are all these toll takers that serve in those roles. For example, a bank may stand between Franklin and a counterparty on an F.X. contract because we do not want to worry who the counterparty is, and we need to make sure we get paid. With blockchain, because the smart contract can execute it and because the entitlement of ownership is embedded in the token and there is a payment mechanism, we can be assured that we will get paid and that the counterparty will pay. You actually are going to disintermediate a lot of the toll takers on transactions, and that is going to open up opportunities and drive down costs of delivering.

Jenny Johnson: That is why I say I think that ultimately, mutual funds and E.T.F.s will be leveraging blockchain because it is just a less expensive way to do it. Now, you hear things like, hey, it's a great way to democratize alternatives. The reality is the technology exists today, but you still need market makers and others to be able to step in and, you know, allow the maturity of that. So it is not the technology that is holding us back. It is just that the infrastructure has been slow. It will be, you know, it will take some time to roll those things out. But I always say you cannot stop water from rolling down the mountain. You can try to block it, but it finds its way down.

3 things. It has a source of truth of ownership, it has the ability to execute smart contracts and it has, um, has a payment mechanism. So why is that important? If you think about the players in the financial system there's all these toll takers that serve in those roles. So for example, a a a bank May stand between Franklin and a counterparty on it FX contract because we don't want to worry who the counterparty is, and we need to make sure we get paid but with blockchain because the smart contract can execute it. And because the entitlement of ownership is in the token and there's a payment mechanism, we can be sure assured that we will get paid and that the counterparty will pay. And so you, you actually are going to, um, disintermediate a lot of the toll takers on transactions and that's going to open up, uh, you know, opportunities and drive down costs of delivering. And that's why I say, I think that all

Ultimately, you know, mutual funds and ETFs will be leveraging blockchain because it's just a less expensive way to do it. Now, you hear things like, "Hey, it's a great way to democratize alternatives." The reality is the technology exists today, but you still need market makers and others to be able to step in and, you know, allow the maturity of that. So, it's not the technology that's holding us back. It's just that the infrastructure has been slow, and it will be, you know, it'll take some time to roll those things out.

Jenny Johnson: The fundamental nature of blockchain is such that it will replace a lot of the existing rails, and it will create opportunities for innovation.

But I always say you can't, you can't stop water from rolling down the mountain that you can try to block it but it it find its way down. The fundamental nature of blockchain is such that it will replace a lot of the existing rails uh and it will create opportunities for innovation.

Adam Spector: All right, thank you. Just another follow-up. That is great. That is great. A lot to think about with all this going on. Stepping back now, I am really encouraged to see the buyback step up a little bit this quarter. One of the pushbacks we are getting on the story is some uncertainty around where you might stand in the conversation with the regulators on any potential financial settlement with Western Asset. It is certainly great to see clients stabilizing on the attrition side. How do we think about the way you might be sitting in terms of those conversations with the regulators, how you might reserve, if at all, for a potential charge, and then how you think about capital deployment on the other side of that? Thank you.

Jenny Johnson: I will start, and then Matt can jump in on anything I do not cover. First of all, I want to reiterate the strength of our fixed income franchise. Franklin Fixed Income is probably the largest sim in our institutional one, but unfunded pipeline, and that would have been unheard of five years ago. They just did not have the institutional capabilities. We have been in positive flows with the Franklin Fixed Income and Brandywine for multiple quarters now. They have really been able to pick up a lot of the slack there from Western Asset. That is obviously really important.

All right, thank you just a follow. Yeah, that's great. That's great. Um, lot lot to think about with all this going on. Um, just stepping back now and really encouraged to see the buyback step up a little bit. This quarter, 1 of the push backs, we're getting on. The story is sort of some uncertainty around where you might stand in the conversation with The Regulators on any potential Financial settlement, uh, with wamco. It's certainly great to see clients stabilizing on the attrition side. How do we think about the way you might be sitting in terms of those conversation with a Regulators? How you might Reserve? Uh, if at all, uh, for potential charge and then how you're thinking about Capital deployment, on the other side of that, thank you.

So I'll I'll start and then, uh, Matt can can, uh, jump in on anything I don't cover. Um, look you first of all, I want to reiterate the strength of our fixed income franchise. Um, you know, we the, the, uh, the Franklin fixed income is probably the largest Sim in our uh uh institutional 1, but unfunded unfunded Pipeline. And that would have been unheard of 5 years ago. They just didn't have the institutional capabilities we've been in positive flows with the Franklin, fixed income and Brandy Wine, uh, for multiple quarters now, uh,

Jenny Johnson: Western Asset is also still in positive gross sales, and their gross sales have actually increased, and their performance, and that has been something we have said all along that has been really important to us to try to insulate the investment team as much as we can from the distraction of everything going on to ensure they can focus on clients. Their 1, 3, and 5-year numbers are beating, they are in the like the 90th, close to the 90th or around the 90th percentile for 1, 3, and 5 years, beating the composite benchmark. Their performance is really good. We have gone from what was $37 billion in net outflows, I think, in December to June was, I think, $4.1 billion, and July is $3 billion. The story there is improving, and there is some amount of stabilization on some of that.

So they've really been able to pick up a lot of the the slack there from Western. Um and uh and and so that's you know, obviously really important Western has is also still in positive uh um, gross sales. So they have and their gross sales have actually increased and their performance. And that's been something we've said all along. That's been really important to us, to try to insulate the investment team. As much as we can from the distraction of everything going on to ensure. They can focus on clients and they're 1 3 and 5 year numbers. Um, you know are be during the like the 90th close to the 90th or around the 90th percentile for 1, 3 and 5 years, beating the uh composite Benchmark. So you know their performance is really good. Um and then you you know, we've gotten from what was 37 billion in outflows. Net outflows I think in December to uh uh June was I think 4.1 billion in July is 3 billion. So you know, the

Jenny Johnson: The reality is with the government, we do not control the pace of that. We are obviously continuing to cooperate with the government. As a reminder, Western Asset is about just under 6% of our revenues. Today we have, I will let Matt address anything on reserves or anything else you want to add to that.

Story. Uh, there is is improving. And there's some amount of stabilization on some of that. Um, but the, uh, you know, the reality is with the government, you know, it, we don't control the pace of that. Uh, and so, you know, we are obviously continuing to cooperate with the the government as a reminder, you know, um, Western to about just under 6% of our revenues. Uh, and you know, today we have well, I'll let I'll let Matt address anything on on Reserves.

Adam Spector: No, maybe I will just say, you know, there is nothing to report on reserves at this time. To answer Bill's other question about capital management priorities in the context of this situation and just in general, I will just reiterate, Bill, obviously you are very familiar with this. Our priorities are, you know, obviously the dividend organic growth strategies. Jenny Johnson has talked a lot about the various areas that are growing, you know, alternative assets, ETFs, Canvas, multi-asset solutions. We have invested very heavily in each of those areas, and they are the areas that are growing. We are focused on repurchasing employee share grants. As you just noted, that is what we managed to do some of that in the last quarter. We have also been servicing our debt. We delevered by another $100 million in the quarter.

Or anything else you want to add to that?

No, I maybe I'll just say, you know, there's nothing to report on reserves at this time.

Is talked to a lot about the uh, the various areas that are growing, you know, alternative assets, ETFs canvas, uh, multi-asset Solutions. We've invested very heavily in each of those areas and they're the areas that are growing.

Adam Spector: We also made the last acquisition-related payment of $100 million related to the Lexington acquisition. We are being conservative around debt just in case we want to pay down the $450 million of debt that comes due next year. You know, we are probably more likely than not accessing the debt capital markets between now and then, assuming the markets are in good shape. Then, of course, we look at opportunistic share repurchases and acquisitions. The market is very, very active, as we have talked openly about.

Um, we're focused on repurchasing employee share grants uh as you just noted uh that's what we managed to do. Some of that in the in the last quarter, uh We've also been servicing our debt. We delivered by another hundred million dollars in a quarter. We also made the last acquisition related to payment of 100 million dollars in relate related to the Lexington acquisition. Um, we're we're being conservative about around debt. Uh, just in case we want to pay down the 450 million of debt that comes to you next year. But you know, we're probably more likely than not accessing the uh, the deck Capital markets between now now and and then assuming the markets are in are in good shape. Um and then of course we look at opportunistic share repurchases and Acquisitions. Uh, uh, the the market is very, very active as we've as we've talked openly about.

Operator: Our next question comes from Alexander Blostein with Goldman Sachs. Please proceed with your question.

Adam Spector: Great, thanks. Good morning, Jenny. Hey, Matt. Wanted to get your guys' thoughts on the outlook for private markets growth for Franklin over the next 12 months. It is a bit of a two-parter, but I guess one was hoping to get a more wholesome update, I guess, on the wealth channel. Nice traction with Flex products, both U.S. and non-U.S. I think you guys have BSP as well with a real estate debt fund. Talk to us a little bit about how that is tracking, where do you see that going, and what else you are planning on launching that could be needle moving there over the next kind of 12 months. Similarly, maybe just update us on the institutional outlook with the Lexington flagship fund coming up here in the next few months.

Our next question comes from Alex Blasting with Goldman Sachs. Please proceed with your question.

Jenny Johnson: Sure. So, you know, we said at the beginning of the year that we thought that our alt fundraising would be in the range of $13 billion to $20 billion, and the higher end of that range would be dependent on a first close of a Franklin Lexington Private Market Fund flagship fund of $11 billion if it happened in September. That is not going to happen. They are just now kicking off in the market, and so there probably will not be a first close until either December or early 2026. We are sitting here today after three quarters, halfway right in the middle of that range at $15.7 billion. We think we will end the year around $18.5 billion. Of that, so far, the $15.7 billion, 25% has been raised in the wealth channel.

Great, uh, thanks. Uh, good morning Johnny. Hey, Matt. Um, wanted to, uh, get your guys' thoughts on, uh, the outlook for private markets, growth for Franklin, over the next 12 months and, uh, a bit of a 2-part but I guess 1 uh, was hoping to get a more wholesome update, I guess on the wealth channel. Uh, nice traction with flex products. Uh, both us and non-us, I think you guys have bsp as well with a with a real estate debt fund as well. But talk to us a little bit about how that's tracking. Where do you see that going? And what else you're planning on launching? Uh, that could be needle moving there over the next kind of 12 months. And then similarly, maybe just update us on the institutional Outlook, uh, with the Lexington, uh, Flagship fund coming up here in the next few months.

Sure. So you know, we said at the beginning of the year, uh, that we thought that our all fundraising would, you know, be in the range of 13 to 20 billion and the higher end of that range would be dependent on a first close of Alexa Flagship fund 11, uh, if it happened in this, in, in September, uh, so that isn't going to happen that that they are. They're just now, um, picking off in the market. And so, there probably won't be a first closed until either December or early 2026. Um, but we're sitting here today, after 3 quarters at halfway right in the middle of that range. At 15.7 billion. We think we'll end the year around 18 and a half

Jenny Johnson: You know, if you look at our current assets, it is about 10% of the assets are in the wealth channel. So that is a really good sign. Now, we went out with a limited number of distributors when we first launched Franklin Lexington Private Market Fund. I think we have added something like 16 now internationally. The Franklin Lexington Private Market Fund and the Franklin Lexington Private Market Fund International, we are seeing about $150 million to $200 million a month coming in in that particular perpetual product. We are continuing to add distributors. So there is a lot of opportunity as far as additional distributors to increase that number. You know, we also launched a perpetual real estate debt fund with BSP Special Situations Fund II. That one is really just with one warehouse in the U.S., and it has got some traction.

Um, of that, so far, 15.7% has been raised in the Wealth Channel, and, um, you know, if you look at our current.

Jenny Johnson: We actually have seen a lot of good momentum in July on that. We are launching internationally with a, you know, we are launching with a global distributor that we think will also help that one take off. Today, you know, we have got three perpetual products for real estate, real estate private credit, and secondary PE that are $1 billion each. So we have got scale, we have got track record there. As the world, and I think the thing that is often lost on people as far as alts in the wealth channel is that there is a view that if you have a good product, that is going to be all you need.

Assets, it's about 10% of the assets are in the wealth channel. So that's a really good sign. Now, we went out with a limited number of Distributors. When we first launched Flex, I think we've added something like 16 now internationally. Um, we're the the, the flex and the flex International, we're seeing about 150 to 200 million a month coming in and that in that particular, Perpetual product, um, and uh, we're continuing to add Distributors. So there's a lot of opportunity as far as additional Distributors to increase that uh, that number. Um, you know, we we also launched a Perpetual real estate debt fund with bsp. Um, that 1 is really just with 1 Warehouse in the US. Uh, and it's, you know, it's got some traction. We actually have seen a lot of good momentum in July on that, um, but we are launching internationally with a, you know, we're lucky with the global distributor, um, that we think will also help that 1,

And, uh, to take up for today, you know, we've got three perpetual products for real estate: real estate private credit and secondary private equity that are each $1 billion. So, we've got scale, we've got a track record there. And so, as the world... And I think the thing that is often lost on people as far as also the wealth channel.

Jenny Johnson: The reality is that is just, you know, table stakes. It is the ability, once you get on, you have to get obviously on the platform, but it is the education and it is the relationships with the financial advisors that is so significant. Where we think we stand out is, you know, the wealth channel is in our DNA. We have relationships with all these advisors, and we have the Franklin Templeton Academy that can help in the education process. I cannot remember, Adam, when we first launched, when we raised 20% of Lexington Fund 10 with one of our warehouses. I think it was something like 44% of advisors had never sold an alt product before. It is that blocking and tackling of being able to do the education that is so important. It took us a few years, honestly, to figure this out.

That blocking and tackling of um, you know, being able to do the education. That's so important. Uh, it took us a few

Jenny Johnson: We think we actually are now demonstrating that we have figured it out, and we also have the luxury of the fact that we sell to 100% of a financial advisor's book. So we can cover with wholesalers or market leaders out there in a way that it is difficult for the alt managers who are now selling to what is 5% and hopes to be 10% of the book. We have 90 people who are just dedicated to supporting our market leaders who are out there talking to advisors with specialty expertise on how to think about alternatives in the wealth channel. So we continue to be really optimistic. We have said we think over time that should get, the wealth channel should represent certainly 20% of our alts AUM, potentially even over time to 30%.

Adam Spector: On top of that, just to add, we have invested in headcount both in Europe and Asia. Most recently, we are adding headcount to the 90 that Jenny Johnson mentioned of specialists.

Demonstrating that we have figured it out. And we also have the, the luxury of the fact that we, you know, we sell to 100% of a financial advisors book. So we can cover with wholesalers or Market leaders out there in a way that it is difficult for the the alts managers, who are now selling to what is 5% and hopes to be 10% of the book. Um, and so we have 90 people who are just dedicated to supporting our Market leaders, who are out there talking to advisors with specialty um expertise on how to think about Alternatives in the wealth channel. So we continue to be really optimistic. We've said we think you know over time that she get the wealth channel should represent certainly 20% of our alts uh AUM potentially even over time to 30%.

Alexander Blostein: Great, thanks for that. Matt, I was hoping you can update us also on the expense guidance just as you kind of progress here towards the end of the fiscal year and any early thoughts for fiscal 2026 for you guys.

And, on top of that, to add with invested in headcount, both in Europe and Asia. Most recently, we're adding headcount to the 90 that Jenny mentioned, the specialists.

Adam Spector: Sure, thanks, Alex. I will go through the fiscal fourth quarter and annual guide. Before I do that, though, I just want to reiterate Jenny's point on July monthly AUM she had in her prepared remarks. It is early, as Jenny mentioned, particularly given the fact that it was month end just yesterday. We have formally announced the preliminary July AUM of flows next week, but we expect Western Asset long-term net outflows to be approximately $3 billion for the month of July and any AUM for Western Asset to be approximately $236 billion. Excluding Western Asset, we expect long-term net inflows of approximately $3 billion for the month. So combined, we expect to be flat to slightly positive, let us say, for the month, inclusive of Western Asset or $3 billion positive excluding Western Asset.

Great, thanks for that. Um, and then Matt was hoping you can, uh, update us also on the expense guidance. Just as you kind of progress here towards the end of the fiscal year and any early thoughts for fiscal 2026 for you guys.

Adam Spector: In terms of the quarter, the effective fee rate for the quarter, for next quarter, I am talking about fourth quarter guidance now, we expect to be in the high 37s. To be clear, the reason why our effective fee rate was about $5.5 lower than where we guided about 80% of that difference was attributed to the calculation of EFR, which was basically the daily average AUM is 1% lower than the simple monthly average AUM. So that impacted our EFR by about 0.4 basis points, and that explains the difference between the guide that we gave versus where we came out. But we expect that to snap back into the high 37s again in the fourth quarter. The comp benefits we expect to be $860 million to $870 million. That assumes, though, about $100 million of performance fees. This is elevated versus our usual guide of $50 million.

Sure. Thanks, Alex. I'll go through the fiscal, fourth quarter and annual guide. Uh, before I do that, though, I just want to reiterate, uh, Jenny's point on July monthly AUM. She had in her prepared remarks, uh, it's early, as Jenny mentioned, uh, particularly given the fact that it was month and just yesterday, um, we have formally announced the, uh, preliminary July AUM and flows next week, but we expect Western asset long term, then out flows to be approximately 3 billion for the month of July. And then the AUM for Western asset to be 236 billion. Excluding Western asset. We expect long-term, net inflows of approximately 3 billion dollars for the month. So combined uh we expect to be slightly flat to slightly positive. Let's say for the for the month, inclusive of of Western asset or or 3 billion, positive excluding Western asset in terms of the quarter, uh the effective fee rate, um, for the quarter for next quarter until about fourth quarter guidance. Now we expect to be in the high 37s to be

Clear. The reason why our effective fee rate was about 5.5 uh lower than uh we where we guided about 80% of that difference was attributed to the calculation of efr which was basically the daily average aums 1% lower than the simple monthly average AUM. So that impacted our efr by about 0.4 basis points. And that explains the difference between the guide that we gave versus the where we came out. But we expect that to snap back into the high 37s. Uh, again in the fourth, uh, fourth quarter,

Um, the uh, compa benefits. We expect to be 860 to 870 million.

Adam Spector: We expect an elevated performance fee quarter of around $100 million. Please note, though, that the payout ratio on that will be 60% versus the usual 55% due to the nature of part of that performance fee. But again, it is a $100 million guide versus our usual $50 million. This also, the $860 million to $870 million also includes slightly higher incentives due to better performance and higher AUM. IS&T, we expect to be about $155 million. This includes just a couple of million dollars higher on our investment management platform fee integration on the Aladdin project, but that is just because we are ahead of schedule. It is nothing to do with any changes in terms of where we expect that to come out in terms of expenses. So $155 million for IS&T. Occupancy, we expect to be roughly flat, $69 million to $70 million.

That assumes though about 100 million dollars of performance fees. This is elevated versus our usual guide of 50 million. We expect an elevated performance fee quarter of of uh, of around a hundred million dollars. Please note, though that the payout ratio on that would be 60% versus the usual 55% due to the nature of part of that performance fee. But again, it's a 100 million guys versus our usual, uh, 50 million this. Also, the 860 to 870 also includes uh slightly higher incentives, due to better performance and, uh, higher AUM. Um, is&t, we expect to be about 155 million. This includes just a couple of million dollars higher on our investment management platform, the integration on the Aladdin project, but that's just because we're ahead of schedule, it's, it's nothing to

Adam Spector: For the fourth quarter, G&A, we expect to be slightly higher, $190 million to $195 million. This is because of higher professional fees. Overall, we expect the quarters to end up being about $1.283 to $1.285 in terms of adjusted expenses. Taxes, we expect to be on the higher end of our 25% to 27% range for the quarter because of expected discrete tax items in the quarter, but for the year, we expect it to come into the middle of that range. In terms of fiscal 2025, for the full year 2025, obviously, we can add the Q4 guidance to the other quarters, and you will see that adjusting for the additional quarter of Putnam and excluding performance fee compensation, we expect expenses to still be roughly flat.

To do with, uh, any changes in terms of where we expect that to come out in terms of expenses. So, $155 million by S&T occupancy, we expect to be roughly flat, $69 to $70 million for the fourth quarter. G&A, we expect to be slightly higher, $190 to $195 million. This is because of higher professional fees. Um, so overall, we expect the quarter to end up being about $1.283 billion to $1.285 billion in terms of adjusted, uh, expenses, um, taxes.

Matt Nicholls: 2024, perhaps $20 to $30 million higher, so a little bit higher. This is notwithstanding markets being significantly higher since I last gave this guidance in the last quarter. Importantly, this includes all the strategic investments that we've been talking about. We've managed to find other ways internally to fund these via other cost saves in the business. As I mentioned a moment ago, in each area, each of the areas that we've invested in, we're seeing meaningful growth now, both in Alt CTS, Canvas, and Multi-Asset Solutions in particular. Alex, in terms of your question on fiscal 2026, as referenced, and obviously we're very early in this, but as referenced in the past couple of quarters, we've got expense initiatives underway.

Matt Nicholls: Jenny Johnson referenced these at the beginning, that are expected to position us to enter fiscal 2026 with at least $200 million of run-rate cost savings relative to fiscal 2025, excluding performance fee compensation. The only offsets to these savings, which could be a little bit uneven during the fiscal year, would be driven by higher growth areas, such as distribution expenses in connection with potential faster growth, if that indeed happens, in alternative asset management and faster growth in AUM, in addition to the APIRA acquisition. The APIRA acquisition adds about $30 million of expenses. Of course, if we have higher distribution-related expenses related to faster growth in alternative assets, as an example, we will make sure that we call that out as we go through our expenses so you can keep track of the expense saves that we've referenced on this call and previous quarters.

We expect expenses to still be roughly flat to 2024 perhaps 20 to 30 million higher. So a little bit, a little bit higher. Uh, this is notwithstanding markets being significantly higher since I last gave this guidance, uh, in the last quarter, uh, importantly, this includes all the Strategic Investments that we've been talking about. We managed to find other ways internally to fund these uh via other cost saves in the business. And as I mentioned, a moment ago in each area, each of the areas that we've invested in, we're seeing meaningful growth. Now, both in alt CTS canvas multi-asset Solutions in particular. Uh, Alex. In terms of your question on fiscal 26, you know, as referenced and, and obviously, we're very early in this. But as referenced in the past, couple of quarters we've, uh, got expense initiatives underway and Jenny referenced these at the beginning that are expected to position us to enter fiscal 2026 with at least $200 million of

Run rate cost, savings relative to fiscal 25, excluding performance fee, compensation, the only offset to the savings, uh, which could be a little bit uneven. During the fiscal year, will be driven by higher growth areas such as distribution expenses and connection with potential faster growth. If that indeed happens in alternative, asset management and faster growth uh in in AUM, in addition to the uh, to the appear acquisition, uh, the appearance.

Selene Oh: That's great. Super comprehensive, as always. Thank you, guys.

Acquisition adds about $30 million of expenses, and of course, if we are, if we have higher distribution related expenses related to faster growth in alternative assets, as an example, we will make sure that we call that out as we go through, uh, our expenses. So you can keep track of the, uh, of the expense saves that we've referenced uh, on this call and and previous quarters.

Rachel Smith: Thanks, Alex.

That's great, super comprehensive. As always, thank you, guys.

Maria: Our next question comes from Dan Fannon with Jefferies. Please proceed with your question.

Thanks Alex.

Our next question comes from Dan Fannon with Jefferies. Please proceed with your question.

Jenny Johnson: Great. Thanks. I apologize. Just to clarify, Matt, what you just kind of went through. For fiscal 2026, I understand you have $200 million of savings going into the year, but did you give a number for fiscal 2026 expenses?

Uh great uh thanks I apologize. Just to clarify Matt. What you just kind of went through. So for fiscal 26. I understand you have 200 million of savings going into the year but did you give a number for fiscal 26 expenses?

Matt Nicholls: We didn't give a notional number, but you can basically, if you take fiscal 2025 guidance that I just gave, you could take $200 million off that. That's where we'd expect to be, except for the information I just provided on APIRA. If we grow faster in alternative asset management in particular, the placement fees and distribution expenses can add up in the short term, which will, of course, be offset by higher revenues in the longer term. We'll obviously highlight those if and when they happen.

Uh, we did give a notional number, but you can...

Basically.

if, if you take, um, fiscal 25 guidelines that I just gave

and you could take $200 million off that.

That’s where we’d expect to be.

except for,

The information I just provided is on a per.

And if we grow faster in alternative, Asset Management, in particular because the, uh, placement fees and distribution expenses can can add up, uh, in the short term, which will, of course, be offset by higher revenues in the longer term and we'll we'll obviously uh, highlight those if and when they happen.

Jenny Johnson: Understood. That includes, that is assuming flat AUM from now and no performance fees.

Matt Nicholls: Correct.

Jenny Johnson: Right?

Matt Nicholls: Yeah, yeah. It excludes performance fees from both sides. So it excludes performance fees from 2025, and it excludes it from the 2026 sort of summary that we gave.

Understood. And that includes assuming flat AUM from now and no performance fees. Is that correct? Right? Yeah. Yeah. It excludes performance fees from both sides, so it excludes performance fees from.

Jenny Johnson: Great. OK, thank you for clarifying that. Just on the fee rates, I understand there were a lot of moving parts this quarter. If I look just over the last year and your asset mix, you have equities up substantially in terms of its AUM, fixed income down. That mix shift is more positive. Your fee rate is essentially flat year over year. Can you talk about, obviously, alternative is also a source of growth, but that AUM in general is flat. As we think about the underlying trends beyond that, are there other things that are putting pressure on the fee rate that would otherwise make it so that number is not higher as the mix continues to move towards higher fee assets?

You know, 2025 and, uh, and, uh, it excludes it from the 26th, sort of, you know, summary that we gave.

Great. Okay, thank you for clarifying that. And then just on the fee rates: I understand there are a lot of moving parts in terms of this quarter. But if I look just over the last year and your asset mix, you have equities up substantially in terms of its AUM, while fixed income is down. So that makes the shift more positive, but your fee rate is essentially flat year-over-year. So can you talk about—obviously, alternatives are also a source of growth—but that AUM in general is flat? So.

Jenny Johnson: I am just surprised in aggregate if you were to tell me AUM mix today versus where it was a year ago that the fee rate is not higher.

As we think about the underlying trends beyond that, are there other things that are putting pressure on the fee rate that would otherwise make it? So that number isn't higher as the mix continues to move towards higher fee assets? Because I'm just surprised and aggravated. If you were to tell me a mix today versus where it was a year ago, that the fee rate isn't higher.

Matt Nicholls: Yeah, I mean, it is a really interesting question because when we look at our fee rate just being stable, because if you exclude some of the episodic events that create upside to the EFR during various quarters, like for example, if we have catch-up fees related to a Franklin Lexington Private Market Fund, that can spike the EFR up to 39 basis points, something like that, or even higher that happened in different quarters. If you take that out of the equation and you normalize it over a period of time, we have been relatively stable. The reason why we are stable is because we have had offsets to the lower fee businesses or where we have had to lower fees to be competitive in certain, in particular, certain large institutional opportunities for the firm.

The reason why we're stable is because we've had offsets to the lower fee.

Matt Nicholls: We often think to ourselves that it is a fairly reasonably decent position to be in to keep it relatively stable versus it going down. The product mix, if you will, quarter over quarter, for example, in this quarter that we are reporting now, only about 20% or 25% of the fee difference is attributed to the product mix. We will say the same thing. We have had higher growth areas across Canvas, ETFs, some of the larger institutional mandates that have lower fees. That is where we have been growing. To offset the pressure on those lower fees, we have had inflows into alternative assets. On the alternative asset side, we have had higher distributions and realizations that have offset some of that.

Businesses or where we've had to lower fees to be competitive in certain in particular certain large institutional uh opportunities for the for the firm. So we we often think to ourselves that it's a, it's a fairly reasonably decent position to be in to keep it relatively stable versus versus it going down the the product product mix. If you will, uh, quarter over quarter, for example, in in, uh, in this this course that we're reporting now, only about 20% or 25% of the, the fee difference is, is attributed to the to the product mix.

Matt Nicholls: Gradually, we are seeing some more momentum across all the areas that Jenny Johnson referenced in her remarks that are certainly seeing a tick up in AUM on the alternative asset side. When we look at the overall picture, we see a situation where we just have relative stability in EFR versus any big increases or certainly any pressure on the downside. We do our best, obviously, to give you the breakdown and be as transparent as we can as we go through quarter over quarter. This quarter, by the way, another point to mention is that something like 0.2% of the difference was just the weakening dollar. So it was an FX-related matter. It is not even anything to do with the fundamental product shift or fee pressures or anything like that. It was just FX.

Uh, but but but well say the same thing, you know, we've had higher growth areas across canvas ETFs some of the large larger. Uh institutional mandates that have lower fees. That's where we've been growing to offset the pressure on those lower fees. We've had uh, inflows into alternative assets but then on the alternative assets side, we've had uh, higher distributions and realizations that have offset some of that. Um, but gradually, you know, we're we're seeing some more momentum across all the areas that Jenny referenced in her remarks that have certainly seeing a tick up in a um, uh, on the alternative asset side. Uh, but when we look at the other

Liberal picture, we see a situation where we just have relative stability in in efr versus any big, you know, increases or or any certainly any, any pressure on the, on the downside and, and we do our best obviously, to give you the breakdown and be as transparent as we can, as we go through quarter quarter over quarter, this, this quarter, by the way, another point to mention is that, you know, something like 0.2 of the difference was just the, the, the weakening dollar, you know, the uh, so it was an fx related matter. It's not even anything to do with, with the, uh, with the fundamental product shift or fee, pressures or anything like that. It's just it's just FX.

Jenny Johnson: Understood. Thank you.

Rachel Smith: Thank you.

Matt Nicholls: Sure.

Understood. Thank you. Thank you.

So,

Maria: Our next question comes from Ken Worthington, JPMorgan Chase & Co. Please proceed with your question.

Our next question comes from Ken, we're LinkedIn. JP Morgan, Jason Co.

Jenny Johnson: Hi, good morning. Jenny, I wanted to dig deeper, maybe follow up on Bill's question earlier on digital blockchain technology, really permeating the traditional asset management business. You were early. You were innovative. You are a leader. But it does not always seem to translate into obvious economic success. I recognize it is early. But if we step back and look forward, where do you see the likely opportunities for Franklin to translate your early insights and investments in digital blockchain technology into economic success that maybe we as outsiders can see?

Please proceed with your question.

Hi, good morning. Um, Jenny, I wanted to dig deeper, maybe follow up on Bill's question earlier on digital blockchain technology, um, you know, really permeating the traditional asset management business. So you were early, you were innovative, you're a leader. Um, but it doesn't always seem to translate into obvious economic success. And I recognize it's early, but if we step back and look forward, where do you see the likely opportunities for Franklin to translate, um, your early insights and investments in digital blockchain technology into economic success that maybe we, as outsiders?

Operator: Yes. So, you know, we have built an ecosystem in there. As I mentioned on the Benji platform, we actually got a patent on our wallet. Right now, you download it from the Apple Store. But we really have designed it because we think it can be white labeled by others. And right now, that wallet and the Benji app or the Benji token can operate actually across chain on eight different blockchains. So, you know, as the traditional distributors start to think about how they have to deal with the crypto world and the tokenization world, they are going to look for partners, we think, that will help them to navigate it. And we have built this infrastructure to do it. So that is how we are thinking about translating. Now, today, you know, we actually manage reserves for four stablecoin providers.

Providers can see.

Operator: You know, everybody is aware of Circle and USTC because it is the big elephant in the room. But there are actually other ones. We were just selected by the first state who is issuing their own stablecoin to manage that stablecoin. So, you know, today, there has been kind of a parallel world between the crypto world and the traditional finance world. And now, as you get clarity around regulation like the Genius Act, you are starting to see firms be more comfortable being able to dip their toe into it. And that is where we think we can be a really important partner because, again, the infrastructure that we have built, we have been building since, I think, 2018. It is not going to be an easy one for people to catch up quickly.

Yeah. So, you know, we've built an ecosystem in there, as I mentioned on the Benji. Um, you know, platform we actually got a patent on our wallet right now. You, you download it from the Apple store but we really have designed it because we think it can be uh White labeled by others. And right now that wallet can as and the Benji app um or the the Benji um uh token. It can operate actually a cross chain on 8. Different blockchains. So, you know, as the traditional Distributors start to think about how they have to deal with the crypto world and the tokenization world, they're going to look for partners. We think that will help them to navigate it. And we've built this infrastructure to do it. So that's that's how we're thinking about translating now today, you know we actually manage reserves for 4 stable coin providers. Um, you know, everybody's aware of circle and usdc because it's the

The big elephant in the room, but there's actually other ones. Um, we were just selected, um, by the, the, the first state who is issuing their own stable coin, to manage that stable coin. Um, so, you know today there's been kind of a parallel world between the crypto world and the, the, the traditional Finance world. Uh, and now as you get clarity around regulation, like, the genius act, you're starting to see firms be

Operator: And so our ability to really private label that and have it integrated in others, you know, in their client platforms, just imagine if you are a distributor, you know, you have got your clients who are holding their crypto assets. Some portion of them, probably the younger ones, are holding their assets over at Coinbase. Would not you like to be able to move that over into a wallet that is integrated on your system so you can provide an entire view of the client's investment opportunities? And that is the kind of infrastructure that we have built.

Jenny Johnson: Great. Maybe just to follow up there, because it is pretty interesting, any conversations with these other companies to white label your technology and what you are doing? Or is it just basically the Genius Act and some of the other regulation is so real-time that we have not gotten there yet?

Forms. Um, just imagine, if you're a distributor, you know, you've got your clients who are holding their crypto assets. Some portion of them, probably the younger ones, are holding their assets over at Coinbase. Wouldn't you like to be able to move that over into a wallet that's integrated on your system? So you can provide an entire view of the client's investment opportunities. And that's the kind of infrastructure that we've built.

Operator: We are having conversations. A lot of the early conversations actually were on the international side and have been on the international side, partly because they had more clarity on regulation. But now, with the Genius Act, we are actually having conversations with distributors in the U.S. as well.

Great and and maybe just to follow up there because it's pretty interesting. Any any conversations with these other companies to White Label, you know, your technology and what you're doing or is it just basically the genius act and some of the other regulation is is so real time that that we haven't gotten there yet.

Jenny Johnson: Got it. Makes sense. Thank you so much.

Um, we are having conversations. A lot of the early conversations actually were on the international side and have been on the international side, partly because they had more clarity on regulation. But now, with the Genius actor, we're actually having conversations with distributors in the U.S. as well.

Got it. Makes sense. Thank you so much.

Maria: Our next question comes from Benjamin Budish with Deutsche Bank. Please proceed with your question.

Jenny Johnson: Hi, Brian. Thanks for taking my question. Most have been asked and answered. Thanks for all the commentary on the tokenization, Jenny. It was really, really good color. Maybe switching topics to the 401(k) theme and the private markets and 401(k) theme. Obviously, you guys have a really well-rounded private lineup. What is your, I guess, desire or your plans to potentially integrate private and public products? You could most likely do this yourself. Then go after the 401(k) market. If you could just remind us again your presence in defined contribution and in target date products. How do you see that? Do you think you need to partner?

Our next question comes from Brian Videll with Deutsche Bank. Please proceed with your question.

All right, thanks for taking my question. Um, most of have been asked and answered, um, and and thanks for all the commentary on the tokenization Jenny. It was really, really good color. Um, maybe switching topics to the 401K seen uh and the private markets in 401 casing. You know. Obviously you guys have a, you know, really well-rounded private. Um, uh lineup. Um, what is your um, I guess design?

Operator: Yeah. Today, we have about $428 billion in retirement. About $120 billion of that is in defined contribution. As a reminder, the acquisition of Putnam gave us much more scale in target date and stable value. That is enabling us to be a bigger player there. We launched a partnership. To answer your question about partnership versus doing it our own, we are open to both. We want to do both. We actually, last year, did a partnership with Apollo and launched a, we were handling the real estate portion. I think they are doing the private credit on a platform. It has gotten traction with some of the smaller plans. The reality, the DC space is an incredibly litigious space. In the absence of clarity around legislation, it is going to be a slower uptake.

Desire or, you know, your plans to potentially integrate private and public, uh, products. You could you could most likely do this yourself and, um, and then, you know, go after the 401K market, and if you could just remind us again, your presence and defined contribution, um, and and in Target date products. Um, and how do you see that or do you think you need to partner?

Yeah so so today we have about 428 billion in retirement. About 120 billion of that is in defined contribution. Um you know if if as a reminder just 1, the acquisition of putham gave us much more scale in Target date uh and stable stable value. So that's enabling us to be um, a bigger player there. Uh, we

Have we launched?

A partnership. So to answer your question about partnership versus doing it. Our own we're open to both like we want to do both and so uh, we actually last year did a partnership with Apollo uh and launched a um, you know we were handling the real estate portion. I think they're doing the private credit uh on a platform look, it's gotten traction with some of the smaller plans but the reality, the DC space

Operator: Having said that, we announced M-Power is very focused on this. They are doing an advisor-managed account solutions through Morningstar. We are a participant in that program. They know that there is opportunity. Just to put this in scale, DV plans, half of the assets, so we have about $160 billion in defined benefit. Half of that is in alternatives. It is a real missed opportunity. Unfortunately, the DC space of probably all areas of asset management is the most litigious when it comes to fees. It makes the fiduciaries really hesitate until they get like a DOL, Safe Harbor, or something. Good opportunity, but there is just the kind of the realities of it. I think it is going to be a slower uptake. We are really well positioned. We are actually already there.

Uh, is an incredibly litigious space and in the absence of clarity around legislation, um, you're probably going to be, it's going to be a slower. Uptake, having said that, you know, we announced Empower is very focused on this. They're doing a, uh, um, you know, advisor managed account Solutions through Morning Star. And we're, we're participant in, um, in that program. So they know that there's opportunity and just to put this in scale, like DB plans, half of the assets that we have about 160 billion in, in defined benefit half of, that's an alternative. So it's a real missed opportunity. But unfortunately, the DC's based of probably all areas of asset management is the most litigious when it comes to fees. And so it makes the fiduciary is really hesitate until they get like a dough Safe Harbor or something. So,

good opportunity.

Operator: We will have, our target dates will have private markets. We are building those models now. Probably by the first half of 2026, we will launch those. It is just a matter of what is the uptake. I do not know, Adam, is there anything else? Sorry.

But there is just the kind of the, the realities of it. I think it's going to be slower, uptake, but we're really well, positioned. They're actually already there and we will have, um, our Target dates will have uh, private markets. We're building those models now. Uh, probably by the first half of 2026, we will launch those, and it's just a matter of what's the uptake.

Adam Spector: Yeah, I mean, just to put a little context on that, the target date fund is now about $19 billion. So it is pretty substantial. A lot of that came through the Putnam acquisition. We think that is really important because a third of DC AUM is going into the QDIA space. Having that target date has really helped us there. We have got about $2 billion now in the sales pipeline that we think will close shortly in that space. I am talking there about the sales pipeline, not our institutional one-but-unfunded pipeline. That is up quite substantially as well to about $24 billion, which is a $4 billion increase quarter over quarter. So strong growth on that institutional side.

I don't know, Adam. Is there anything else? Sorry.

Adam Spector: Core sales is also accelerating quite nicely, up about 22% over the average of the last eight quarters and up 10% over the same period, year to date last year. So strong growth both in the core market, of course, where the DC retirement would fall, as well as in the institutional markets.

Accelerating quite nicely up about 22% uh, over the uh, average of the last 8 quarters, uh and up 10% uh over the same uh, period year to date last year. So strong growth both in the core Market. Uh, of course where the DC retirement, uh, would fall as well as in the institutional markets.

Maria: Our next question comes from Michael Cyprys from Morgan Stanley. Please proceed with your question.

Our next question.

Michael.

Jenny Johnson: Great. Thank you. Good morning. Just a question on non-U.S. allocations, just given the shifting trade policy, geopolitical uncertainty, and heightened volatility. Curious what you are seeing from your U.S. clients and non-U.S. clients in terms of potential and evolving interest from non-U.S. strategies and scope for potentially shifting allocations away from the U.S. Curious what you are hearing, to what extent you think this might play out. Maybe you could speak to some of your non-U.S. strategies that might be best placed to capture what could be potentially money in motion.

Morgan Stanley, please proceed with your question.

Adam Spector: Sure.

Great, thank you. Good morning. Just a question on non-U.S. allocations, just giving the shifting trade policy, geopolitical uncertainty, and heightened volatility. I'm just curious what you're seeing from your U.S. clients and non-U.S. clients in terms of potential and evolving interests for non-U.S. strategies and the scope for potentially shifting allocations away from the U.S. I'm curious what you're hearing, to what extent do you think this might play out, and maybe you could speak to some of your non-U.S. strategies that might be best placed to capture what could be potentially money in motion.

Jenny Johnson: Adam, you could take that.

Adam Spector: Yeah. You know, we have absolutely seen that over the last quarter. But I want to distinguish between what was driving those changes. From a client perspective, we don't see that as kind of a political statement, but rather an investment opportunity statement, as there just seems to be growing interest and growing upside in markets outside of the U.S. So particularly, we've seen growth in our emerging markets equity strategies, international and global equity, as well as value as opposed to growth, as people tend to, in times like this, like to rebalance their portfolios. A lot of people are over-allocated in large-cap growth. On the fixed income side, what we've seen is movements into areas like short-term, of course, but also global bond, EM, high yield, and some multi-sector products as well.

Sure, I'll take that.

Yeah, you know, we have absolutely seen that, uh, over the last quarter. But I want to distinguish, uh, between what was driving those changes. From a client perspective, we don't see that as, um, kind of a political statement, but rather, uh, an investment opportunity statement, as there just seems to be growing interest and growing upside, uh, in markets outside of the U.S. So particularly, uh, we’ve seen growth in our Emerging Markets Equity strategies.

Adam Spector: In the U.S., there was a general flow out of equities for both us and the industry. But outside of the U.S., there is an attractiveness to equity, especially in domestic markets in Europe and Asia. They're seeing more upside in their markets domestically versus the U.S., especially if there's going to be a weaker dollar, which I think is a call many are making. So we're seeing a lot of growth in non-U.S. equity and fixed income in both niche and kind of more broad global products.

International and Global Equity. Uh, as well as value as opposed to growth as people tend to, uh, in times like this, like to rebalance their portfolios, and a lot of people are overallocated, uh, in large cap growth, on the fixed income side. Uh, what we've seen is movements into, um, areas, like, uh, short-term of course, but also Global Bond, Em, High Yield and some multis sector products as well in the, in the US. Uh, there was a general flow out of equities, uh, for both us and the industry. Uh, but outside of the US, uh, there's an attractiveness to equity, uh, as especially in domestic markets in Europe and Asia. They're seen more upside in their markets domestically versus the US. Uh, especially if there's going to be a weaker uh dollar, which I think is a call, many are making so we're seeing a lot of growth, uh, in non-us equity and fixed income in both Niche and kind of more.

Broad Global products.

Maria: This concludes today's question and answer session. I would now like to hand the call back over to Jenny Johnson, Franklin's President and CEO, for final comment.

Operator: Well, thank you, everybody, for joining us today. Once again, we are a people business. I want to thank our employees for their continued hard work and dedication. We look forward to speaking with you again next quarter. Thanks, everybody. Enjoy the rest of your summer.

This concludes today's question and answer session, I would now like to hand the call back over to, Jenny Johnson, Franklin's president and CEO for final comments.

Okay. Well, thank you everybody for joining us today. Uh, you know, and once again, we're we're people business and I want to thank our employees for their continued, hard work and dedication. And we look forward to speaking with you again, next quarter. Thanks, everybody. Enjoy the rest of your summer.

Maria: Thank you. This concludes today's conversation. You may now

Thank you. This concludes today's call. You may now disconnect.