Franklin Resources Q1 2026 Franklin Resources Inc Earnings Call | AllMind AI Earnings | AllMind AI
Q1 2026 Franklin Resources Inc Earnings Call
Which are not historical facts or forward-looking statements, whether 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 10K and 10q filings. Now, I'd like to turn the call over to Jenny Johnson our chief executive officer. Thank you Seline.
Welcome everyone, and thank you for joining us today.
Franklin.
Quarter results.
I'm joined today by Matt Nichols our co-president and CFO and Daniel gambo our co-president and chief commercial officer
If you have questions momentarily, but before we do that, I'd like to review some key themes.
We are operating in a period of continued. Transition for investors marked by significant Market turbulence globally, resulting from heightened, geopolitical trade policy, and consequently economic uncertainty.
Markets are adjusting to a more persistently, volatile environment.
Capital flows and a growing need for resilience in portfolios.
Across regions and client segments. Investors are focused on the same fundamental questions. How to generate durable returns, how to manage risk through uncertainty and how to position portfolios for long-term outcomes rather than short-term noise.
That environment is reshaping. What clients expect from asset managers.
Over the past few months, I've traveled overseas across Europe, the Middle East and Asia. And in my conversation is with clients, it's clear. They are no longer looking for individual products in isolation.
They're looking for partners, who can help them, construct portfolios across public and private markets.
The liver personalization at scale and navigate complexity with discipline and insight.
Franklin Templeton is well positioned for this moment.
Celina Oh: Good morning, and thank you for joining us today to discuss our quarterly results. Statements made on this conference call regarding Franklin Resources, Inc., which are not historical facts, or forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve a number of known and unknown risks, uncertainties, and other important factors that could cause actual results to differ materially from any future results expressed or implied by such forward-looking statements. These and other risks, uncertainties, and other important factors are just described in more detail in Franklin's recent filings with the Securities and Exchange Commission, including in the Risk Factors and the MD&A sections of Franklin's most recent Form 10-K and 10-Q filings. Now, I'd like to turn the call over to Jenny Johnson, our Chief Executive Officer.
Selene Oh: Good morning, and thank you for joining us today to discuss our quarterly results. Statements made on this conference call regarding Franklin Resources, Inc., which are not historical facts, or forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve a number of known and unknown risks, uncertainties, and other important factors that could cause actual results to differ materially from any future results expressed or implied by such forward-looking statements. These and other risks, uncertainties, and other important factors are just described in more detail in Franklin's recent filings with the Securities and Exchange Commission, including in the Risk Factors and the MD&A sections of Franklin's most recent Form 10-K and 10-Q filings. Now, I'd like to turn the call over to Jenny Johnson, our Chief Executive Officer.
Over years of deliberate planning combined with the strength of a global brand. We have earned the trust of investors around the world.
At Franklin Templeton, we bring together, specialized investment expertise across public markets, private markets, and digital assets, supported by a global platform with reach in more than 150 countries.
Clients are increasingly engaging with us across multiple asset classes, reflecting a shift toward Integrated Solutions, and long-term strategic relationships.
This alignment between client needs and our capabilities is driving growth. Our Diversified platforms continued, Innovation and focus on scale and efficiency position us to capture opportunities across Market cycles and deliver long-term value for our clients and shareholders.
Jenny Johnson: Thank you, Celina. Welcome, everyone, and thank you for joining us today as we review Franklin Templeton's first fiscal quarter results. I'm joined today by Matt Nicholls, our Co-President and CFO, and Daniel Gamba, our Co-President and Chief Commercial Officer. We'll answer your questions momentarily, but before we do that, I'd like to review some key themes. We are operating in a period of continued transition for investors, marked by significant market turbulence globally, resulting from heightened geopolitical trade policy and consequently, economic uncertainty. Markets are adjusting to a more persistently volatile environment, shifting capital flows and a growing need for resilience in portfolios. Across regions and client segments, investors are focused on the same fundamental questions: how to generate durable returns, how to manage risk through uncertainty, and how to position portfolios for long-term outcomes rather than short-term noise. That environment is reshaping what clients expect from asset managers.
Jenny Johnson: Thank you, Celina. Welcome, everyone, and thank you for joining us today as we review Franklin Templeton's first fiscal quarter results. I'm joined today by Matt Nicholls, our Co-President and CFO, and Daniel Gamba, our Co-President and Chief Commercial Officer. We'll answer your questions momentarily, but before we do that, I'd like to review some key themes. We are operating in a period of continued transition for investors, marked by significant market turbulence globally, resulting from heightened geopolitical trade policy and consequently, economic uncertainty. Markets are adjusting to a more persistently volatile environment, shifting capital flows and a growing need for resilience in portfolios. Across regions and client segments, investors are focused on the same fundamental questions: how to generate durable returns, how to manage risk through uncertainty, and how to position portfolios for long-term outcomes rather than short-term noise. That environment is reshaping what clients expect from asset managers.
Now, turning to our results for the quarter, which marked another important step forward with tangible progress, across the firm. We continue to deepen client Partnerships. Broaden, our investment and solutions capabilities and strengthen our Global platform key priorities that remain Central to our strategy.
I'm joined today by Matt Nicholls, our co-president and CFO, and Daniel Gambo, our co-president and chief commercial officer.
What's your questions momentarily? But before we do that, I'd like to review some key themes.
Our first fiscal quarter continued, the momentum we built last year, with strong client activity, across Franklin templeton's, Diversified Global platform with positive net, flows in both public and private markets.
Operating in a period of continued transition for investors, marked by significant market turbulence globally, resulting from heightened geopolitical, trade policy, and consequently economic uncertainty.
We had record long-term inflows of 118.6 billion up 40% from the prior quarter and 22% from the prior year quarter.
Markets are adjusting to a more persistently volatile environment.
Capital flows and a growing need for resilience in portfolios across regions and client segments. Investors are focused on the same fundamental questions: how to generate durable returns, how to manage risk through uncertainty, and how to position portfolios for long-term outcomes rather than short-term noise.
That environment is reshaping. What clients expect?
Jenny Johnson: Over the past few months, I've traveled overseas across Europe, the Middle East, and Asia, and in my conversations with clients, it's clear they are no longer looking for individual products in isolation. They're looking for partners who can help them construct portfolios across public and private markets, deliver personalization at scale, and navigate complexity with discipline and insight. Franklin Templeton is well-positioned for this moment. Over years of deliberate planning, combined with the strength of a global brand, we have earned the trust of investors around the world. At Franklin Templeton, we bring together specialized investment expertise across public markets, private markets, and digital assets, supported by a global platform with reach in more than 150 countries. Clients are increasingly engaging with us across multiple asset classes, reflecting a shift toward integrated solutions and long-term strategic relationships.
Over the past few months, I've traveled overseas across Europe, the Middle East, and Asia, and in my conversations with clients, it's clear they are no longer looking for individual products in isolation. They're looking for partners who can help them construct portfolios across public and private markets, deliver personalization at scale, and navigate complexity with discipline and insight. Franklin Templeton is well-positioned for this moment. Over years of deliberate planning, combined with the strength of a global brand, we have earned the trust of investors around the world. At Franklin Templeton, we bring together specialized investment expertise across public markets, private markets, and digital assets, supported by a global platform with reach in more than 150 countries. Clients are increasingly engaging with us across multiple asset classes, reflecting a shift toward integrated solutions and long-term strategic relationships.
From Asset Management.
Long-term net inflows were 28 billion with record AUM and positive, net flows across equity, multi-asset and alternative strategies as well as ETFs. Retail smas, and canvas excluding Western asset Management's long-term net inflows totaled 34.6 billion, nearly double the prior year quarter, extending our track record to a ninth consecutive quarter of positive flows on a comparable basis.
Assets under management ended the quarter at 1.68 trillion.
The Middle East and Asia. And in my conversations with clients, it's clear—they are no longer looking for individual products in isolation.
AUM increased from the prior quarter due to long-term net inflows and the acquisition of the PIRA partially offset by the impact of net Market, change, distributions, and other
They're looking for partners who can help them construct portfolios across public and private markets.
Deliver personalization at scale and navigate complexity with discipline and insight.
Long-term net inflows for 34.6 billion compared to 17.9 billion in the prior year quarter with 9 consecutive quarters of positive. Net flows.
Franklin Templeton is well positioned for this moment.
Over years of deliberate planning, combined with the strength of a global brand, we have earned the trust of investors around the world.
We continue to see strong momentum across our platform with record AUM in 3 of our 4 asset classes, public markets, remain a key strength, and an important source of growth.
At Franklin Templeton, we bring together specialized investment expertise across public markets, private markets, and digital assets, supported by a global platform with reach in more than 150 countries.
Equity multi-asset and Alternatives generated positive net flows totaling 30.4 billion for the quarter and excluding Western asset fixed income delivered into 8 consecutive quarter of positive, net flows.
That's our increasingly engaging with us across multiple asset classes, reflecting a shift toward Integrated Solutions.
Jenny Johnson: This alignment between client needs and our capabilities is driving growth. Our diversified platform, continued innovation, and focus on scale and efficiency position us to capture opportunities across market cycles and deliver long-term value for our clients and shareholders. Now, turning to our results for the quarter, which marked another important step forward with tangible progress across the firm. We continue to deepen client partnerships, broaden our investment and solutions capabilities, and strengthen our global platform, key priorities that remain central to our strategy. Our first fiscal quarter continued the momentum we built last year with strong client activity across Franklin Templeton's diversified global platform, with positive net flows in both public and private markets. We had record long-term inflows of $118.6 billion, up 40% from the prior quarter and 22% from the prior year quarter.
This alignment between client needs and our capabilities is driving growth. Our diversified platform, continued innovation, and focus on scale and efficiency position us to capture opportunities across market cycles and deliver long-term value for our clients and shareholders. Now, turning to our results for the quarter, which marked another important step forward with tangible progress across the firm. We continue to deepen client partnerships, broaden our investment and solutions capabilities, and strengthen our global platform, key priorities that remain central to our strategy. Our first fiscal quarter continued the momentum we built last year with strong client activity across Franklin Templeton's diversified global platform, with positive net flows in both public and private markets. We had record long-term inflows of $118.6 billion, up 40% from the prior quarter and 22% from the prior year quarter.
In term strategic relationships.
Equity. Net. Inflows were 19.8 billion for the quarter including reinvested, distributions of 24.6 billion. We saw positive, net flows, across large cap, value and core all cap growth and value sector International Equity, Equity income, and infrastructure strategies.
Alignment between client needs and our capabilities is driving growth. Our diversified platforms continued. Innovation and focus on scale and efficiency position us to capture opportunities across market cycles and deliver long-term value for our clients and shareholders.
Income net, outflows were 2.4 billion. Excluding Western asset fixed income. Net inflows were 2.6 billion.
Driven by Franklin Templeton fixed income.
Now, turning to our results for the quarter, which marked another important step forward, with tangible progress across the firm.
Positive momentum continued in multis sector Municipal highly customized. Stable value government and Emerging Market strategies.
We continue to deepen client partnerships, broaden our investment in Solutions capabilities, and strengthen our global platform—key priorities that remain central to our strategy.
Our institutional pipeline of 1, but unfunded mandates. Remain strong at 20.4 billion. Underscoring sustained, demand for our investment capabilities. The pipeline remains Diversified by asset class and across our specialist investment teams.
Period of private markets. Franklin Templeton is a leading manager of alternative assets with 274 billion in alternative VM.
Our first fiscal quarter continued the momentum we built last year, with strong client activity across Franklin Templeton's Diversified Global platform, with positive net flows in both public and private markets. We had record long-term inflows of $118.6 billion, up 40% from the prior quarter and 22% year-over-year.
Jenny Johnson: Long-term net inflows were $28 billion, with record AUM and positive net flows across equity, multi-asset, and alternative strategies, as well as ETFs, retail SMAs, and Canvas. Excluding Western Asset Management, long-term net inflows totaled $34.6 billion, yearly double the prior year quarter, extending our track record to a ninth consecutive quarter of positive flows on a comparable basis. Assets under management ended the quarter at $1.68 trillion. AUM increased from the prior quarter due to long-term net inflows and the acquisition of Apera, partially offset by the impact of net market change, distributions, and other. Excluding Western Asset, long-term net inflows were $34.6 billion, compared to $17.9 billion in the prior year quarter, with nine consecutive quarters of positive net flows. We continue to see strong momentum across our platform, with record AUM in three of our four asset classes.
Long-term net inflows were $28 billion, with record AUM and positive net flows across equity, multi-asset, and alternative strategies, as well as ETFs, retail SMAs, and Canvas. Excluding Western Asset Management, long-term net inflows totaled $34.6 billion, yearly double the prior year quarter, extending our track record to a ninth consecutive quarter of positive flows on a comparable basis. Assets under management ended the quarter at $1.68 trillion. AUM increased from the prior quarter due to long-term net inflows and the acquisition of Apera, partially offset by the impact of net market change, distributions, and other. Excluding Western Asset, long-term net inflows were $34.6 billion, compared to $17.9 billion in the prior year quarter, with nine consecutive quarters of positive net flows. We continue to see strong momentum across our platform, with record AUM in three of our four asset classes.
From the prior year quarter.
Alternatives fundraising has been a key contributor to our growth with 10.8 billion raised during the quarter including 9.5 billion in private Market assets,
Long-term net inflows were $28 billion, with record AUM and positive net flows across equity, multi-asset, and alternative strategies, as well as ETFs, retail SMAs, and Canvas.
Fundraising was Diversified across our alternative specialist investment managers and reflected client demand in secondary private Equity alternative credit real estate and venture capital from institutions as well as from the wealth Channel.
Aggregate realizations. And distributions were 4.8 billion.
Including Western Asset Management's long-term net inflows, total flows were $34.6 billion—nearly double the prior year quarter—extending our track record to a ninth consecutive quarter of positive flows on a comparable basis.
Assets under management ended the quarter at $1.68 trillion.
Lexington co-investment Partners 6 1 of the largest dedicated Global co-investment funds closed in October. With 4.6 billion in committed Capital today, Lexington's AUM stands at 83 billion up 46% since its acquisition in 2022.
AUM increased from the prior quarter due to long-term net inflows and the acquisition of PIRA, partially offset by the impact of net market change, distributions, and other factors.
In addition, we continue to expand our private credit platform with the October 1st closing of the appear Asset Management acquisition.
Jenny Johnson: Public markets remain a key strength and an important source of growth. Equity, multi-asset, and alternatives generated positive net flows totaling $30.4 billion for the quarter, and excluding Western Asset, fixed income delivered its eighth consecutive quarter of positive net flows. Equity net inflows were $19.8 billion for the quarter, including reinvested distributions of $24.6 billion. We saw positive net flows across large cap value and core, all cap growth and value, sector, international equity, equity income, and infrastructure strategies. Fixed income net outflows were $2.4 billion. Excluding Western Asset, fixed income net inflows were $2.6 billion, driven by Franklin Templeton Fixed Income. Positive momentum continued in multi-sector, municipal, highly customized, stable value, government, and emerging market strategies. Our institutional pipeline of won but unfunded mandates remains strong at $20.4 billion, underscoring sustained demand for our investment capabilities.
Public markets remain a key strength and an important source of growth. Equity, multi-asset, and alternatives generated positive net flows totaling $30.4 billion for the quarter, and excluding Western Asset, fixed income delivered its eighth consecutive quarter of positive net flows. Equity net inflows were $19.8 billion for the quarter, including reinvested distributions of $24.6 billion. We saw positive net flows across large cap value and core, all cap growth and value, sector, international equity, equity income, and infrastructure strategies. Fixed income net outflows were $2.4 billion. Excluding Western Asset, fixed income net inflows were $2.6 billion, driven by Franklin Templeton Fixed Income. Positive momentum continued in multi-sector, municipal, highly customized, stable value, government, and emerging market strategies. Our institutional pipeline of won but unfunded mandates remains strong at $20.4 billion, underscoring sustained demand for our investment capabilities.
Billion compared to $17.9 billion in the prior year quarter, with 9 consecutive quarters of positive net flows. We continue to see strong momentum across our platform, with record AUM in 3 of our 4 asset classes. Public markets remain a key strength and an important source of growth.
This strategic acquisition enhances, our direct lending capabilities in Europe, growing lower Middle Market in January, bsp, real estate opportunistic, debt fund 2 closed with 10 billion of investable, capital, including related vehicles and anticipated leverage across 3 billion of equity, commitments.
Franklin, templeton's us and European alternative. Credit businesses are now aligned under an updated Benefit, Street Partners brand with 95 billion in private credit AUM at quarter end.
Equity, multi-asset, and alternatives generated positive net flows totaling $30.4 billion for the quarter, and excluding Western Asset, fixed income delivered its eighth consecutive quarter of positive net flows.
Clary and partners continues to be well positioned with a large Diversified portfolio and positive returns despite a challenging Capital raising environment.
Capital flows remain well below. Historic averages largely due to clients seeking more liquidity in private Equity overall
Net inflows were $19.8 billion for the quarter, including reinvested distributions of $24.6 billion. We saw positive net flows across large cap value and core, all cap growth and value, sector, international equity, equity income, and infrastructure strategies.
Income net outflows were $2.4 billion.
Driven by Franklin Templeton Fixed Income.
Recent m&a, activity. In the industry, underscores, the importance of alternative assets, reinforcing the Strategic rationale behind our Acquisitions and Investments, and further highlights our ability to grow our alternative asset platform at scale.
The positive momentum continued in multi-sector Municipal, highly customized Stable Value Government, and Emerging Market strategies.
Jenny Johnson: The pipeline remains diversified by asset class and across our specialist investment teams. Turning to private markets, Franklin Templeton is a leading manager of alternative assets with $274 billion in alternative AUM. Alternatives fundraising has been a key contributor to our growth, with $10.8 billion raised during the quarter, including $9.5 billion in private market assets. Fundraising was diversified across our alternative specialist investment managers and reflected client demand in secondary private equity, alternative credit, real estate, and venture capital from institutions as well as from the wealth channel. Aggregate realizations and distributions were $4.8 billion. Lexington Co-Investment Partners VI, one of the largest dedicated global co-investment funds, closed in October with $4.6 billion in committed capital. Today, Lexington's AUM stands at $83 billion, up 46% since its acquisition in 2022.
The pipeline remains diversified by asset class and across our specialist investment teams. Turning to private markets, Franklin Templeton is a leading manager of alternative assets with $274 billion in alternative AUM. Alternatives fundraising has been a key contributor to our growth, with $10.8 billion raised during the quarter, including $9.5 billion in private market assets. Fundraising was diversified across our alternative specialist investment managers and reflected client demand in secondary private equity, alternative credit, real estate, and venture capital from institutions as well as from the wealth channel. Aggregate realizations and distributions were $4.8 billion. Lexington Co-Investment Partners VI, one of the largest dedicated global co-investment funds, closed in October with $4.6 billion in committed capital. Today, Lexington's AUM stands at $83 billion, up 46% since its acquisition in 2022.
Our institutional pipeline of one, but unfunded mandates, remains strong at $20.4 billion, underscoring sustained demand for our investment capabilities.
The pipeline remains diversified by asset class and across our specialist investment teams.
Franklin Templeton, private markets are alternative wealth management offering continues to gain traction and generated over 1 billion in sales for the quarter underscoring, the strength of our global distribution Partnerships and client reach Lexington Partners, Benefit Street partners, and Clarion Partners, each have scaled Perpetual funds, totaling 6.7 billion in AUM.
In private markets, Franklin Templeton is a leading manager of alternative assets with $274 billion in alternative AUM.
These are semi-liquid Perpetual Vehicles opened up ongoing subscriptions, giving investors efficient access to long-term private Market exposure.
Taken together. These capabilities are driving increased, climate adoption, and strengthening our position as demand for private Market Solutions continues to grow globally.
Alternatives fundraising has been a key contributor to our growth, with $10.8 billion raised during the quarter, including $9.5 billion in private market assets. Fundraising was diversified across our alternative specialist investment managers and reflected client demand in secondary private equity, alternative credit, real estate, and venture capital from institutions as well as from the wealth channel.
Aggregate realizations and distributions were $4.8 billion.
Jenny Johnson: In addition, we continue to expand our private credit platform with the 1 October closing of the Apera Asset Management acquisition. This strategic acquisition enhances our direct lending capabilities in Europe, growing lower middle market. In January, BSP Real Estate Opportunistic Debt Fund II closed with $10 billion of investable capital, including related vehicles and anticipated leverage across $3 billion of equity commitments. Franklin Templeton's US and European alternative credit businesses are now aligned under an updated Benefit Street Partners brand with $95 billion in private credit AUM at quarter end. Clarion Partners continues to be well-positioned with a large, diversified portfolio and positive returns despite a challenging capital-raising environment. Capital flows remain well below historic averages, largely due to clients seeking more liquidity in private equity overall.
In addition, we continue to expand our private credit platform with the 1 October closing of the Apera Asset Management acquisition. This strategic acquisition enhances our direct lending capabilities in Europe, growing lower middle market. In January, BSP Real Estate Opportunistic Debt Fund II closed with $10 billion of investable capital, including related vehicles and anticipated leverage across $3 billion of equity commitments. Franklin Templeton's US and European alternative credit businesses are now aligned under an updated Benefit Street Partners brand with $95 billion in private credit AUM at quarter end. Clarion Partners continues to be well-positioned with a large, diversified portfolio and positive returns despite a challenging capital-raising environment. Capital flows remain well below historic averages, largely due to clients seeking more liquidity in private equity overall.
Lexington Co-Investment Partners 6, one of the largest dedicated global co-investment funds, closed in October. With $4.6 billion in committed capital today, Lexington's AUM stands at $83 billion, up 46% since its acquisition in 2022.
We've been incorporating, private assets into traditional, mutual funds for over a decade today, we manage approximately 60 products representing about 160 billion in traditional mutual fund assets that have exposure to private markets. Liquidity is closely and continuously monitored to ensure these products remain aligned with their traditional fund objectives.
In addition, we continue to expand our private credit platform with the October 1 closing of the Appear Asset Management acquisition.
This strategic acquisition enhances our direct lending capabilities in Europe, growing lower middle market. In January, BSP Real Estate Opportunistic Debt Fund 2 closed with $10 billion of investable capital, including related vehicles and anticipated leverage across $3 billion of equity commitments.
Multi-asset AUM is nearly 200 billion and had net inflows of 4 billion during quarter, the 18th consecutive quarter of positive, net flows led by Franklin income investors, Franklin Templeton investment Solutions and canvas these flows underscore clients increasing preference for outcome oriented Diversified Solutions across public and private asset classes, an area that Franklin Templeton continues to focus on and evolved through innovation.
Franklin Templeton's US and European alternative credit businesses are now aligned under an updated Benefit Street Partners brand, with $95 billion in private credit AUM at quarter end.
Kyser increasingly turning to Franklin Templeton for a broad and differentiated set of investment vehicles. And we're seeing that demand translate into sustained. Growth across our platform with record AUM across ETS.
Clary and Partners continues to be well positioned with a large, diversified portfolio and positive returns despite a challenging capital-raising environment.
Retail, smas canvas and investment Solutions. Our ETF platform continues to grow at a faster rate than the industry.
Jenny Johnson: Recent M&A activity in the industry underscores the importance of alternative assets, reinforcing the strategic rationale behind our acquisitions and investments, and further highlights our ability to grow our alternative asset platform at scale. Franklin Templeton Private Markets, our alternatives wealth management offering, continues to gain traction and generated over $1 billion in sales for the quarter, underscoring the strength of our global distribution partnerships and client reach. Lexington Partners, Benefit Street Partners, and Clarion Partners each have scaled perpetual funds totaling $6.7 billion in AUM. These are semi-liquid, perpetual vehicles open to ongoing subscriptions, giving investors efficient access to long-term private market exposure.
Recent M&A activity in the industry underscores the importance of alternative assets, reinforcing the strategic rationale behind our acquisitions and investments, and further highlights our ability to grow our alternative asset platform at scale. Franklin Templeton Private Markets, our alternatives wealth management offering, continues to gain traction and generated over $1 billion in sales for the quarter, underscoring the strength of our global distribution partnerships and client reach. Lexington Partners, Benefit Street Partners, and Clarion Partners each have scaled perpetual funds totaling $6.7 billion in AUM. These are semi-liquid, perpetual vehicles open to ongoing subscriptions, giving investors efficient access to long-term private market exposure.
Capital flows remain well below historic averages, largely due to clients seeking more liquidity in private equity overall.
And reached a new high with 58 billion in AUM. And generated 7.5 billion in net. Flows marking, its 17th consecutive positive quarter. The net flows were inclusive of 3.5 billion in mutual, fund conversions.
Recent M&A activity in the industry underscores the importance of alternative assets, reinforcing the strategic rationale behind our acquisitions and investments, and further highlights our ability to grow our alternative asset platform at scale.
our focus on active ETFs produce strong results, this quarter
Franklin Templeton, private markets are alternatives, wealth management offering.
Active ETF net flows were 5.5 billion or approximately 70% of total, net flows. Today we have 15 ETFs that exceed 1 billion in AUM.
The industry.
Conversation continues to shift toward delivering, personalization at scale.
Continues to gain traction and generated over $1 billion in sales for the quarter, underscoring the strength of our global distribution partnerships and client reach. Lexington Partners, Benefit Street Partners, and Clarion Partners each have scaled perpetual funds, totaling $6.7 billion in AUM.
Jenny Johnson: Taken together, these capabilities are driving increased client adoption and strengthening our position as demand for private market solutions continues to grow globally. As investors continue to seek enhanced diversification and differentiated sources of return, private assets have taken on a more prominent role within traditional mutual fund structures. We've been incorporating private assets into traditional mutual funds for over a decade. Today, we manage approximately 60 products, representing about $160 billion in traditional mutual fund assets that have exposure to private markets. Liquidity is closely and continuously monitored to ensure these products remain aligned with their traditional fund objectives. Multi-asset AUM is nearly $200 billion and had net inflows of $4 billion during quarter, the 18th consecutive quarter of positive net flows, led by Franklin Income Investors, Franklin Templeton Investment Solutions, and Canvas.
Taken together, these capabilities are driving increased client adoption and strengthening our position as demand for private market solutions continues to grow globally. As investors continue to seek enhanced diversification and differentiated sources of return, private assets have taken on a more prominent role within traditional mutual fund structures. We've been incorporating private assets into traditional mutual funds for over a decade. Today, we manage approximately 60 products, representing about $160 billion in traditional mutual fund assets that have exposure to private markets. Liquidity is closely and continuously monitored to ensure these products remain aligned with their traditional fund objectives. Multi-asset AUM is nearly $200 billion and had net inflows of $4 billion during quarter, the 18th consecutive quarter of positive net flows, led by Franklin Income Investors, Franklin Templeton Investment Solutions, and Canvas.
These are semi-liquid perpetual vehicles open to ongoing subscriptions, giving investors efficient access to long-term private market exposure.
And we see this as a durable long-term opportunity. Advancements in technology are allowing features of separately managed accounts such as tax loss harvesting, which were historically underutilized to be implemented, efficiently and consistently across a broad client base.
We are well positioned in retail, smas with our breadth of capabilities along with our custom indexing technology canvas.
Taken together, these capabilities are driving increased climate adoption and strengthening our position as demand for private market solutions continues to grow globally.
As a leader in retail, smas AUM, increased to 171 billion with 2.4 billion. In net inflows driven by putham Franklin fixed income in canvas.
In traditional mutual funds, for over a decade now, we manage approximately 60 products representing about $160 billion in traditional mutual fund assets that have exposure to private markets. Liquidity is closely and continuously monitored to ensure these products remain aligned with their traditional fund objectives.
Canvas generated 1.4 billion in net flows and reached 18 billion in AUM, reflecting strong client interest in personalization and tax efficiency canvas has been net flow positive since its acquisition in 2022. We are also seeing increased demand for multi-asset model Solutions, including portfolios that combined both public and private asset classes.
Jenny Johnson: These flows underscore clients' increasing preference for outcome-oriented, diversified solutions across public and private asset classes, an area that Franklin Templeton continues to focus on and evolve through innovation. Clients are increasingly turning to Franklin Templeton for a broad and differentiated set of investment vehicles, and we're seeing that demand translate into sustained growth across our platform, with record AUM across ETFs, retail SMAs, Canvas, and investment solutions. Our ETF platform continues to grow at a faster rate than the industry, and reached a new high with $58 billion in AUM, and generated $7.5 billion in net flows, marking its 17th consecutive positive quarter. The net flows were inclusive of $3.5 billion in mutual fund conversions. Our focus on active ETFs produced strong results this quarter. Active ETF net flows were $5.5 billion, or approximately 70% of total net flows.
These flows underscore clients' increasing preference for outcome-oriented, diversified solutions across public and private asset classes, an area that Franklin Templeton continues to focus on and evolve through innovation. Clients are increasingly turning to Franklin Templeton for a broad and differentiated set of investment vehicles, and we're seeing that demand translate into sustained growth across our platform, with record AUM across ETFs, retail SMAs, Canvas, and investment solutions. Our ETF platform continues to grow at a faster rate than the industry, and reached a new high with $58 billion in AUM, and generated $7.5 billion in net flows, marking its 17th consecutive positive quarter. The net flows were inclusive of $3.5 billion in mutual fund conversions. Our focus on active ETFs produced strong results this quarter. Active ETF net flows were $5.5 billion, or approximately 70% of total net flows.
This trend is extending into retirement channels where investors are increasingly seeking diversification income and risk management through more holistic, portfolio, construction investment Solutions, leverage our capabilities across public and private asset classes to pursue strategic Partnerships.
This quarter investment Solutions. Enterprise AUM surpassed 100 billion.
Multi-asset AUM is nearly $200 billion and had net inflows of $4 billion during the quarter, the 18th consecutive quarter of positive net flows, led by Franklin Income Investors, Franklin Templeton Investment Solutions, and Canvas. These flows underscore clients' increasing preference for outcome-oriented, diversified solutions across public and private asset classes, an area that Franklin Templeton continues to focus on and evolve through innovation.
Digital assets. Also continue to play an important role in modernizing financial infrastructure and Franklin Templeton would remains at the Forefront.
earlier this month, the state of Wyoming debuted the nation's first,
Kaiser is increasingly turning to Franklin Templeton for a broad and differentiated set of investment vehicles. And we're seeing that demand translate into sustained growth across our platform, with record AUM across ETS.
they issued stable token with Franklin Templeton managed reserves further, demonstrating our leadership and blockchain enabled investment Solutions. Our digital asset AUM is 1.8 billion inclusive of approximately 900 million in tokenized funds and approximately 800 million in crypto ETFs.
Retail, SMAs, Canvas, and Investment Solutions. Our ETF platform continues to grow at a faster rate than the industry and reached a new high with $58 billion in AUM and generated $7.5 billion in net flows, marking its 17th consecutive positive quarter. The net flows were inclusive of $3.5 billion in mutual fund conversions.
Our focus on active ETFs produced strong results this quarter.
Jenny Johnson: Today, we have 15 ETFs that exceed $1 billion in AUM. The industry conversation continues to shift toward delivering personalization at scale, and we see this as a durable, long-term opportunity. Advancements in technology are allowing features of separately managed accounts, such as tax loss harvesting, which were historically underutilized, to be implemented efficiently and consistently across a broad client base. We are well-positioned in retail SMAs with our breadth of capabilities, along with our custom indexing technology, Canvas. As a leader in retail SMAs, AUM increased to $171 billion, with $2.4 billion in net inflows driven by Putnam, Franklin Fixed Income, and Canvas. Canvas generated $1.4 billion in net flows and reached $18 billion in AUM, reflecting strong client interest in personalization and tax efficiency. Canvas has been net flow positive since its acquisition in 2022.
Today, we have 15 ETFs that exceed $1 billion in AUM. The industry conversation continues to shift toward delivering personalization at scale, and we see this as a durable, long-term opportunity. Advancements in technology are allowing features of separately managed accounts, such as tax loss harvesting, which were historically underutilized, to be implemented efficiently and consistently across a broad client base. We are well-positioned in retail SMAs with our breadth of capabilities, along with our custom indexing technology, Canvas. As a leader in retail SMAs, AUM increased to $171 billion, with $2.4 billion in net inflows driven by Putnam, Franklin Fixed Income, and Canvas. Canvas generated $1.4 billion in net flows and reached $18 billion in AUM, reflecting strong client interest in personalization and tax efficiency. Canvas has been net flow positive since its acquisition in 2022.
CF net flows were $5.5 billion, or approximately 70% of total net flows. Today, we have 15 ETFs that exceed $1 billion in AUM.
Turning to artificial intelligence. We've made significant progress in advancing. Our AI efforts. Yesterday, we announced the launch of intelligence Hub, a modular AI driven distribution platform, powered by Microsoft Azure building on the Advanced Financial. AI initiatives announced in April, 2024 intelligence Hub, delivers our vision for Us distribution by modernizing core activities, improving sales Effectiveness and enhancing the client experience.
The industry conversation continues to shift toward delivering personalization at scale, and we see this as a durable long-term opportunity. Advancements in technology are allowing features of separately managed accounts, such as tax loss harvesting—which were historically underutilized—to be implemented efficiently and consistently across a broad client base.
An international markets are an integral part of our growth strategy. We currently operate in over 30 countries and our international business continues to expand with positive. Net flows for the quarter with strength in Amia
We are well positioned in retail, SMAs, with our breadth of capabilities along with our custom indexing technology canvas.
As a leader in retail, SMAs AUM increased to $171 billion with $2.4 billion in net inflows, driven by Putnam, Franklin, fixed income, and Canvas.
Now in terms of investment performance, over half of our mutual fund and ETF AUM is outperforming its peer medium across the 3 5 and 10 year periods. Similarly over half of strategy. Composite AUM is outperforming its benchmarks over the same time periods.
Compared to the prior quarter. Mutual fund investment performance, increased in the 5 and 10 year periods and decline modestly in the 1 and 3 year periods due to select us Equity strategies.
Jenny Johnson: We are also seeing increased demand for multi-asset model solutions, including portfolios that combine both public and private asset classes. This trend is extending into retirement channels, where investors are increasingly seeking diversification, income, and risk management through more holistic portfolio construction. Investment Solutions leverage our capabilities across public and private asset classes to pursue strategic partnerships. This quarter, Investment Solutions enterprise AUM surpassed $100 billion. Digital assets also continue to play an important role in modernizing financial infrastructure, and Franklin Templeton remains at the forefront. Earlier this month, the state of Wyoming debuted the nation's first state-issued stable token with Franklin Templeton Managed Reserves, further demonstrating our leadership in blockchain-enabled investment solutions. Our digital asset AUM is $1.8 billion, inclusive of approximately $900 million in tokenized funds and approximately $800 million in crypto ETFs.
We are also seeing increased demand for multi-asset model solutions, including portfolios that combine both public and private asset classes. This trend is extending into retirement channels, where investors are increasingly seeking diversification, income, and risk management through more holistic portfolio construction. Investment Solutions leverage our capabilities across public and private asset classes to pursue strategic partnerships. This quarter, Investment Solutions enterprise AUM surpassed $100 billion. Digital assets also continue to play an important role in modernizing financial infrastructure, and Franklin Templeton remains at the forefront. Earlier this month, the state of Wyoming debuted the nation's first state-issued stable token with Franklin Templeton Managed Reserves, further demonstrating our leadership in blockchain-enabled investment solutions. Our digital asset AUM is $1.8 billion, inclusive of approximately $900 million in tokenized funds and approximately $800 million in crypto ETFs.
Canvas generated $1.4 billion in net flows and reached $18 billion in AUM, reflecting strong client interest in personalization and tax efficiency. Canvas has been net flow positive since its acquisition in 2022.
On the strategy, composite side investment performance. Improved in the 10-year period with stable in the 3 year, period and decline in the 1 in 5 year periods. The 1 year decline was primarily driven by the liquidity strategies
We are also seeing increased demand for multi-asset model solutions, including portfolios that combine both public and private asset classes.
Overall, long-term performance.
Performance remains competitive and continues to support. Both organic growth and client retention.
This trend is extending into retirement channels, where investors are increasingly seeking diversification, income, and risk management through more holistic portfolio construction and investment solutions. Leverage our capabilities across public and private asset classes to pursue strategic partnerships. This quarter, Investment Solutions Enterprise AUM surpassed $100 billion.
Turning briefly to financial results, adjusted operating income was 437.3 Million. Reflecting lower performance fees in the annual deferred compensation acceleration for retirement, eligible employees, partially offset by the impact of higher, average AUM, and realization of cost savings initiatives.
Digital assets also continue to play an important role in modernizing financial infrastructure, and Franklin Templeton remains at the forefront.
Earlier this month, the state of Wyoming debuted the nation's first,
Issued stable token.
We remain disciplined in managing expenses while continuing to invest strategically in areas of growth and Innovation for the benefit of all stakeholders. We are confident that our Diversified business model global scale and Client, First culture positions as well to capture the long-term trends reshaping, our industry across public and private markets.
Jenny Johnson: Turning to artificial intelligence, we've made significant progress in advancing our AI efforts. Yesterday, we announced the launch of Intelligence Hub, a modular, AI-driven distribution platform powered by Microsoft Azure. Building on the advanced financial AI initiatives announced in April 2024, Intelligence Hub delivers our vision for US distribution by modernizing core activities, improving sales effectiveness, and enhancing the client experience. One of Franklin Templeton's strengths is our global presence, and international markets are an integral part of our growth strategy. We currently operate in over 30 countries, and our international business continues to expand with positive net flows for the quarter, with strength in EMEA. Now, in terms of investment performance, over half of our mutual fund and ETF AUM is outperforming its peer medium across the 3-, 5-, and 10-year periods. Similarly, over half of strategy composite AUM is outperforming its benchmarks over the same time periods.
Turning to artificial intelligence, we've made significant progress in advancing our AI efforts. Yesterday, we announced the launch of Intelligence Hub, a modular, AI-driven distribution platform powered by Microsoft Azure. Building on the advanced financial AI initiatives announced in April 2024, Intelligence Hub delivers our vision for US distribution by modernizing core activities, improving sales effectiveness, and enhancing the client experience. One of Franklin Templeton's strengths is our global presence, and international markets are an integral part of our growth strategy. We currently operate in over 30 countries, and our international business continues to expand with positive net flows for the quarter, with strength in EMEA. Now, in terms of investment performance, over half of our mutual fund and ETF AUM is outperforming its peer medium across the 3-, 5-, and 10-year periods. Similarly, over half of strategy composite AUM is outperforming its benchmarks over the same time periods.
With Franklin Templeton managed reserves further demonstrating our leadership in blockchain-enabled investment solutions, our digital asset AUM is $1.8 billion, inclusive of approximately $900 million in tokenized funds and approximately $800 million in crypto ETFs.
Finally in December Franklin Templeton was once again recognized by pensions and Investments as 1 of the best places to work in Money Management, I'm proud to lead such a talented and dedicated team. And I want to thank our employees for their continued, hard work and commitment to serving our clients.
Now, let's open up the call to your questions, operator.
Thank you, if you'd like to ask a question. Please press star 1 on your telephone keypad.
Turning to artificial intelligence, we’ve made significant progress in advancing our AI efforts. Yesterday, we announced the launch of Intelligence Hub, a modular, AI-driven distribution platform powered by Microsoft Azure, building on the advanced financial AI initiatives announced in April 2024.
The confirmation tone indicate. Your line is in the question queue.
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Intelligence Hub delivers our vision for US distribution by modernizing core activities, improving sales effectiveness, and enhancing the client experience.
Thank you. And the first question is coming from the line of Bill cats with TD Cowen, please receive
Both part of our growth strategy, we currently operate in over 30 countries, and our international business continues to expand with positive net flows for the quarter, with strength in AMEA.
Jenny Johnson: Compared to the prior quarter, mutual fund investment performance increased in the 5- and 10-year periods and declined modestly in the 1- and 3-year periods due to select US equity strategies. On the strategy composite side, investment performance improved in the 10-year period, was stable in the 3-year period, and declined in the 1- and 5-year periods. The 1-year decline was primarily driven by liquidity strategies.... Overall, long-term performance remains competitive and continues to support both organic growth and client retention. Turning briefly to financial results, adjusted operating income was $437.3 million, reflecting lower performance fees in the annual deferred compensation acceleration for retirement-eligible employees, partially offset by the impact of higher average AUM and realization of cost savings initiatives. We remain disciplined in managing expenses while continuing to invest strategically in areas of growth and innovation for the benefit of all stakeholders.
Compared to the prior quarter, mutual fund investment performance increased in the 5- and 10-year periods and declined modestly in the 1- and 3-year periods due to select US equity strategies. On the strategy composite side, investment performance improved in the 10-year period, was stable in the 3-year period, and declined in the 1- and 5-year periods. The 1-year decline was primarily driven by liquidity strategies.... Overall, long-term performance remains competitive and continues to support both organic growth and client retention. Turning briefly to financial results, adjusted operating income was $437.3 million, reflecting lower performance fees in the annual deferred compensation acceleration for retirement-eligible employees, partially offset by the impact of higher average AUM and realization of cost savings initiatives. We remain disciplined in managing expenses while continuing to invest strategically in areas of growth and innovation for the benefit of all stakeholders.
Now, in terms of investment performance, over half of our mutual fund and ETF AUM is outperforming its peer median across the 3-, 5-, and 10-year periods. Similarly, over half of strategy composite AUM is outperforming its benchmarks over the same time periods.
Okay, thank you very much for taking the question and all the, uh, the update. Um, thank you for the extra disclosure in the supplement around expenses. I think that was uh uh quite welcomed uh for sure. Uh, maybe on that just a 2-part question um to the extent that the markets were to be bit under pressure as the air goes by, how much Flex do you have to, sort of bring that number down and then secondarily, I think in there you sort of affirm you're going to get to million dollars of cost savings, could you speak to maybe the residual amount yet to be realized and the timeline against that, thank you.
Compared to the prior quarter, mutual fund investment performance increased in the 5- and 10-year periods and declined modestly in the 1- and 3-year periods due to select US equity strategies.
On the strategy, composite side, investment performance improved in the 10-year period, was stable in the 3-year period, and declined in the 1- and 5-year periods. The 1-year decline was primarily driven by the liquidity strategies. Overall, long-term performance remains competitive and continues to support both organic growth and client retention.
Yeah, hi Bill, good morning. Uh it's Matt. So as outlined on that page, thanks for the highlighting it in the investor deck. Um, at flat markets, as we mentioned in the assumptions and excluding performance, the comp we do expect expenses to be in line with 2025. This is inclusive again as we also outline on that slide of our key Investments that are essentially offset by uh, the expense savings from a modeling perspective. If you take the guidance, which I can give on the uh second uh quarter
Quarter. And then you add that to the first quarter. Take those, take that sort of combined number for expenses and then take the last 2 quarters and divide. It roughly evenly between the last 2.
That'll get you where we believe will be at this point in time. It may be that the expense
Turning briefly to financial results, adjusted operating income was $437.3 million, reflecting lower performance fees and the annual deferred compensation acceleration for retirement-eligible employees, partially offset by the impact of higher average AUM and realization of cost savings initiatives.
Jenny Johnson: We are confident that our diversified business model, global scale, and client-first culture positions us well to capture the long-term trends reshaping our industry across public and private markets. Finally, in December, Franklin Templeton was once again recognized by Pensions & Investments as one of the best places to work in money management. I'm proud to lead such a talented and dedicated team, and I want to thank our employees for their continued hard work and commitment to serving our clients. Now, let's open up the call to your questions. Operator?
We are confident that our diversified business model, global scale, and client-first culture positions us well to capture the long-term trends reshaping our industry across public and private markets. Finally, in December, Franklin Templeton was once again recognized by Pensions & Investments as one of the best places to work in money management. I'm proud to lead such a talented and dedicated team, and I want to thank our employees for their continued hard work and commitment to serving our clients. Now, let's open up the call to your questions. Operator?
Saves shift a little bit between the third and the fourth quarters. Um, but that's how we expect things to play out in terms of our cost savings. Um and that is of course, as I've mentioned in the past, in conjunction with um margin expansion in particular, going into the third and fourth quarter. So I think for the second quarter you won't see much of margin expansion. You'll see that going into the
We remain disciplined in managing expenses while continuing to invest strategically in areas of growth and innovation for the benefit of all stakeholders. We are confident that our diversified business model, global scale, and client-first culture position us well to capture the long-term trends reshaping our industry across public and private markets.
Third and fourth quarters, where we expect to be again. Given current markets, given current AUM levels, we expect our margin to be getting into the high 20s at that point from where we are uh today.
Thank you.
Finally, in December, Franklin Templeton was once again recognized by Pensions and Investments as one of the best places to work in Money Management. I'm proud to lead such a talented and dedicated team, and I want to thank our employees for their continued hard work and commitment to serving our clients.
Craig. Sean dollar with Bank of America, please receive your question.
Now, let's open up the call to your questions, operator.
Operator: Thank you. If you'd like to ask a question, please press star one on your telephone keypad. The confirmation tone will indicate your line is in the question queue. If anyone should require operator assistance, please press star zero. We request that you limit yourself to one question to allow as many additional participants on the call as possible. Thank you. And the first question is coming from the line of Bill Katz with TD Cowen. Please proceed.
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Bill Katz: Okay, thank you very much for taking the question and all the, the update. Thank you for the extra disclosure in the supplement around expenses. I think that was, quite welcomed, for sure. Maybe on that, just a two-part question. To the extent that the markets were to be a bit under pressure as the year goes by, how much flex do you have to sort of bring that number down? And then secondarily, I think in there you sort of affirmed you're gonna get to $200 million of cost savings. Could you speak to maybe the residual amount yet to, be realized and the timeline against that? Thank you.
Bill Katz: Okay, thank you very much for taking the question and all the, the update. Thank you for the extra disclosure in the supplement around expenses. I think that was, quite welcomed, for sure. Maybe on that, just a two-part question. To the extent that the markets were to be a bit under pressure as the year goes by, how much flex do you have to sort of bring that number down? And then secondarily, I think in there you sort of affirmed you're gonna get to $200 million of cost savings. Could you speak to maybe the residual amount yet to, be realized and the timeline against that? Thank you.
Thank you. And the first question is coming from the line of Bill Katz with TD Cowen. Please proceed.
Thank you. Good morning everyone. Um, my first question is on the the recent m&a activity? Um, I I know you've been very active. Um, and I wanted to see if you had an update on uh, potential contingent consideration liabilities because I I see there's only about 20 million in the new 10q that you put out today. But but I actually thought it was larger than that. So is that really it? Um, and or could there be more associated with the deal, you just closed last quarter?
Matthew Nicholls: Yeah. Hi, Bill. Good morning. It's Matt. So as outlined on that page, thanks for highlighting it, in the investor deck. At flat markets, as we mentioned, the assumptions and excluding performance fee comp, we do expect expenses to be in line with 2025. This is inclusive, again, as we also outlined on that slide, of our key investments that are essentially offset by the expense savings. From a modeling perspective, if you take the guidance which I can give on the second quarter, and then you add that to the first quarter, take that sort of combined number for expenses, and then take the last two quarters and divide it roughly evenly between the last two, that'll get you where we believe we'll be at this point in time.
Matthew Nicholls: Yeah. Hi, Bill. Good morning. It's Matt. So as outlined on that page, thanks for highlighting it, in the investor deck. At flat markets, as we mentioned, the assumptions and excluding performance fee comp, we do expect expenses to be in line with 2025. This is inclusive, again, as we also outlined on that slide, of our key investments that are essentially offset by the expense savings. From a modeling perspective, if you take the guidance which I can give on the second quarter, and then you add that to the first quarter, take that sort of combined number for expenses, and then take the last two quarters and divide it roughly evenly between the last two, that'll get you where we believe we'll be at this point in time.
Okay, thank you very much for taking the question and all the uh the update. Um thank you for the extra disclosure in the supplement around expenses. I think that was uh uh quite welcome uh for sure. Uh maybe on that just a 2-part question um to the extent that the markets were to be bit under pressure as the year goes by, how much Flex do you have to, sort of bring that number down and then secondarily, I think in there you sort of affirm you're going to get to 200 million dollars of cost savings. Could you speak to maybe the residual amount yet to be realized and the timeline against that, thank you.
Uh, no, that's the that's the contingent consideration around specific transactions that we've done so it's really virtually nothing at this stage. Uh, what that doesn't include is some compensation related to, uh, transactions, but that's all that compensation line and all included in our guidance. So, uh, um, for in some of that you can see in the gaap versus non-gaap disclosures, uh, for specifics. Uh, but but transaction related consideration, uh, it's a very low number that's left. And that's probability weighted. Uh, uh, Craig
So yeah, got it nothing. Nothing additional to report their
Okay, thanks Matthew. And it's just 1 question, right?
Yeah, well, I think you had. You want to ask something else about m&a. I think, Jenny do you want to cover the the m&a question?
Yeah.
Yeah, do you want to just sorry Craig are you asking about what kind of our view is on?
Yeah, hi Bill, good morning. Uh, it's Matt. So, as outlined on that page—thanks for highlighting it in the investor deck—um, at flat markets, as we mentioned in the assumptions and excluding performance fee comp, we do expect expenses to be in line with 2025. This is inclusive, again as we also outlined on that slide, of our key investments that are essentially offset by, uh, the expense savings from a modeling perspective. If you take the guidance, which I can give on the, uh, second, uh, quarter...
Which your question on that.
Quarter, and then you add that to the first quarter. Take those, take that sort of combined number for expenses, and then take the last two quarters and divide it roughly evenly between the last two.
Actually, I did in the first part, but, you know, if you want to kind of update us on your m&a, priorities, uh, product gaps, kind of where you're looking, where you see, kind of strategic benefits. That would be helpful too.
Matthew Nicholls: It may be that the expense saves shift a little bit between the Q3 and the Q4, but that's how we expect things to play out in terms of our cost savings. And that is, of course, as I've mentioned in the past, in conjunction with margin expansion, in particular, going into the Q3 and Q4. So I think for the Q2, you won't see much of the margin expansion. You'll see that going into the Q3 and Q4, where we expect to be, again, given current markets, given current AUM levels, we expect our margin to be getting into the high twenties at that point from where we are today.
It may be that the expense saves shift a little bit between the Q3 and the Q4, but that's how we expect things to play out in terms of our cost savings. And that is, of course, as I've mentioned in the past, in conjunction with margin expansion, in particular, going into the Q3 and Q4. So I think for the Q2, you won't see much of the margin expansion. You'll see that going into the Q3 and Q4, where we expect to be, again, given current markets, given current AUM levels, we expect our margin to be getting into the high twenties at that point from where we are today.
That'll get you where we believe we'll be at this point in time. It may be that the expense
Savings shift a little bit between the third and the fourth quarters, but that's how we expect things to play out in terms of our cost savings. That is, of course, as I've mentioned in the past, in conjunction with margin expansion, in particular going into the third and fourth quarter. So, I think for the second quarter you won't see much of margin expansion. You'll see that going into the...
Third and fourth quarters, where we expect to be again. Given current markets, given current AUM levels, we expect our margin to be getting into the high 20s at that point from where we are, uh, today.
Operator: Thank you. The next question is from the line of Craig Siegenthaler with Bank of America. Please proceed with your question.
Operator: Thank you. The next question is from the line of Craig Siegenthaler with Bank of America. Please proceed with your question.
Thank you.
Yeah, sure. So, it hasn't really changed. I mean, you know what we've always said is, we do m&a for strategic purposes and they're usually around? Um, whether we need to fill out an obvious product Gap. Uh today honestly we are pretty full. I mean, the 1 area that we had said was infrastructure. You need a lot of scale for infrastructure and we feel like we filled that at least for now with the uh Partnerships that we've done with the 3 years. Uh and and you know, we're focused on the wealth Channel there. Uh any kind of m&a. We do go in forward is going to really be in 3 areas. It will be like what we did with the p, which is to fill in a specific. Uh, bolt-on area either geographically or capabilities to our Alternatives manager.
Please just see you with your question.
Craig Siegenthaler: Thank you. Good morning, everyone. My first question is on the recent M&A activity. I know you've been very active, and I wanted to see if you had an update on potential contingent consideration liabilities. Because I see there's only about $20 million in the new 10-Q that you put out today, but I actually thought it was larger than that. So is that really it? Or could there be more, especially with the deal you just closed last quarter?
Craig Siegenthaler: Thank you. Good morning, everyone. My first question is on the recent M&A activity. I know you've been very active, and I wanted to see if you had an update on potential contingent consideration liabilities. Because I see there's only about $20 million in the new 10-Q that you put out today, but I actually thought it was larger than that. So is that really it? Or could there be more, especially with the deal you just closed last quarter?
Thank you. Good morning everyone. Um, my first question is on the the recent m&a activity? Um, I I know you've been very active. Um, and I wanted to see if you had an update on uh, potential contingent consideration liabilities because I I see, there's only about 20 million in the new 10 q that you put out today, but, but I actually thought it was larger than that. So is that really it? Um, and or or could there be more associated with the deal, you just closed last quarter?
Matthew Nicholls: No, that's the contingent consideration around specific transactions that we've done, so it's really virtually nothing at this stage. What that doesn't include is some compensation related to transactions, but that's all in compensation line and all included in our guidance. So, and some of that you can see in the GAAP versus non-GAAP disclosures, for specifics. But transaction-related consideration, it's a very low number that's left, and that's probability weighted, Craig. So yeah-
Matthew Nicholls: No, that's the contingent consideration around specific transactions that we've done, so it's really virtually nothing at this stage. What that doesn't include is some compensation related to transactions, but that's all in compensation line and all included in our guidance. So, and some of that you can see in the GAAP versus non-GAAP disclosures, for specifics. But transaction-related consideration, it's a very low number that's left, and that's probability weighted, Craig. So yeah-
So in that case, they gave us uh, European direct lending, which we were able to combine, you know, with our centers directly Lending Group. To I think we're now at 10 billion, um, in European direct lending there. So that's kind of a bolt-on, both geographically and capability. Uh, and then the second area would be if it somehow furthers distribution. So we've done, um, either Investments or, uh, or actual m&a that helped us like a, like a putham deal where we also brought with it, some sort of distribution capability, and then the third area is really in high net worth. We've said we want to grow, we want to double the size of fiduciary uh in our 5-year plan. Uh and that can be both, that will be both organic as well as inorganic. So those are the kind of 3 areas that we're focused on.
Uh, no, that's the contingent consideration around specific transactions that we've done, so it's really virtually nothing at this stage. Uh, what that doesn't include is some compensation related to, uh, transactions, but that's all on the compensation line and all included in our guidance.
So, uh, um, for—in some of that you can see in the GAAP versus non-GAAP disclosures, uh, for specifics. Uh, but transaction-related consideration, uh, it's a very low number that's left. And that's probability weighted. Uh, uh, Craig.
Craig Siegenthaler: Got it.
Craig Siegenthaler: Got it.
Matthew Nicholls: Nothing, nothing additional to report there.
Matthew Nicholls: Nothing, nothing additional to report there.
So, yeah, got it. Nothing. Nothing. Nothing additional to report. There.
Craig Siegenthaler: Okay. Thanks, Matthew. And it's just one question, right?
Craig Siegenthaler: Okay. Thanks, Matthew. And it's just one question, right?
Matthew Nicholls: Yeah. Well, I think you had... You wanna ask something else about M&A? I think, Jenny, do you wanna cover the M&A question?
Matthew Nicholls: Yeah. Well, I think you had... You wanna ask something else about M&A? I think, Jenny, do you wanna cover the M&A question?
Okay, thanks, Matthew. And it's just one question, right?
Craig Siegenthaler: Yeah, sure. M&A would be great.
Craig Siegenthaler: Yeah, sure. M&A would be great.
Yeah, well, I think you had. Do you want to ask something else about M&A? I think, Jenny, do you want to cover the M&A question?
And and I'll just add, I'll just add something to this. Uh Craig that you know, it's all almost reiterating what we've said in the past but look what we've done in m&a as a company has transformed the business. It's almost 60% of our operating income. That's been added over the last several years through through m&a. And I think the you know we're a bit of a modest company at the end of the day but the timing of our private markets Acquisitions was quite good. And as you know, we've been growing the multiple down very substantially in terms of those uh transactions. So we're very comfortable with m&a. And this Jenny mentioned, we've got some things that we're reviewing, we're kind of in the Strategic flow. We probably be at other statement. Um, but
Yeah.
Matthew Nicholls: Yeah.
Matthew Nicholls: Yeah.
Jenny Johnson: Do you wanna just, sorry, Craig, are you asking about what kind of our view is on M&A or what, what's your question on that?
Jenny Johnson: Do you wanna just, sorry, Craig, are you asking about what kind of our view is on M&A or what, what's your question on that?
Craig Siegenthaler: Actually, I did in the first part, but you know, if you wanna kind of update us on your M&A priorities, product gaps, kind of where you're looking, where you see-
Craig Siegenthaler: Actually, I did in the first part, but you know, if you wanna kind of update us on your M&A priorities, product gaps, kind of where you're looking, where you see-
Do you want to—just, sorry, Craig, are you asking about what kind of our view is on M&A? Or what—what's your question on that?
Jenny Johnson: Sure
Jenny Johnson: Sure
Craig Siegenthaler: ... kind of strategic benefits, that'd be helpful, too.
Craig Siegenthaler: ... kind of strategic benefits, that'd be helpful, too.
Jenny Johnson: Yeah, sure. So it hasn't really changed. I mean, you know, what we've always said is we do M&A for strategic purposes, and they're usually around whether we need to fill out an obvious product gap. Today, honestly, we are pretty full. I mean, the one area that we had said was infrastructure. You need a lot of scale for infrastructure, and we feel like we've filled that, at least for now, with the partnerships that we've done with the three infrastructure managers. You know, we're focused on the wealth channel there. Any kind of M&A we do going forward is gonna really be in three areas. It will be like what we did with Aperio, which is to fill in a specific bolt-on area, either geographically or capabilities to our alternatives manager.
Jenny Johnson: Yeah, sure. So it hasn't really changed. I mean, you know, what we've always said is we do M&A for strategic purposes, and they're usually around whether we need to fill out an obvious product gap. Today, honestly, we are pretty full. I mean, the one area that we had said was infrastructure. You need a lot of scale for infrastructure, and we feel like we've filled that, at least for now, with the partnerships that we've done with the three infrastructure managers. You know, we're focused on the wealth channel there. Any kind of M&A we do going forward is gonna really be in three areas. It will be like what we did with Aperio, which is to fill in a specific bolt-on area, either geographically or capabilities to our alternatives manager.
Actually, I did in the first part, but, you know, if you want to kind of update us on your M&A priorities, uh, product gaps, kind of where you're looking, where you see kind of strategic benefits, that would be helpful too.
Right now, you know the return on m&a is very important to us. We have high bars and obviously given where our uh Equity is trading. Uh, you know, the the bar is even higher for m&a. So first thing we look at is, you know, what's the return on buying back, our shares relative to what we could get from m&a or providing more C capital in these other things around Capital Management.
Thank you. The next question from the line of Brennan, hawin with BMO Capital markets. Please receive your question.
Yeah, sure. So, it hasn't really changed. I mean, you know what we've always said is, we do M&A for strategic purposes, and they're usually around, um, whether we need to fill out an obvious product gap.
Expectations for efr uh, either in uh, both in the coming quarter. And then if you have a view, maybe for the balance of the year, I know you've got Lexington the Lexington flag, where is expected to start. I'm guessing that'll help.
Jenny Johnson: So in that case, they gave us European direct lending, which we were able to combine, you know, with Alcentra's direct lending group, and I think we're now at $10 billion in European direct lending there. So that's kind of a bolt-on, both geographically and capability. And then the second area would be if it somehow furthers distribution. So we've done either investments or, or actual M&A that helped us, like a Putnam deal, where we also brought with it some sort of distribution capability. And then the third area is really in high net worth. We've said we wanna grow we wanna double the size of fiduciary in our five-year plan, and that can be both that'll be both organic as well as inorganic. So those are the kind of three areas that we're focused on.
So in that case, they gave us European direct lending, which we were able to combine, you know, with Alcentra's direct lending group, and I think we're now at $10 billion in European direct lending there. So that's kind of a bolt-on, both geographically and capability. And then the second area would be if it somehow furthers distribution. So we've done either investments or, or actual M&A that helped us, like a Putnam deal, where we also brought with it some sort of distribution capability. And then the third area is really in high net worth. We've said we wanna grow we wanna double the size of fiduciary in our five-year plan, and that can be both that'll be both organic as well as inorganic. So those are the kind of three areas that we're focused on.
Yeah, I'd say that for the next call to expect TFR to be stable where it is today. Um, and then in the following 2 quarters, there could be some, you know, upside to that based on fundraising around alternative assets. As you've, uh, as you've just highlighted,
Uh, today, honestly, we are pretty full. I mean, the one area that we had said was infrastructure. You need a lot of scale for infrastructure, and we feel like we filled that, at least for now, with the partnerships that we've done over the three years. Uh, and, you know, we're focused on the wealth channel there. Uh, any kind of M&A we do going forward is going to really be in three areas. It will be like what we did with the P, which is to fill in a specific, uh, bolt-on area, either geographically or capabilities, to our Alternatives manager. So in that case, they gave us, uh, European direct lending.
Great. Thanks for taking my question.
You.
The next question is from the line of Alex Boston with Goldman Sachs, please. Just see with your question.
Matthew Nicholls: And I'll just add something to this, Craig, that, you know, it's almost reiterating what we said in the past. But look, what we've done in M&A as a company has transformed the business. It's almost 60% of our operating income that's been added over the last several years through M&A. And I think the... You know, we're a bit of a modest company at the end of the day, but the timing of our private markets acquisitions was quite good, and as you know, we've been growing the multiple down very substantially in terms of those transactions. So we're very comfortable with M&A, and as Jenny mentioned, we've got some things that we're reviewing. We're kind of in the strategic flow, would probably be an understatement.
Matthew Nicholls: And I'll just add something to this, Craig, that, you know, it's almost reiterating what we said in the past. But look, what we've done in M&A as a company has transformed the business. It's almost 60% of our operating income that's been added over the last several years through M&A. And I think the... You know, we're a bit of a modest company at the end of the day, but the timing of our private markets acquisitions was quite good, and as you know, we've been growing the multiple down very substantially in terms of those transactions. So we're very comfortable with M&A, and as Jenny mentioned, we've got some things that we're reviewing. We're kind of in the strategic flow, would probably be an understatement.
Which we are able to combine, you know, with our centers directly grouped, and I think we're now at 10 billion, um, in European direct lending there. So that's kind of a bolt-on, both geographically and capability. Uh, and then the second area would be if it somehow furthers distribution. So we've done, um, either Investments or, uh, or actual m&a that help us like a, like a putham deal where we also brought with it, some sort of distribution capability, and then the third area is really, in high Network. We've said we want to grow, we want to double the size of fiduciary uh in our 5-year plan. Uh, and that can be both, that will be both organic as well as inorganic. So those are the kind of 3 areas that we're focused on.
Hey good morning everyone. Uh thank you for the questions. Well um Matt uh I was hoping you could expand the margin discussion a little bit longer term. Uh, Franklin's done a really nice job integrating uh, a number of assets over the years, good to see the expense Flex come through. Um, but when you think about the operating margins for the firm, as a whole kind of running in the mid 20s to your point, maybe entering high 20s towards the end of the year. Where do you see the profitability over time? Many of your peers are well in the 30s, kind of mid-30s percent range. So, um, no 1 would, you know, what about the business, uh, knowing what else might be on the column with respect to integration uh of some of your managers. How should the street think about profitability over kind of a multi-year basis and what's kind of the goal post there um and maybe just a clarification.
I know you said hi 20s margin exiting 2026 um is that with Market or is that also assuming flat markets. Thank you.
Uh, the last 1 is flat markets. So it's it's it's part of our guidance from where we are today.
um, in terms of the first question, you know, we put out there a 5-year plan,
Matthew Nicholls: But right now, you know, the return on M&A is very important to us. We have high bars, and obviously, given where our equity is trading, you know, the bar is even higher for M&A. So the first thing we look at is, you know, what's the return on buying back our shares relative to what we could get from M&A or providing more seed capital and these other things around capital management?
But right now, you know, the return on M&A is very important to us. We have high bars, and obviously, given where our equity is trading, you know, the bar is even higher for M&A. So the first thing we look at is, you know, what's the return on buying back our shares relative to what we could get from M&A or providing more seed capital and these other things around capital management?
And and I'll just add, I'll just add something to this. Uh Craig that you know, it's all almost reiterating what we've said in the past but look what we've done in m&a as a company has transformed the business. It's almost 60% of our operating income. That's been added over the last several years through through m&a. And I think the you know we're a bit of a modest company at the end of the day but the timing of our private markets Acquisitions was quite good. And as you know, we've been growing the multiple down very substantially in terms of those uh transactions. So we're very comfortable with m&a. And this Jenny mentioned, we've got some things that we're reviewing, we're kind of in the Strategic flow. We probably be at other statement. Um, but right now, you know, the return on m&a is very important to us. We have high bars.
Uh where and we've got 4 years, well, 3.75 years to go of that plan. Um, and we said we'd be in excess of 30% by the time that's finished. Um,
And obviously, given where our equity is trading, you know, the bar is even higher for M&A. So, first thing we look at is, you know, what's the return on buying back our shares relative to what we could get from M&A, or providing more capital in these other things around capital management.
Operator: Thank you. The next question is from the line of Brennan Hawken with BMO Capital Markets. Please proceed with your question.
Operator: Thank you. The next question is from the line of Brennan Hawken with BMO Capital Markets. Please proceed with your question.
Thank you.
Next question, from the line of Brennan Hawin with BMO Capital Markets. Please proceed with your question.
Brennan Hawken: Good morning. Thanks for taking my question. Matt, don't think I heard it in the prepared remarks, so I figured I'd drill in. Would you have any expectations for EFR, either in both in the coming quarter, and then if you have a view, maybe for the balance of the year? I know you've got Lexington, the Lexington Flagship is expected to start. I'm guessing that'll help.
Brennan Hawken: Good morning. Thanks for taking my question. Matt, don't think I heard it in the prepared remarks, so I figured I'd drill in. Would you have any expectations for EFR, either in both in the coming quarter, and then if you have a view, maybe for the balance of the year? I know you've got Lexington, the Lexington Flagship is expected to start. I'm guessing that'll help.
the the reality is we are well on our way to the 30% margin all else remaining equal going into 2027, let's say fiscal 2027. So it's sometime in 2027 would be there. Uh, and then if, if all else remaining equal around the market as we've said you know there isn't any other reason why we couldn't be somewhere between 30 and 35%. If we achieve all the goals that we put into our strategic plan that we've highlighted to the
Uh, good morning. Thanks for taking my question. Um,
To the uh, to all of you. Um and that we highlighted where we're at against that the end of last year. So um yeah that that's where we're at uh on the margin as I mentioned.
Are, uh, either in, uh, both in the coming quarter? And then if you have a view maybe for the balance of the year—I know you've got the Lexington, the Lexington flag, where it's expected to start. I'm guessing that will help.
Matthew Nicholls: Yeah, I'd say that for the next quarter, we expect EFR to be stable where it is today. And then in the following two quarters, there could be some, you know, upside to that based on fundraising around alternative assets, as you've just highlighted.
Matthew Nicholls: Yeah, I'd say that for the next quarter, we expect EFR to be stable where it is today. And then in the following two quarters, there could be some, you know, upside to that based on fundraising around alternative assets, as you've just highlighted.
Um where we should end this year. All else remaining equal in the high. 29s going into 2027 fiscal at some point would be 30 and then if the market stays where it is today, we should go in excess of that, uh, in in future years, where we thought we'd be more like 30%. So, we have some some upside there, remember as well, we do have the highly episodic situation around Western where we've been providing support to the Western expense.
Yeah, I'd say that for the next call to expect here, far to be stable where it is today. Um, and then in the following two quarters, there could be some, you know, upside to that based on fundraising around alternative assets. As you've just highlighted,
Brennan Hawken: Great. Thanks for taking my question.
Brennan Hawken: Great. Thanks for taking my question.
Matthew Nicholls: Thank you.
Matthew Nicholls: Thank you.
great. Thanks for taking my question.
Operator: The next question is from the line of Alex Blostein with Goldman Sachs. Please proceed with your question.
Operator: The next question is from the line of Alex Blostein with Goldman Sachs. Please proceed with your question.
You.
Jenny Johnson: Hey, good morning, everyone. Thank you for the questions as well. Matt, I was hoping you could expand the margin discussion a little bit longer term. Franklin's done a really nice job integrating a number of assets over the years. Good to see the expense flex come through. But when you think about the operating margins for the firm as a whole, kind of running in the mid-20s, to your point, maybe entering high 20s towards the end of the year, where do you see the profitability over time? Many of your peers are well in the 30s, kind of mid-30s% range.
Alex Blostein: Hey, good morning, everyone. Thank you for the questions as well. Matt, I was hoping you could expand the margin discussion a little bit longer term. Franklin's done a really nice job integrating a number of assets over the years. Good to see the expense flex come through. But when you think about the operating margins for the firm as a whole, kind of running in the mid-20s, to your point, maybe entering high 20s towards the end of the year, where do you see the profitability over time? Many of your peers are well in the 30s, kind of mid-30s% range.
The next question is from the line of Alex Blasting with Goldman Sachs. Please proceed with your question.
Structure, um, since uh, since August 2024, which has had, uh, an impact on our overall, margins of probably several points. So we'd already be in the high 20s or 30%. Now, excluding that. But we've done the right thing in our opinion, by providing that support. And it it, it by definition also supports future growth, uh, opportunities that we've highlighted in our 5 year plan.
Yeah, that makes sense. Thanks so much.
Thank you.
Next question, from the line of Glenn Shore with evercore, good to see you with your question.
Thank you very much.
Jenny Johnson: Knowing what you know about the business, knowing what else might be on the come with respect to integration of some of your managers, how should The Street think about profitability over kind of a multi-year basis, and what's kind of the goalpost there? Maybe just a clarification. I know you said high 20s margin exiting 2026. Is that with market or is that also assuming flat markets? Thank you.
Knowing what you know about the business, knowing what else might be on the come with respect to integration of some of your managers, how should The Street think about profitability over kind of a multi-year basis, and what's kind of the goalpost there? Maybe just a clarification. I know you said high 20s margin exiting 2026. Is that with market or is that also assuming flat markets? Thank you.
Um, see you. I felt like you you had strong conviction and how you talked about. You you said something like no longer but people are clients are no longer looking for products. In isolation, um, curious how much you were leaning towards the institutional versus The Well side and more importantly, how you're organizing around that? How do you deliver it? Is it your own model that is getting on other people's models and is it also bigger strategic broader relation
Hey good morning everyone. Uh thank you for the questions. Well um Matt uh I was hoping you could expand the margin discussion a little bit longer term. Uh, Franklin's done a really nice job integrating uh, a number of assets over the years, good to see the expense Flex come through. Um, but when you think about the operating margins for the firm, as a whole kind of running in the mid 20s to your point, maybe entering high 20s towards the end of the year. Where do you see the profitability over time? Many of your peers are well in the 30s, kind of mid-30s percent range. So, um, no 1 would, you know, what about the business, uh, knowing what else might be on the column with respect to integration uh of some of your managers. How should the street think about profitability over kind of a multi-year basis and what's kind of the goal post there. Um and maybe just a clarification. I know you said hi 20s marching.
Matthew Nicholls: The latter one is flat markets, so it's part of our guidance from where we are today. In terms of the first question, you know, we put out there a 5-year plan, where, and we've got 4 years, well, 3.75 years to go of that plan. And we said we'd be in excess of 30% by the time that's finished. The reality is, we are well on our way to the 30% margin, all else remaining equal, going into 2027, let's say, fiscal 2027, so at some time in 2027 we'll be there.
Matthew Nicholls: The latter one is flat markets, so it's part of our guidance from where we are today. In terms of the first question, you know, we put out there a 5-year plan, where, and we've got 4 years, well, 3.75 years to go of that plan. And we said we'd be in excess of 30% by the time that's finished. The reality is, we are well on our way to the 30% margin, all else remaining equal, going into 2027, let's say, fiscal 2027, so at some time in 2027 we'll be there.
In exiting 2026, um, is that with market, or is that also assuming flat markets? Thank you.
Uh, the last one is flat markets. So it's, it's part of our guidance from where we are today.
Um, in terms of the first question, you know, we put out there a 5-year plan, uh, where—and we've got 4 years—well, 3.75 years to go of that plan. Um, and we said we'd be in excess of 30% by the time that's finished. Um,
Matthew Nicholls: And then if all else remain equal around the market, as we've said, you know, there isn't any other reason why we couldn't be somewhere between 30% and 35% if we achieve all the goals that we put into our strategic plan that we've highlighted to all of you, and as we highlighted where we're at against that at the end of last year. So, yeah, that's where we're at on the margin.
And then if all else remain equal around the market, as we've said, you know, there isn't any other reason why we couldn't be somewhere between 30% and 35% if we achieve all the goals that we put into our strategic plan that we've highlighted to all of you, and as we highlighted where we're at against that at the end of last year. So, yeah, that's where we're at on the margin.
The reality is we are well on our way to the 30% margin, all else remaining equal, going into 2027—let's say fiscal 2027. So, it's sometime in 2027 we'd be there. Uh, and then, if all else remains equal around the market, as we've said, you know, there isn't any other reason why we couldn't be somewhere between 30% and 35%. If we achieve all the goals that we put into our strategic plan that we've highlighted to the—
Matthew Nicholls: As I mentioned, where we should end this year, all else remaining equal, in the high 20s going into 2027 fiscal at some point would be 30, and then if the market stays where it is today, we should go in excess of that, in future years, where we thought we'd be more like 30%, so we have some upside there. Remember as well, we do have the highly episodic situation around Western, where we've been providing support to the Western expense structure, since August 2024, which has had an impact on our overall margins of probably several points. So we'd already be in the high 20s or 30% now excluding that. But we've done the right thing, in our opinion, by providing that support.
As I mentioned, where we should end this year, all else remaining equal, in the high 20s going into 2027 fiscal at some point would be 30, and then if the market stays where it is today, we should go in excess of that, in future years, where we thought we'd be more like 30%, so we have some upside there. Remember as well, we do have the highly episodic situation around Western, where we've been providing support to the Western expense structure, since August 2024, which has had an impact on our overall margins of probably several points. So we'd already be in the high 20s or 30% now excluding that. But we've done the right thing, in our opinion, by providing that support. And it, by definition, also supports future growth opportunities that we've highlighted in our five-year plan.
To all of you, um, and that we highlighted where we're at against that at the end of last year. So, um, yeah, that's where we're at, uh, on the margin, as I mentioned.
Have breadth of capabilities and can offer these additional services to us and part of that. So, I'm talking first on the wall side and part of that on the well side is if you have traditional and private show me that you can support us on the education of the sale of our private. So that's why we have a 100 people who sold job is to support our Market leaders out there, as they meet financial advisor by financial advisor from an education standpoint. And so, really focusing on streamlining, uh, on the well Channel. We're having the same discussions on the uh, on the institutional side where the conversations are around. Okay show me your broad, breadth of capabilities. I want to be able to suck on some of my more Junior folks, show me how you can build a program around that that goes cross market, so fixed income Equity. Secondaries private. Like we want that education across uh and that you will support those types of
Matthew Nicholls: And it, by definition, also supports future growth opportunities that we've highlighted in our five-year plan.
Patrick Davitt: Yeah, all makes sense. Thanks so much.
Alex Blostein: Yeah, all makes sense. Thanks so much.
Um where we should end this year. All else remaining equal in the high. 29s going into 2027 fiscal at some point would be 30 and then if the market stays where it is today, we should go in excess of that, uh, in in future years, where we thought we'd be more like 30%. So, we have some some upside there, remember as well, we do have the highly episodic situation around Western where we've been providing support to the Western expense structure, um, since uh, since August 2024, which has had, uh, an impact on our overall, margins of probably several points. So we'd already be in the high 20s or 30%. Now, excluding that. But we've done the right thing in our opinion, by providing that support. And it it, it by definition also supports future growth, uh, opportunities that we've highlighted in our 5 year plan.
Matthew Nicholls: Thank you.
Matthew Nicholls: Thank you.
Yeah, that makes sense. Thanks so much.
Operator: Our next question is from the line of Glenn Schorr with Evercore. Please proceed with your question.
Operator: Our next question is from the line of Glenn Schorr with Evercore. Please proceed with your question.
Thank you.
Programs. Uh and and again they're consolidating the number of managers so you have to remember you know you have a blow up with 1 managers your firm's reputation. There's as much due diligence on a multi-trillion Dollar manager as there is on a single, you know, 20 billion dollar manager. And so the the amount of time that they have to do and doing due diligence on the manager is making them want to uh want to consolidate. You just use larger managers and expect more from the manager. So that's that's both.
Glenn Schorr: Thank you very much. Jenny, I felt like you had strong conviction in how you talked about. You said something like, clients are no longer looking for products in isolation. Curious how much you were leaning towards the institutional versus the wealth side, and more importantly, how you're organizing around that? How do you deliver it? Is it your own models? Is it getting on other people's models? And is it also bigger strategic, broader relationships with LPs? I'm just curious to flesh that out a little bit. Thank you.
Glenn Schorr: Thank you very much. Jenny, I felt like you had strong conviction in how you talked about. You said something like, clients are no longer looking for products in isolation. Curious how much you were leaning towards the institutional versus the wealth side, and more importantly, how you're organizing around that? How do you deliver it? Is it your own models? Is it getting on other people's models? And is it also bigger strategic, broader relationships with LPs? I'm just curious to flesh that out a little bit. Thank you.
Our next question is from the line of Glenn Shore with Evercore. Good to see you—with your question.
Thank you very much.
Like I said, institutional retail, we've seen it on the insurance side where as they're looking, you know, you have this trend towards leveraging sub-advisor, they want broad breadth of capabilities there. Um, so, you know, we're seeing it on, uh, as you talked to retirement managers, you know, show me the breadth of capabilities that you have and show me how you can help support the business.
Um, Jenny, I felt like you had strong conviction in how you talked about—you said something like, 'no longer,' but people—our clients—will no longer be looking for products in isolation. Um, curious how much you were leaning towards the institutional versus the wealth side, and more importantly, how you're organizing around that, how you deliver it. Is it your own models? Is that getting on other people's models? And is it also a bigger, strategic, broader relation?
So I, I, I would say this trend has been going on for the last few years, and it continues, it continues. We feel really well positioned for it.
Jenny Johnson: Yeah. No, great question. So that comment is both a wealth client comment as well as an institutional client comment. So you talk to any of the big wealth platforms, and what they're basically saying is, there's more demand from their clients to offer truly what used to be just available to high net worth people. So it's financial planning, tax efficiency, education, education of the heirs.
Jenny Johnson: Yeah. No, great question. So that comment is both a wealth client comment as well as an institutional client comment. So you talk to any of the big wealth platforms, and what they're basically saying is, there's more demand from their clients to offer truly what used to be just available to high net worth people. So it's financial planning, tax efficiency, education, education of the heirs.
Thanks so much Danny.
Ships with LPS, and just curious to flush that out a little bit. Thank you. Yeah, no, uh, great question, so that comment—
It’s both a wealth comment as well.
I wanted to, I wanted to add a, a comment into Glenn's, Glenn's comment on on actually. Um,
Jenny Johnson: And so what their message is: "Look, we're going to consolidate to fewer managers, so we're going to look at the ones that have scale, that have breadth of capabilities, and can offer these additional services to us." And part of that, so I'm talking first on the wealth side, and part of that on the wealth side is, if you have traditional and privates, show me that you can support us on the education of the sale of our privates. So that's why we have 100 people whose sole job is to support our market leaders out there as they meet financial advisor by financial advisor from an education standpoint. And so really focusing on streamlining, on the wealth channel. We're having the same discussions on the institutional side, where the conversations are around, "Okay, show me your broad breadth of capabilities.
And so what their message is: "Look, we're going to consolidate to fewer managers, so we're going to look at the ones that have scale, that have breadth of capabilities, and can offer these additional services to us." And part of that, so I'm talking first on the wealth side, and part of that on the wealth side is, if you have traditional and privates, show me that you can support us on the education of the sale of our privates. So that's why we have 100 people whose sole job is to support our market leaders out there as they meet financial advisor by financial advisor from an education standpoint. And so really focusing on streamlining, on the wealth channel. We're having the same discussions on the institutional side, where the conversations are around, "Okay, show me your broad breadth of capabilities.
Our success, especially on the wealth space, which you mentioned, uh, we have over 100 our Specialists that complement the field, and the wealth people on the ground and the success that we've seen, um, actually over the past year Alone. Um, we've we've increased substantially the amount of, um, of a AUM that we fund raise, um, um, um, in, in the work space, and we expect that that's going to be, you know, between 15 and 20% in 2026. But also importantly, 40% is coming outside, the US. So it's also growing outside the US both in Europe and Asia.
And and and we the other part that is important is over the past 2 years alone. We build 7 Perpetual funds
Jenny Johnson: I want to be able to second some of my more junior folks. Show me how you can build a program around that that goes cross-market, so fixed income, equity, secondaries, private capital. Like, we want that education across, and that you will support those types of programs. And again, they're consolidating the number of managers. And you have to remember, you know, you have a blow up with one manager, it taints your firm's reputation. There's as much due diligence on a multi-trillion dollar manager as there is on a single, you know, $20 billion manager. And so the amount of time that they have to do due diligence on the manager is making them want to consolidate, just use larger managers and expect more from the manager. So that's both, like I said, institutional retail.
I want to be able to second some of my more junior folks. Show me how you can build a program around that that goes cross-market, so fixed income, equity, secondaries, private capital. Like, we want that education across, and that you will support those types of programs. And again, they're consolidating the number of managers. And you have to remember, you know, you have a blow up with one manager, it taints your firm's reputation. There's as much due diligence on a multi-trillion dollar manager as there is on a single, you know, $20 billion manager. And so the amount of time that they have to do due diligence on the manager is making them want to consolidate, just use larger managers and expect more from the manager. So that's both, like I said, institutional retail.
Ilities and can offer these additional services to us and part of that. So I'm talking first on the wall side and part of that, on the well side is if you have traditional and privates show me that, you can support us on the education of the sale of our private. So that's why we have a 100 people who sold job is to support our Market leaders out there, as they meet financial advisor by financial advisor from an education standpoint and so really focusing on streamlining, uh, on the wellchild, we're having the same discussions on the uh, on the institutional side where the conversations are around. Okay show me your broad, breadth of capabilities. I want to be able to suck on some of my more Junior folks, show me how you can build a program around that that goes cross market. So fixed income Equity secondary private like we want that education across uh and that you will support those types of programs. Uh,
that are close to 5 billion in fundraising and the fundraising is just going up every quarter. So this quarter is 50% higher than the quarter before and the moment of continues because we continue to sign up New Wealth, wealth groups. And to your question again were also starting to build those model portfolios of a Perpetual funds that will continue to accelerate the growth on on the wealth. So that's an area of focus and I think that's an area of a lot of success from frankly. So I just wanted to add that to the conversation.
Jenny Johnson: We've seen it on the insurance side, where as they're looking, you know, you have this trend towards leveraging sub-advisers. They want broad breadth of capabilities there. So, you know, we're seeing it on, as you talk to retirement managers, you know, show me the breadth of capabilities that you have, and show me how you can help support the business. So I would say this trend has been going on for the last few years, and it continues, it continues. We feel really well positioned for it.
We've seen it on the insurance side, where as they're looking, you know, you have this trend towards leveraging sub-advisers. They want broad breadth of capabilities there. So, you know, we're seeing it on, as you talk to retirement managers, you know, show me the breadth of capabilities that you have, and show me how you can help support the business. So I would say this trend has been going on for the last few years, and it continues, it continues. We feel really well positioned for it.
And, and again, they're consolidating the number of managers and you have to remember, you know, you have a blow up with 1 manager, it takes your firm's reputation, there's as much due diligence on a multi-trillion Dollar manager is there is on a single, you know, 20 billion dollar manager and so the the amount of time that they have to do and do due diligence on the manager is making them want to uh want to consolidate. You just use larger managers and expect more from the manager. So that's that's both like I said, institutional retail
Well and and you just reminded me. Daniel glad you asked a question about. Do we also try to get other people's models? Yes, the answer is we do, you know, if other people are both CIO and they're open architecture and we are uh, in that case and other people's models. So, our goal is to meet the client. However, the however we can meet the client, whether it's whatever vehicle or vehicle agnostic. Um, you know, I think that you would see that all of our Flagship products are being sold in multiple Vehicles. So some form of ETF mutual fund CIT SMA. Uh we're adding you know, tax efficiency to our active smas. Uh and so having that flexibility is really important as they select you as 1 of their core providers.
We've seen it on the insurance side where as they're looking, you know, you have this trend towards leveraging sub-advisers, they want broad breadth of capabilities there. Um, so, you know, we're seeing it on, uh, as you talk to retirement managers, you know, show me the breadth of capabilities that you have and show me how you can help support the business.
Our next question comes from the line of Dan Fannon with Jeffrey. Please receive with your question.
So I, I would say this trend has been going on for the last few years, and it continues, it continues. We feel really well positioned for it.
Glenn Schorr: Thanks so much, Jenny.
Glenn Schorr: Thanks so much, Jenny.
Thanks so much Andy.
Daniel Gamba: Hey, Jenny, I wanted to add a comment into Glenn's comment on actually our success, especially on the wealth space, which you mentioned, we have over 100 our specialists that complement the field and the wealth people on the ground. The success that we've seen, actually, over the past year alone, we've increased substantially the amount of AUM that we've fundraised in the wealth space. We expect that that's going to be, you know, between 15% and 20% in 2026. But also importantly, 40% is coming outside the US. It's also growing outside the US, both in Europe and Asia.
Daniel Gamba: Hey, Jenny, I wanted to add a comment into Glenn's comment on actually our success, especially on the wealth space, which you mentioned, we have over 100 our specialists that complement the field and the wealth people on the ground. The success that we've seen, actually, over the past year alone, we've increased substantially the amount of AUM that we've fundraised in the wealth space. We expect that that's going to be, you know, between 15% and 20% in 2026. But also importantly, 40% is coming outside the US. It's also growing outside the US, both in Europe and Asia.
I wanted to, I wanted to add a comment into Glenn's—Glenn's comment on—on actually. Um,
Additional cost savings and or cost programs that will help you get there.
Daniel Gamba: The other part that is important is, over the past two years alone, we built seven perpetual funds that are close to $5 billion in fundraising, and the fundraising is just going up every quarter. So this quarter is 50% higher than the quarter before, and the momentum continues because we continue to sign up new wealth groups. And to your question, Glenn, we're also starting to build those model portfolios of perpetual funds that will continue to accelerate the growth on the wealth. So that's an area of focus, and I think that's an area of a lot of success from Franklin. So I just wanted to add that to the conversation.
The other part that is important is, over the past two years alone, we built seven perpetual funds that are close to $5 billion in fundraising, and the fundraising is just going up every quarter. So this quarter is 50% higher than the quarter before, and the momentum continues because we continue to sign up new wealth groups. And to your question, Glenn, we're also starting to build those model portfolios of perpetual funds that will continue to accelerate the growth on the wealth. So that's an area of focus, and I think that's an area of a lot of success from Franklin. So I just wanted to add that to the conversation.
Our success especially on the wealth space, which you mentioned, we have over 100 our Specialists, that complement the field, and the wealth people on the ground and the success that we've seen, um, actually over the past year alone, we've we've increased substantially the amount of, um, of a AUM that we fund raise, um, in in the work space and we expect that that's going to be, you know, between 15 and 20% in 2026. But also importantly, 40% is coming outside, the US. So it's also growing outside the US both in Europe and Asia and and and
We—the other part that is important is, over the past two years alone, we built seven Perpetual funds.
I mean it's possible. We're we're we're deep in on, on AI with deep in on how to maximize our presence that we have in India and Poland for example, where we've got very large, operational capabilities and and and great talent. In these places, uh, we're working on on meaningful, you know, integration across the firm to maximize and capitalize on what we've and what we've, uh, what we've got here. Every time when we when we progress down, 1 of those paths, we find other places that can frankly, absorb areas that we need to invest at least absorb, uh, what we're demonstrating. Uh, this year is a meaningful increase in margin or else from any equal and an acceleration of our plan to get to a 30% Plus
Uh and uh you know, we're doing that through very disciplined expense management whilst continuing to invest in the business at the same time as the market going up. So we've got meaningful Investments for growth. We've got the market. That's meaningfully up. Uh, yet our expenses are staying flat to last year. I think going into 2027, obviously, look, we're not. We're only a quarter through 2026 this call but I, I feel, um,
Jenny Johnson: Well, you just reminded me, Daniel. Glenn, you asked the question about, do we also try to get in other people's models? Yes, the answer is we do. You know, as other people are both CIO and they're open architecture, and we are, in that case, in other people's models. So our goal is to meet the client however we can meet the client, whether it's whatever vehicle or vehicle agnostic. You know, I think that you would see that all of our flagship products are being sold in multiple vehicles. So some form of ETF, mutual funds, CIT, SMA, we're adding, you know, tax efficiency to our active SMAs. And so having that flexibility is really important as they select you as one of their core providers.
Jenny Johnson: Well, you just reminded me, Daniel. Glenn, you asked the question about, do we also try to get in other people's models? Yes, the answer is we do. You know, as other people are both CIO and they're open architecture, and we are, in that case, in other people's models. So our goal is to meet the client however we can meet the client, whether it's whatever vehicle or vehicle agnostic. You know, I think that you would see that all of our flagship products are being sold in multiple vehicles. So some form of ETF, mutual funds, CIT, SMA, we're adding, you know, tax efficiency to our active SMAs. And so having that flexibility is really important as they select you as one of their core providers.
That's close to $5 billion in fundraising, and the fundraising is just going up every quarter. So this quarter is 50% higher than the quarter before, and the momentum is continuous because we continue to sign up new wealth groups. And to your question again, we're also starting to build those model portfolios of perpetual funds that we continue to accelerate the growth on in Wealth. So that's an area of focus, and I think that's an area of a lot of success from, frankly. So I just wanted to add that to the conversation.
Uh, I feel confident that going into 2027 that. Uh, a lot of the other initiatives we have going on will help to continue to absorb, uh, the additional expenses that are required to grow, uh, and invest in in our business. But obviously, we can't comment on, you know, reliably on fiscal 2027 when we're not even through 26. But uh, I I, I hope through these comments, when you look at how we've performed from an expense perspective, 25 versus 24. And now what we're guiding in 26 versus 25 that, you know, we've mostly achieved what we said. We're going to achieve even with upward uh, momentum in in the market. So I do think we've got some room.
Well and, and you just reminded me. Daniel glad you asked a question about. Do we also try to get other people's models? Yes, the answer is we do you know as other people about CIO and their open architecture and we are uh, in that case with other people's models. So, our goal is to meet the client. However, the however we can meet the client, whether it's whatever vehicle or vehicle agnostic. Um, you know, I think that you would see that all of our Flagship products are being sold in multiple Vehicles. So some form of ETF mutual fund CIT SMA. Uh we're adding you know, tax efficiency to our active smas. Uh and so having that flexibility is really important as they select you as 1 of their core providers.
Operator: ... Our next question comes from the line of Dan Fannon with Jefferies. Please proceed with your question.
Operator: ... Our next question comes from the line of Dan Fannon with Jefferies. Please proceed with your question.
Dan Fannon: Thanks. Good morning. So Matt, wanted to follow up on some of your comments around long-term margins and the expenses. So just thinking about expense growth beyond this year, can you give us a sense of how you're thinking about that? And do you anticipate, in those longer-term targets for margins, additional cost savings and/or cost programs that will help you get there?
Dan Fannon: Thanks. Good morning. So Matt, wanted to follow up on some of your comments around long-term margins and the expenses. So just thinking about expense growth beyond this year, can you give us a sense of how you're thinking about that? And do you anticipate, in those longer-term targets for margins, additional cost savings and/or cost programs that will help you get there?
Our next question comes from the line of Dan Fannon with Jefferies. Please proceed with your question.
In, in the numbers, uh, in terms of further cost saves going into fiscal 27 based on everything that we know. But right now we're focused on delivering on fiscal 26. As we've highlighted
And Matt like when we think about where is there upside opportunity on margin?
Matthew Nicholls: I mean, it's possible that we're deep in on AI. We're deep in on how to maximize our presence that we have in India and Poland, for example, where we've got very large operational capabilities and great talent in these places. We're working on meaningful, you know, integration across the firm to maximize and capitalize on what we've got here. Every time we progress down one of those paths, we find other places that can, frankly, absorb areas that we need to invest, at least absorb. What we're demonstrating this year is a meaningful increase in margin, all else remaining equal, and an acceleration of our plan to get to 30% plus.
Matthew Nicholls: I mean, it's possible that we're deep in on AI. We're deep in on how to maximize our presence that we have in India and Poland, for example, where we've got very large operational capabilities and great talent in these places. We're working on meaningful, you know, integration across the firm to maximize and capitalize on what we've got here. Every time we progress down one of those paths, we find other places that can, frankly, absorb areas that we need to invest, at least absorb. What we're demonstrating this year is a meaningful increase in margin, all else remaining equal, and an acceleration of our plan to get to 30% plus.
And, or cost programs that will help you get there.
I'm going to throw it into kind of 3 categories, uh, in the, in the shorter term. Um, but, but sort of the 27 to be on 1st, streamlining, the products we've done a lot around. I think almost a third of our products we've looked at and either repositioned, um, merged, uh, a few cases closed and, um, in some, uh,
Uh, when I think about repositioning, it's like turning them into ETFs. We did Big ETFs conversion where we think they'll get more upside potential. So as we determine that, um, there's there's opportunity there. The second is, it always takes a lot longer. And you think about all the Acquisitions that we've done? We kind of say, I think 11 Acqua was like an acquisition of 5 companies or 6, companies not 1 company, because they were all on their own systems. They, they had their own versions of CRM, different CRM systems that
those and some of that's built into the projections that
Matthew Nicholls: And, you know, we're doing that through very disciplined expense management, whilst continuing to invest in the business at the same time as the market going up. So we've got meaningful investments for growth. We've got the market that's meaningfully up, yet our expenses are staying flat to last year. I think going into 2027, obviously, look, we're not even- we're only a quarter through 2026 fiscal. But I feel confident that going into 2027, that a lot of the other initiatives we have going on will help to continue to absorb the additional expenses that are required to grow and invest in our business. But obviously, we can't comment on, you know, reliably on fiscal 2027 when we're not even through 2026.
And, you know, we're doing that through very disciplined expense management, whilst continuing to invest in the business at the same time as the market going up. So we've got meaningful investments for growth. We've got the market that's meaningfully up, yet our expenses are staying flat to last year. I think going into 2027, obviously, look, we're not even- we're only a quarter through 2026 fiscal. But I feel confident that going into 2027, that a lot of the other initiatives we have going on will help to continue to absorb the additional expenses that are required to grow and invest in our business. But obviously, we can't comment on, you know, reliably on fiscal 2027 when we're not even through 2026.
I mean it's possible that we're we're we're deep in on, on AI with deep in on how to maximize our presence that we have in India and Poland for example, where we've got very large, operational capabilities and and and great talent. In these places, uh, we're working on on meaningful, you know, integration across the firm to maximize and capitalize on what we've and what we've, uh, what we've got here. Every time when we when we progress down, 1 of those paths, we find other places that can frankly, absorb areas, that we need to invest at least absorb what we're demonstrating. Uh, this year is a meaningful increase in margin or else from any equal and an acceleration of our plan to get to 30%. Plus
Uh, and uh, you know, we're doing that through very disciplined expense management, whilst continuing to invest in the business at the same time as the market going up. So we've got meaningful investments for growth, we've got the market that's meaningfully up, uh, yet our expenses are staying flat to last year. I think going into 2027—obviously, look, we're only a quarter through fiscal 2026, but I feel, um,
But some of it you continue to uncover more opportunities there as you integrate and it takes a lot. It takes multiple years to do the full integration and so that's still working. And then finally, like Ai and Technology I we think blockchain is going to be a great efficiency at or is it as uh, it's adopted out there. Um but like AI. Just you may have seen that we announced this intelligence Hub. It's 1 area that we're working on AI to make our distribution, people more effective. Um you know what we saw is the time to finalize call lists.
Matthew Nicholls: But I hope through these comments, when you look at how we've performed from an expense perspective, 2025 versus 2024, and now what we're guiding in 2026 versus 2025, that, you know, we've mostly achieved what we said we're gonna achieve, even with upward momentum in the market. So I do think we've got some room in the numbers in terms of further cost saves going into fiscal 2027, based on everything that we know. But right now, we're focused on delivering on fiscal 2026, as we've highlighted.
But I hope through these comments, when you look at how we've performed from an expense perspective, 2025 versus 2024, and now what we're guiding in 2026 versus 2025, that, you know, we've mostly achieved what we said we're gonna achieve, even with upward momentum in the market. So I do think we've got some room in the numbers in terms of further cost saves going into fiscal 2027, based on everything that we know. But right now, we're focused on delivering on fiscal 2026, as we've highlighted.
Uh, I feel confident that going into 2027 that. Uh, a lot of the other initiatives we have going on will help to continue to absorb, uh, the additional expenses that are required to grow, uh, and invest in in our business. But obviously, we can't comment on, you know, reliably on fiscal 2027 when we're not even through 26. But uh, I I, I hope through these comments, when you look at how we've performed from an expense perspective, 25 versus 24. And now what we're guiding in 26 versus 25 that, you know, we've mostly achieved what we said. We're going to achieve even with upward uh, momentum in in the market. So I do think we've got some room.
Jenny Johnson: Yeah, and I, I'm just gonna add, Matt, like, when we think about where is there upside opportunity on margin, I'm gonna throw it into kind of three categories, in the shorter term, but sort of a 2027 on. One is streamlining the products. We've done a lot around... I think almost 1/3 of our products we've looked at and either repositioned, merged, a few cases closed. And, in some, when I think about repositioning, it's like turning them into ETFs. We did big ETFs conversion, where we think they'll get more upside potential. So as we determine that, there's opportunity there. The second is, it always takes a lot longer, and you think about all the acquisitions that we've done.
Jenny Johnson: Yeah, and I, I'm just gonna add, Matt, like, when we think about where is there upside opportunity on margin, I'm gonna throw it into kind of three categories, in the shorter term, but sort of a 2027 on. One is streamlining the products. We've done a lot around... I think almost 1/3 of our products we've looked at and either repositioned, merged, a few cases closed. And, in some, when I think about repositioning, it's like turning them into ETFs. We did big ETFs conversion, where we think they'll get more upside potential. So as we determine that, there's opportunity there. The second is, it always takes a lot longer, and you think about all the acquisitions that we've done.
In the numbers, uh, in terms of further cost saves going into fiscal '27 based on everything that we know. But right now we're focused on delivering on fiscal '26, as we've highlighted.
Translates into cost savings. But honestly it's it's a bit hard to today to to, you know, build that into direct cost savings opportunities to that, that expanded the margin. But those are big opportunities. We think going forward and we are very focused and we think on the AI side, we're actually leaders in that space.
And Matt, like when we think about where is there upside opportunity on margin?
Um, so I I just want to add that to kind of Matt's comments.
And then and then, and then finally, Jenny thank you for that. And finally,
Um, most of the stated growth areas that you can see as demonstrated by our postal flows in them.
Uh, scaling is scaling. They're scaling up.
I'm going to throw it into kind of three categories, uh, in the shorter term. Um, but sort of the 27 to on 1.3% either reposition, um, merged, uh, a few cases closed, and, um, in some, uh,
And in particular ETFs canvas and solutions. For example, each of those 3
areas for us or see they're they're lower fee.
Jenny Johnson: We kind of say, I think, 11 acquisitions in the last 5 or 6 years, but the reality of, like, Mason was like an acquisition of 5 companies or 6 companies, not one company, because they were all on their own systems. They, they had their own versions of CRM, different CRM systems. That is still ongoing, and some of that's built into the projections that we have, but some of it, you continue to uncover more opportunities there as you integrate, and it takes multiple years to do the full integration, and so that's still working. And then finally, like AI and technology, I think, we think blockchain's gonna be a great efficiency add or as it's adopted out there. But like AI, just you may have seen that we announced this intelligence hub.
We kind of say, I think, 11 acquisitions in the last 5 or 6 years, but the reality of, like, Mason was like an acquisition of 5 companies or 6 companies, not one company, because they were all on their own systems. They, they had their own versions of CRM, different CRM systems. That is still ongoing, and some of that's built into the projections that we have, but some of it, you continue to uncover more opportunities there as you integrate, and it takes multiple years to do the full integration, and so that's still working. And then finally, like AI and technology, I think, we think blockchain's gonna be a great efficiency add or as it's adopted out there. But like AI, just you may have seen that we announced this intelligence hub.
and when they're smaller AUM and when you're growing overall, as a business, you have a lower margin as a result of that of that investing to grow the business to a scaled position, what's happening now in terms of ETFs canvas and Solutions in particular,
Notwithstanding that the lower fee rate associated with those Vehicles. Those businesses, let's call it.
Uh, when I think about repositioning, it's like turning them into ETFs. We did big ETF conversions where we think they'll get more upside potential. So as we determine that, um, there's opportunity there. The second is, it always takes a lot longer. And you think about all the acquisitions that we've done? We kind of say, I think Legg Mason was like an acquisition of five companies or six companies, not one company, because they were all on their own systems. They, they had their own versions of CRM, different CRM systems that—
those, and some
Jenny Johnson: It's one area that we're working on, AI, to make our distribution people more effective. You know, what we saw is the time to finalize call lists dropped 90% when we rolled this out. Now, what is that? It's, you know, went from three to four hours to 15 minutes, and the prepping for meetings dropped, you know, from six hours to two hours or something per week. But those are small, little incremental cost savings, or hopefully, more importantly, what it's done is actually added 9 to 10% increase in the number of meetings that our distribution team has. So hopefully, that translates into more sales. But think about that as you're rolling it out. We've already talked in the past about AI and the improvement in our RFPs. We're doing a lot of work on our investment side.
It's one area that we're working on, AI, to make our distribution people more effective. You know, what we saw is the time to finalize call lists dropped 90% when we rolled this out. Now, what is that? It's, you know, went from three to four hours to 15 minutes, and the prepping for meetings dropped, you know, from six hours to two hours or something per week. But those are small, little incremental cost savings, or hopefully, more importantly, what it's done is actually added 9 to 10% increase in the number of meetings that our distribution team has. So hopefully, that translates into more sales. But think about that as you're rolling it out. We've already talked in the past about AI and the improvement in our RFPs. We're doing a lot of work on our investment side.
Built into the projections that we have, but some of it you continue to uncover more opportunities there as you integrate. And it takes a lot. It takes multiple years to do the full integration and so that's still working. And then finally, like Ai and Technology. I we think blockchain is going to be a great efficiency at or is it as uh, it's adopted out there. Um but like AI. Just you may have seen that we announced this intelligence Hub. It's 1 area that we're working on AI to make our distribution, people more effective. Um you know what we saw is the time to finalize call lists.
Um they're getting to the point now where the size of them and certainly going into later into 26 27 all else remaining equal, we expect the scale of scaling of those those businesses to create higher margins overall so you have a lower fee rate. I know everybody's very focused on the fee rate, but at a certain point when you get above a certain aux expenses are very managed and you because you've done all the Investments, you've got the team you need, and then you can be 2, 3 times, the size of AUM and therefore, have a much higher margin. Similarly, in our alts area as we continue to grow, uh uh uh significantly across all 3 of our or 3 4 of our primary alternative assets. Businesses, we're getting more margin from from that. I mean, the 10, the 10 billion dollars that Jenny talked about earlier on than 9.5 billion dollars of of, of fundraising doesn't include. For example, Lexington fund 11 even,
So, it's important to to, to note that.
Our next question comes from the line of Ken wington with JP Morgan.
Just to see what your question.
Jenny Johnson: It will either translate into growth opportunities or it'll translate into cost savings. But honestly, it's a bit hard today to, you know, build that into direct cost savings opportunities that expand into margin. But those are big opportunities we think going forward, and we are very focused. And we think on the AI side, we're actually leaders in that space. So I just want to add that to kind of Matt's comments.
It will either translate into growth opportunities or it'll translate into cost savings. But honestly, it's a bit hard today to, you know, build that into direct cost savings opportunities that expand into margin. But those are big opportunities we think going forward, and we are very focused. And we think on the AI side, we're actually leaders in that space. So I just want to add that to kind of Matt's comments.
Hi uh, good afternoon, good morning, and thanks for taking the question. Um I guess pressing AI further. Um, Jenny you've been in the Press talking about the impact that AI has on Asset Management suggesting that it could drive if not accelerate more consolidation in the asset management industry. So maybe 1, how does AI Drive consolidation and then 2 from Franklin's perspective how would AI sort of alter
Savings, but honestly, it's a bit hard today to, you know, build that into direct cost savings opportunities that expand into margin. But those are big opportunities, we think, going forward, and we are very focused. And we think on the AI side, we're actually leaders in that space.
You know, you know? Um,
Matthew Nicholls: Finally, Jenny, thank you for that. Finally, most of the stated growth areas that you can see, as demonstrated by our positive flows in them, are scaling. They're scaling, they're scaling up. And in particular, ETFs, Canvas, and solutions, for example, each of those three areas for us, are obviously, they're, they're lower fee. And when they're smaller AUM, when you're growing, overall, as a business, you have a lower margin as a result of that, of that investing to grow the business to a scaled position.
Um, so I just want to add that to kind of Matt's comments.
Matthew Nicholls: Finally, Jenny, thank you for that. Finally, most of the stated growth areas that you can see, as demonstrated by our positive flows in them, are scaling. They're scaling, they're scaling up. And in particular, ETFs, Canvas, and solutions, for example, each of those three areas for us, are obviously, they're, they're lower fee. And when they're smaller AUM, when you're growing, overall, as a business, you have a lower margin as a result of that, of that investing to grow the business to a scaled position.
And then, and then, and then finally—Jenny, thank you for that. And finally,
Uh, your ability and willingness to to do the m&a transactions and fill in the gaps that you mentioned sort of earlier in the call.
Um,
Um, most of the stated growth areas that you can see, as demonstrated by our positive flows in them, are scaling. They're scaling, they're scaling up.
And in particular, ETFs, Canvas, and Solutions. For example, each of those three
Areas for us are, obviously, they're lower fee.
Matthew Nicholls: What's happening now in terms of ETFs, Canvas, and solutions, in particular, notwithstanding the lower fee rate associated with those vehicles, those businesses, let's call it, they're getting to the point now where the size of them, and certainly going into later into 2026, 2027, all else remaining equal, we expect the scaling of those businesses to create higher margins overall. So you have a lower fee rate. I know everybody's very focused on the fee rate, but at a certain point, when you get above a certain AUM, expenses are very managed, and because you've done all the investments, you've got the team you need, and then you could be 2, 3 times the size of AUM, and therefore, have a much higher margin.
What's happening now in terms of ETFs, Canvas, and solutions, in particular, notwithstanding the lower fee rate associated with those vehicles, those businesses, let's call it, they're getting to the point now where the size of them, and certainly going into later into 2026, 2027, all else remaining equal, we expect the scaling of those businesses to create higher margins overall. So you have a lower fee rate. I know everybody's very focused on the fee rate, but at a certain point, when you get above a certain AUM, expenses are very managed, and because you've done all the investments, you've got the team you need, and then you could be 2, 3 times the size of AUM, and therefore, have a much higher margin.
And when they're smaller AUM and when you're growing overall as a business, you have a lower margin as a result of that—of that investing to grow the business to a scaled position. What's happening now in terms of ETFs, Canvas, and Solutions in particular,
Look, if you have, if your traditional manager and you haven't already uh purchased scale in alternative managers, it is going to be really difficult to compete going forward. Uh especially because uh 1 that comment on uh Distributors trying to consolidate. So they're demanding more from you. 2 is as Matt pointed out, we were fortunate that we were very early in these Acquisitions is traditional or alternative managers have gotten incredibly expensive. Since we did our acquisition of PSP and Clarion uh and it will be very very difficult to be able for a traditional manager to
Notwithstanding the lower fee rate associated with those vehicles. Those businesses, let's call it.
Matthew Nicholls: Similarly, in our alts area, as we continue to grow significantly across all three of our three, four of our primary alternative assets businesses, we're getting more margin from that. I mean, the $10 billion that Jenny talked about earlier on, the $9.5 billion of fundraising doesn't include, for example, Lexington Fund Eleven. So it's important to note that.
Similarly, in our alts area, as we continue to grow significantly across all three of our three, four of our primary alternative assets businesses, we're getting more margin from that. I mean, the $10 billion that Jenny talked about earlier on, the $9.5 billion of fundraising doesn't include, for example, Lexington Fund Eleven. So it's important to note that.
Be able to go out and acquire. Um, there were 2, this, this convergence, particularly in fixed income, you're going to see but across the board with products that are that have that contain both private and public in them. If you don't have that under the same roof, we roof, we don't think you're going to get the, um, this the the same kind of just synergies that you get from learning and managing and research we have over 50 products between Western Clear Bridges. Western and Franklin, Franklin's been doing private markets in their traditional mutual funds for over a decade. So over 50 products actually have privates in them today, so we already have that in our mutual funds. So 1 is in the alternative space. The second is ai ai. The amount of data required to truly trained a model.
Um they're getting to the point now where the size of them and certainly going into later into 26 27 all else remaining equal, we expect the scale of scaling of those those businesses to create higher margins overall so you have a lower B rate. I know everybody's very focused on the fee rate, but at a certain point when you get above a certain Au expenses are very managed and you because you've done all the Investments, you've got the team you need, and then you could be 2, 3 times, the size of AUM and therefore, have a much higher margin. Similarly, in our alts area as we continue to grow, uh uh uh significantly across all 3 of our or 3 4 of our primary alternative assets. Businesses, we're getting more margin from from that. I mean, the 10, the 10 billion dollars that Jenny talked about earlier on than 9.5 billion dollars of of of fundraising doesn't include, for example, Lexington fund 11y,
So, it's important to note that.
Operator: Our next question comes from the line of Kenneth Worthington with J.P. Morgan. Please go ahead with your question.
Operator: Our next question comes from the line of Kenneth Worthington with J.P. Morgan. Please go ahead with your question.
Kenneth Worthington: Hi, good afternoon. Good morning, and thanks for taking the question. I guess pressing AI further, Jenny, you've been in the press talking about the impact that AI has on asset management, suggesting that it could drive, if not accelerate, more consolidation in the asset management industry. So maybe one, how does AI drive consolidation? And then two, from Franklin's perspective, how would AI sort of alter, you know, your ability and willingness to do the M&A transactions and fill in the gaps that you mentioned sort of earlier in the call?
Kenneth Worthington: Hi, good afternoon. Good morning, and thanks for taking the question. I guess pressing AI further, Jenny, you've been in the press talking about the impact that AI has on asset management, suggesting that it could drive, if not accelerate, more consolidation in the asset management industry. So maybe one, how does AI drive consolidation? And then two, from Franklin's perspective, how would AI sort of alter, you know, your ability and willingness to do the M&A transactions and fill in the gaps that you mentioned sort of earlier in the call?
Our next question comes from the line of Ken Worthington with JP Morgan. Please proceed with your question.
Hi, uh, good afternoon, good morning, and thanks for taking the question. Um, I guess pressing AI further. Um, Jenny, you've been in the press talking about the impact that AI has on asset management, suggesting that it could drive, if not accelerate, more consolidation in the asset management industry. So maybe—
How does AI drive consolidation? And then, from Franklin's perspective, how would AI sort of alter—
Uh, you know, you know, um,
Jenny Johnson: Yeah. So a couple things. So one of my comments on M&A consolidation has been really what I've said is, look, if you're a traditional manager and you haven't already purchased scale in alternative managers, it is gonna be really difficult to compete going forward. Especially because, one, that comment on distributors trying to consolidate, so they're demanding more from you. Two is, as Matt pointed out, we were fortunate that we were very early in these acquisitions. Traditional alternatives managers have gotten incredibly expensive since we did our acquisition of BSP and Clarion, and it will be very, very difficult to be able for a traditional manager to be able to go out and acquire.
Jenny Johnson: Yeah. So a couple things. So one of my comments on M&A consolidation has been really what I've said is, look, if you're a traditional manager and you haven't already purchased scale in alternative managers, it is gonna be really difficult to compete going forward. Especially because, one, that comment on distributors trying to consolidate, so they're demanding more from you. Two is, as Matt pointed out, we were fortunate that we were very early in these acquisitions. Traditional alternatives managers have gotten incredibly expensive since we did our acquisition of BSP and Clarion, and it will be very, very difficult to be able for a traditional manager to be able to go out and acquire.
Uh, your ability and willingness to do the M&A transactions and fill in the gaps that you mentioned sort of earlier in the call.
On data. And so to be able to scale that data, plus the data you generate internally across, all of your different capabilities is really important in training models, uh, and it's just going to be hard to compete on on training those models, if you don't have a scale, so that's where, um, you know why my comment was. I think that's going to drive some consolidation because I think over time we're already seeing it. Now look, anytime you have technology. Breakthroughs, first thing people do is just make more efficient what they do today. That's why we give you quotes like, Hey, we're more efficient on calls, um, because it's hard to measure the actual value added output because that doesn't happen right away. It doesn't happen until you start to put in the hands of your people so that they can build those ideas. I love to say it's like you know, when the iPhone came out we all looked at it as this is a pretty cool camera. And uh you know and and and flashlight and whatever it was unleashing, the hands of the public that came up with all these credit application, creative applications.
As as you start to train your Workforce on how to leverage, agentic, AI, which we were very early adopters of broadly rolling out chat TPT and we do trainings on how to create a genetic AI. We do hackathons with our investment teams and it's a cross-functional hackathon. So we put people together, um, that are cross, very Sims to say, go build a genic Ai and and, and they're doing things that are built 1 on top of the other. Uh, and then we take them and we test them across
Others. So to me, the ability to do that, and compete is going to be very difficult if you are small. And in particular, if you are singly focused on, you know, kind of 1 area of the capital stack,
Jenny Johnson: Number two, this convergence, particularly in fixed income, you're gonna see, but across the board with products that contain both private and public in them, if you don't have that under the same roof, we don't think you're gonna get the this, the same kind of just synergies that you get from learning and managing and research. We have over 50 products between Western, ClearBridge, and Franklin. Franklin's been doing private markets in their traditional mutual funds for over a decade, so over 50 products actually have privates in them today. So we already have that in our mutual funds. So one is in the alternative space, the second is AI.
Number two, this convergence, particularly in fixed income, you're gonna see, but across the board with products that contain both private and public in them, if you don't have that under the same roof, we don't think you're gonna get the this, the same kind of just synergies that you get from learning and managing and research. We have over 50 products between Western, ClearBridge, and Franklin. Franklin's been doing private markets in their traditional mutual funds for over a decade, so over 50 products actually have privates in them today. So we already have that in our mutual funds. So one is in the alternative space, the second is AI.
Got it. Okay, thank you. That's very helpful.
Our next question comes from the line of Michael Cyprus with Morgan Stanley. Please receive your question.
So 1, my comments on m&a consolidation is really what I've said is look if you haven't if you're a traditional manager and you haven't already uh purchased scale in alternative managers, it is going to be a really difficult to compete going forward. Uh especially because uh 1 that comment on uh Distributors trying to consolidate. So they're demanding more from you. 2 is as Matt pointed out, we were fortunate that we were very early in these Acquisitions is traditional or alternative managers have gotten incredibly expensive. Since we did our acquisition of PSP and Clarion, uh, and it will be very, very difficult to be able for a traditional manager to be able to go out and acquire. Um, number 2, this this convergence, particularly in fixed income, you're going to see but across the board with products that are that have that contain both private and public in them. If you don't have that under the same roof, we roof, we don't think you're going to get
Morning, thanks for taking the question. Um just wanted to come back to some of your commentary Jenny on on blockchain and tokenization. Just curious, if you could talk about your strategic objectives for that over the next couple of years. What steps are you looking to take here and and 26 to enhance your positioning to help improve adoption, for example of your existing uh tokenized funds and then to your point on efficiency? I guess, how do you see blockchain contributing to improved efficiency at Franklin? How much lower cost is it to operate the tokenized funds versus your traditional funds and rails.
Jenny Johnson: AI, the amount of data required to truly train a model is really significant, and if you're a smaller manager, you won't be able to buy, you won't be able to buy the kind of data... We spend $ hundreds of millions on data, and so to be able to scale that data, plus the data you generate internally across all of your different capabilities, is really important in training models. It's just gonna be hard to compete on, on training those models if you don't have a scale. So that's where, you know, why my comment was, I think that's gonna drive some consolidation, 'cause I think over time, we're already seeing it. Now, look, anytime you have technology breakthroughs, first thing people do is just make more efficient what they do today.
AI, the amount of data required to truly train a model is really significant, and if you're a smaller manager, you won't be able to buy, you won't be able to buy the kind of data... We spend $ hundreds of millions on data, and so to be able to scale that data, plus the data you generate internally across all of your different capabilities, is really important in training models. It's just gonna be hard to compete on, on training those models if you don't have a scale. So that's where, you know, why my comment was, I think that's gonna drive some consolidation, 'cause I think over time, we're already seeing it. Now, look, anytime you have technology breakthroughs, first thing people do is just make more efficient what they do today.
Sure. So I I'll tell you like this is just an incredibly efficient technology.
My the
The, um, this—the the same kind of, just, synergies that you get from learning and managing and research. We have over 50 products between ClearBridge and Western, and, uh, Franklin. Franklin's been doing private markets in their traditional mutual funds for over a decade. So, over 50 products actually have privates in them today, so we already have that in our mutual funds. So, one is in the alternative space. The second is AI—AI. The amount of data required to truly train a model—
Come how I think it's from a cost-saving standpoint, how significant it is. I'll start there and then kind of what the opportunities in the hurdles are to more broad adoption. So, the first thing is, uh, when when the SEC approved, our money market fund, they had us parallel process, and it was something like we did over a 6-month period between our old transfer agency system and our blockchain system. And we were 1 of the few firms that were still running.
Jenny Johnson: That's why we give you quotes like, "Hey, we're more efficient on calls." Because it's hard to measure the actual value-added output, 'cause that doesn't happen right away. It doesn't happen until you start to put in the hands of your people so that they can build those ideas. I love to say it's like, you know, when the iPhone came out, we all looked at it as, this is a pretty cool camera and, you know, and flashlight and whatever. It was unleashing the hands of the public that came up with all these creative applications. As you start to train your workforce on how to leverage agentic AI, which we were very early adopters of broadly rolling out ChatGPT, and we do trainings on how to create agentic AI.
That's why we give you quotes like, "Hey, we're more efficient on calls." Because it's hard to measure the actual value-added output, 'cause that doesn't happen right away. It doesn't happen until you start to put in the hands of your people so that they can build those ideas. I love to say it's like, you know, when the iPhone came out, we all looked at it as, this is a pretty cool camera and, you know, and flashlight and whatever. It was unleashing the hands of the public that came up with all these creative applications. As you start to train your workforce on how to leverage agentic AI, which we were very early adopters of broadly rolling out ChatGPT, and we do trainings on how to create agentic AI.
To scale that data. Plus the data you generate internally across. All of your different capabilities is really important in training models, uh, and it's just going to be hard to compete on on training those models, if you don't have a scale, so that's where, um, you know why my comment was. I think that's going to drive some consolidation because I think over time we're already seeing it. Now look, anytime you have technology. Breakthroughs, first thing people do is just make more efficient what they do today. That's why we give you quotes like, Hey, we're more efficient on calls, um, because it's hard to measure the actual value added output because that doesn't happen right away. It doesn't happen until you start to put in the hands of your people so that they can build those ideas. I love to say it's like you know, when the iPhone came out we all looked at it as this is a pretty cool camera and uh you know and and flashlight and whatever it was unleashing that
Jenny Johnson: We do hackathons with our investment teams, and it's a cross-functional hackathon, so we put people together that are across various SIMs to say, "Go build Agentic AI." And they're doing things that are built one on top of the other, and then we take them, and we test them across others. So to me, the ability to do that and compete is gonna be very difficult if you are small, and in particular, if you are singly focused on, you know, kind of one area of the capital stack.
We do hackathons with our investment teams, and it's a cross-functional hackathon, so we put people together that are across various SIMs to say, "Go build Agentic AI." And they're doing things that are built one on top of the other, and then we take them, and we test them across others. So to me, the ability to do that and compete is gonna be very difficult if you are small, and in particular, if you are singly focused on, you know, kind of one area of the capital stack.
Regarding the the transfer agency systems in-house. So we got to see that comparison and we did about 50,000 transactions that cost us about a dollar. 50 per transaction cost us a dollar 13 to run it total to run those 50,000 transactions on the Stellar blockchain, we picked the right chain. There's a lot that goes into that but it it showed us the dramatic difference in cost. And today if you opened a old money market fund, you need 500 to open up because below that we probably lose money in the other shareholders subsidized you. In the case of blockchain you could open a Benji. If you downloaded the Benji app and uh open the money market fund you would um you would you only need twenty dollars so we could probably go less than that. So it's cost savings. The second thing is, there's a huge amount of costs in financial services. That's just reconciling data between your own systems and then reconciling with your counterparty all that goes away when you have a single source of truth that is updated immediately. So those that's where you're going to have process.
It came up with all these credit application creative applications. As you start to train your Workforce on how to leverage, eugenic, AI, which we were very early adopters of broadly rolling out chat TPT and we do trainings on how to create a genetic AI. We do hackathons with our investment teams and it's a cross-functional hackathon. So we put people together, um, that are across very Sims to say, go build, a genetic Ai and and and they're doing things that are built 1 on top of the other. Uh, and then we take them and we test them across others. So to me,
Kenneth Worthington: Got it. Okay, thank you. That's very helpful.
Kenneth Worthington: Got it. Okay, thank you. That's very helpful.
The ability to do that and compete is going to be very difficult if you are small. And, in particular, if you are singly focused on, you know, kind of one area of the capital stack,
Okay, thank you. That's very helpful.
Operator: Our next question comes from the line of Michael Cyprys with Morgan Stanley. Please proceed with your question.
Operator: Our next question comes from the line of Michael Cyprys with Morgan Stanley. Please proceed with your question.
Which is why I believe it will fundamentally replace all of the Rails. There's a lot of toll takers in the system today that will slow that down as much as they can because it threatens their business model. But, you know, water runs downhill. No matter how many obstacles you put in it, it will, it will become very significant. So why the the slow adoption you cannot? Hold a tokenized product without having what's called a wallet? Okay, now it's a blockchain wallet.
Our next question comes from the line of Michael Cyprus with Morgan Stanley. Please proceed with your question.
Michael Cyprys: ... Morning. Thanks for taking the question. Just wanted to come back to some of your commentary, Jenny, on blockchain and tokenization. Just curious if you could talk about your strategic objectives for that over the next couple of years. What steps are you looking to take here in 2026 to enhance your positioning, to help improve adoption, for example, of your existing tokenized funds? And then to your point on efficiency, I guess, how do you see blockchain contributing to improved efficiency at Franklin? How much lower cost is it to operate tokenized funds versus your traditional funds and rails?
Michael Cyprys: ... Morning. Thanks for taking the question. Just wanted to come back to some of your commentary, Jenny, on blockchain and tokenization. Just curious if you could talk about your strategic objectives for that over the next couple of years. What steps are you looking to take here in 2026 to enhance your positioning, to help improve adoption, for example, of your existing tokenized funds? And then to your point on efficiency, I guess, how do you see blockchain contributing to improved efficiency at Franklin? How much lower cost is it to operate tokenized funds versus your traditional funds and rails?
Jenny Johnson: Sure. So I'll, I'll tell you, like, this is just an incredibly efficient technology, and my, the best example to give you an idea of how I think it's from a cost-saving standpoint, how significant it is. I'll start there, and then kind of what the opportunities and the hurdles are to more broad adoption. So the first thing is, when the SEC approved our money market fund, they had this parallel process. It was something like we did over a 6-month period between our old transfer agency system and our blockchain system, and we were one of the few firms that were still running the transfer agency systems in-house. So we got to see that comparison. We did about 50,000 transactions. It cost us about $1.50 per transaction.
Jenny Johnson: Sure. So I'll, I'll tell you, like, this is just an incredibly efficient technology, and my, the best example to give you an idea of how I think it's from a cost-saving standpoint, how significant it is. I'll start there, and then kind of what the opportunities and the hurdles are to more broad adoption. So the first thing is, when the SEC approved our money market fund, they had this parallel process. It was something like we did over a 6-month period between our old transfer agency system and our blockchain system, and we were one of the few firms that were still running the transfer agency systems in-house. So we got to see that comparison. We did about 50,000 transactions. It cost us about $1.50 per transaction.
Morning, thanks for taking the question. Um, just wanted to come back to some of your commentary, Jenny, on blockchain and tokenization. Just curious if you could talk about your strategic objectives for that over the next couple of years. What steps are you looking to take here and in 2026 to enhance your positioning to help improve adoption, for example, of your existing tokenized funds? And then to your point on efficiency, I guess, how do you see blockchain contributing to improved efficiency at Franklin? How much lower cost is it to operate the tokenized funds versus your traditional funds and rails?
Sure. So, I'll tell you, this is just an incredibly efficient technology.
Come how I think it's from a cost-saving standpoint, how significant it is. I'll start there and then kind of what the opportunities in the hurdles are to more broad adoption. So the first thing is, uh, when when the FCC approved, our money market fund, they had us, parallel process, and it was something like we did over a 6-month period between our old transfer agency system and our blockchain system. And we were 1 of the few firms that were still running that the transfer agency system.
Jenny Johnson: It cost us $1.13 to run it total, to run those 50,000 transactions on the Stellar blockchain. We picked the right chain. There's a lot that goes into that, but it showed us the dramatic difference in cost. Today, if you open an old money market fund, you need $500 to open up, because below that, we probably lose money and the other shareholders subsidize you. In the case of blockchain, you could open a Benji. If you downloaded the Benji app and opened a money market fund, you would only need $20, and we could probably go less than that. So it's cost savings. The second thing is there's a huge amount of cost in financial services that's just reconciling data between your own systems and then reconciling with your counterparty.
It cost us $1.13 to run it total, to run those 50,000 transactions on the Stellar blockchain. We picked the right chain. There's a lot that goes into that, but it showed us the dramatic difference in cost. Today, if you open an old money market fund, you need $500 to open up, because below that, we probably lose money and the other shareholders subsidize you. In the case of blockchain, you could open a Benji. If you downloaded the Benji app and opened a money market fund, you would only need $20, and we could probably go less than that. So it's cost savings. The second thing is there's a huge amount of cost in financial services that's just reconciling data between your own systems and then reconciling with your counterparty.
Completely changed you now have the large crypto exchanges interested in trying to offer traditional types of funds ETFs and others, that would be tokenized and you have the big traditional managers who are saying, can you please educate us on how we access the space? How do we build a wallet? What's required there? Uh, and so I think you're going to start to see much greater convergence between trying to find. Defi we um, you know, our tokenized money market fund. What we see is if anybody's been involved in Securities lending, you know, that people will move who they they'll borrow where they can get the highest collateral return. Even if it's a basis point, why would you keep there's 300 billion dollars in stable coins? Why would you park your money in a stable coin? That doesn't give you a yield when you could move into a Benji money market fund to earn that yield and what you want to do, a payment transactions convert into a stable coin. We think, by the end of March, we will have the ability for
Or somebody who has a stable coin. We're we're Benji has been uh integrated with multiple different stable coins where on these um crypto platforms we announced a partnership with binance we have with okx and uh Kraken and others where you'll be able to convert from your stable coin, into our money market fund and on a Saturday convert out. If you want to leverage it for payment and earn that yield and again because it's on blockchain, we actually pay you that yield in your account every day.
If you're a corporate treasurer.
Jenny Johnson: All that goes away when you have a single source of truth that is updated immediately. So that's where you're gonna have cost savings, which is why I believe it will fundamentally replace all of the rails. There's a lot of toll takers in the system today that will slow that down as much as they can because it threatens their business model. But, you know, water runs downhill, no matter how many obstacles you put in it, it will become very significant. So why the slow adoption? You cannot hold a tokenized product without having what's called a wallet. Okay, now, it's a blockchain wallet. It's merely an encryption key that's your own personal one, but you can't hold any of those...
All that goes away when you have a single source of truth that is updated immediately. So that's where you're gonna have cost savings, which is why I believe it will fundamentally replace all of the rails. There's a lot of toll takers in the system today that will slow that down as much as they can because it threatens their business model. But, you know, water runs downhill, no matter how many obstacles you put in it, it will become very significant. So why the slow adoption? You cannot hold a tokenized product without having what's called a wallet. Okay, now, it's a blockchain wallet. It's merely an encryption key that's your own personal one, but you can't hold any of those...
And you can get use of those funds every day versus acquiring, and waiting for that Capital to be to pay to you at the end of the month, on a money market fund, that's going to be a benefit. Uh and so that's where we think there's an opportunity but Benji's just the beginning of where we think this goes.
In-house. So we got to see that comparison and we did about 50,000 transactions that cost us about a dollar fifty per transaction. Cost us, a dollar 13 to run it total to run those 50,000 transactions on the Stellar blockchain, we picked the right shame. There's a lot that goes into that but it it showed us the dramatic difference in cost. And today if you opened an old money market fund, you need 500 to open up because below that we probably lose money in the other shareholders subsidized you. In the case of blockchain you could open a Benji. If you downloaded the Benji app and uh, open a money market fund, you would, um, you would you only need twenty dollars so we could probably go less than that. So it's cost savings. The second thing is, there's a huge amount of cost in financial services. That's just reconciling data between your own systems and then reconciling with your counterparty all that goes away when you have a single source of truth that is updated immediately. So those that's where you're going to have cost savings, which is why I believe it will fund.
Great. Thanks so much.
Our next question is from the line of Patrick David with autonomous research. Let me just see if there are questions
All right, good morning everyone. Uh, following up on the spent, uh, guide. I, I don't think you've ever talked about the scale of this, third party performance related expenses, you're excluding. So could you give how much that runs each year? And then I think, uh, Matt, you hinted, you have a detailed rundown of next quarter expenses, you can give thank you.
Fundamentally, replace all of the rails. There's a lot of toll takers in the system today that will slow that down as much as they can because it threatens their business model. But, you know, water runs downhill. No matter how many obstacles you put in it, it will, it will become very significant. So why the slow adoption? You cannot hold a tokenized product without having what's called a wallet. Okay, now it's a blockchain wallet, it's merely a...
Jenny Johnson: And in the US in particular, where you didn't have regulatory clarity until the GENIUS Act came in, there was no point in any of these big wealth advisors on the traditional side to even think about it, because it was kind of like the third rail from a regulatory. I can tell you this year, I feel like is completely changed. You now have the large crypto exchanges interested in trying to offer traditional types of funds, ETFs, and others, that would be tokenized. And you have the big traditional managers who are saying, "Can you please educate us on how we access this space? How do we build a wallet? What's required there?" And so I think you're gonna start to see much greater convergence between TradFi and DeFi.
And in the US in particular, where you didn't have regulatory clarity until the GENIUS Act came in, there was no point in any of these big wealth advisors on the traditional side to even think about it, because it was kind of like the third rail from a regulatory. I can tell you this year, I feel like is completely changed. You now have the large crypto exchanges interested in trying to offer traditional types of funds, ETFs, and others, that would be tokenized. And you have the big traditional managers who are saying, "Can you please educate us on how we access this space? How do we build a wallet? What's required there?" And so I think you're gonna start to see much greater convergence between TradFi and DeFi.
Thanks Patrick. That should be the third party piece should be relatively small. I'll, I'll check with the team quickly, okay, just in case but that that was um, that larger
Description key that your own personal one, but you can't hold any of those. And in the US in particular, where you didn't have regulatory clarity until the Genius Act came in, there was no point in any of these big wealth advisors on the traditional side to even think about it, because it was kind of like the third rail from a regulatory— I can tell you,
That larger uh, performance fee that we had to run through uh, GNA last quarter was associated with, um, a large performance fee. We got from bsp and it was for previous, uh, employees. So uh, but I'll, I'll get what that number. Um, could be going going forward in terms of, um, but it'll definitely be smaller. Um, in terms of the, uh, third quarter or sorry, second quarter guide.
Jenny Johnson: We, you know, our tokenized money market fund, what we see is, if anybody's been involved in securities lending, you know that people will move where they- they'll borrow, where they can get the highest, collateral return, even if it's a basis point. Why would you keep their $300 billion in stablecoins? Why would you park your money in a stablecoin that doesn't give you yield, when you could move into a Benji money market fund, earn that yield, and when you wanna do a payment transactions, convert into a stablecoin?
We, you know, our tokenized money market fund, what we see is, if anybody's been involved in securities lending, you know that people will move where they- they'll borrow, where they can get the highest, collateral return, even if it's a basis point. Why would you keep their $300 billion in stablecoins? Why would you park your money in a stablecoin that doesn't give you yield, when you could move into a Benji money market fund, earn that yield, and when you wanna do a payment transactions, convert into a stablecoin?
I already mentioned if uh, we expect it to be in line with this, uh, with this quarter. And as I mentioned, um,
The last 2 quarters. We have some upside uh potential in efr related to potential fundraising in alternative assets.
Jenny Johnson: We think by the end of March, we will have the ability for somebody who has a stablecoin, where Benji has been integrated with multiple different stablecoins, where on these crypto platforms, we announced a partnership with Binance, we have with OKX, Kraken, and others, where you'll be able to convert from your stablecoin into our money market fund, and on a Saturday, convert out if you wanna leverage it for payment and earn that yield. And again, because it's on blockchain, we actually pay you that yield in your account every day. If you're a corporate treasurer, and you can get use of those funds every day versus accruing and waiting for that capital to be paid to you at the end of the month on a money market fund, that's gonna be a benefit.
We think by the end of March, we will have the ability for somebody who has a stablecoin, where Benji has been integrated with multiple different stablecoins, where on these crypto platforms, we announced a partnership with Binance, we have with OKX, Kraken, and others, where you'll be able to convert from your stablecoin into our money market fund, and on a Saturday, convert out if you wanna leverage it for payment and earn that yield. And again, because it's on blockchain, we actually pay you that yield in your account every day. If you're a corporate treasurer, and you can get use of those funds every day versus accruing and waiting for that capital to be paid to you at the end of the month on a money market fund, that's gonna be a benefit.
um, comp and benefits, we expect to be around 860 million, this includes 30 million dollars of calendar year resets, you know, for the 401K payroll salary increases and so on it also assumes 50 million dollars of performance fees and a and a 55%, um,
uh,
performance fee compensation ratio on that. Um,
Have the large crypto exchanges interested in trying to offer traditional types of funds ETFs and others that would be tokenized and you have the big traditional managers who are saying, can you please educate us on how we access the space? How do we build a wallet? What's required there? Uh, and so I think you're going to start to see much greater convergence. So you try to find. Defi we um, you know, our tokenized money market fund. What we see is. If anybody's been able to Securities lending, you know that people will move who they they'll borrow where they can get the highest collateral return. Even if it's a basis point, why would you keep there's 300 billion dollars in stable coins? Why would you park your money in a stable coin? That doesn't give you yield when you could move into a Benji money market fund to earn that yield. And when you want to do a payment transactions convert into a stable coin, we think, by the end of March, we will have the ability for somebody who has a stable coin.
Right. We're we're Benji has been uh integrated with multiple different stable coins where on these um crypto platforms we announced a partnership with binance we have with okx and uh Kraken and others where you'll be able to convert from your stable coin, into our money market fund and on a Saturday convert out. If you want to leverage it for payment and earn that yield and again, because it's on blockchain, we actually pay you that yield in your account every day, if you're a corporate treasurer.
Jenny Johnson: and so that's where we think there's an opportunity, but Benji is just the beginning of where we think this goes.
and so that's where we think there's an opportunity, but Benji is just the beginning of where we think this goes.
And you can get used to those funds every day versus accruing and waiting for that capital to be paid to you at the end of the month. On a money market fund, that's going to be a benefit. Uh, and so that's where we think there's an opportunity, but Benji's just the beginning of where we think this goes.
Michael Cyprys: Great. Thanks so much.
Michael Cyprys: Great. Thanks so much.
Is&t. We expect to be 155 million consistent with last quarter occupancy, 70 million again consistent with, uh, with last quarter. And as we've guided in the past GNA. Um, 190 to 195 again in line with the previous quarter this uh assumes a little bit higher, fundraising expenses and a little bit higher, professional fees. And then the tax rate, um, we guided, uh, last time, uh, for year 26 to 28%, um, we're keeping that guide, but we're now on the lower end of the guide or low to mid, let's say in that guide. So
Great. Thanks so much.
Operator: Our next question is from the line of Patrick Davitt with Autonomous Research. Go ahead and proceed with your question.
Operator: Our next question is from the line of Patrick Davitt with Autonomous Research. Go ahead and proceed with your question.
Patrick Davitt: Hey, good morning, everyone. Following up on the expense guide, I don't think you've ever talked about the scale of this third-party performance-related expenses you're excluding. So could you give how much that runs each year? And then I think, Matt, you hinted you have a detailed rundown of next quarter expenses you can give. Thank you.
Patrick Davitt: Hey, good morning, everyone. Following up on the expense guide, I don't think you've ever talked about the scale of this third-party performance-related expenses you're excluding. So could you give how much that runs each year? And then I think, Matt, you hinted you have a detailed rundown of next quarter expenses you can give. Thank you.
Our next question is from the line of Patrick David with Autonomous Research. Let me just see if there is a question.
All right, good morning everyone. Uh, following up on the expense, uh, guide. I—I don't think you've ever talked about the scale of this, third party performance-related expenses you're excluding. So, could you give how much that runs each year? And then I think, uh, Matt, you hinted you have a detailed rundown of next quarter expenses you can give. Thank you.
Matthew Nicholls: Thanks, Patrick. That should be, the third-party piece should be relatively small. I'll check with the team quickly just in case.
Matthew Nicholls: Thanks, Patrick. That should be, the third-party piece should be relatively small. I'll check with the team quickly just in case. But that was that larger performance fee that we had to run through G&A last quarter was associated with a large performance fee we got from BSP, and it was for previous employees. So, but I'll get what that number could be going forward. In terms of... But it'll definitely be smaller.
Performance piece and the other assumptions we put in the deck. Um, how do we get to the to that guide? Uh, I would add the quarter. I just gave you to the first quarter and you look at the last 2 quarters
Patrick Davitt: Okay.
Matthew Nicholls: But that was that larger performance fee that we had to run through G&A last quarter was associated with a large performance fee we got from BSP, and it was for previous employees. So, but I'll get what that number could be going forward. In terms of... But it'll definitely be smaller.
Thanks, Patrick. That should be—the third party piece should be relatively small. I'll check with the team quickly here just in case, but that was, um, that larger—
Um and uh and just spread the expense savings, over those 2 quarters, we recognize about 20% of the 200 uh in in in the first quarter, uh and we expect uh to spread the rest of it out over the next 3. But there'd be larger amounts of it in the, in the last 2 quarters.
Patrick Davitt: Yeah.
Patrick Davitt: Yeah.
Matthew Nicholls: In terms of the third quarter, or sorry, second quarter guide, I already mentioned, EPR, we expect it to be in line with this, with this quarter. And as I mentioned, the last two quarters, we have some upside potential in EFR related to potential fundraisings in alternative assets. Comp and benefits, we expect to be around $860 million. This includes $30 million of calendar year resets, you know, for the 401(k) payroll, salary increases and so on. It also assumes $50 million of performance fees and a 55% performance fee compensation ratio on that. ISMT, we expect to be $155 million, consistent with last quarter. Occupancy, $70 million, again, consistent with last quarter, and as we've guided in the past.
Matthew Nicholls: In terms of the third quarter, or sorry, second quarter guide, I already mentioned, EPR, we expect it to be in line with this, with this quarter. And as I mentioned, the last two quarters, we have some upside potential in EFR related to potential fundraisings in alternative assets. Comp and benefits, we expect to be around $860 million. This includes $30 million of calendar year resets, you know, for the 401(k) payroll, salary increases and so on. It also assumes $50 million of performance fees and a 55% performance fee compensation ratio on that. ISMT, we expect to be $155 million, consistent with last quarter. Occupancy, $70 million, again, consistent with last quarter, and as we've guided in the past.
Um, and again, we expect to end the year in a very similar expense position as we were to 25.
That larger, uh, performance fee that we had to run through, uh, G&A last quarter was associated with, um, a large performance fee we got from BSP, and it was for, uh, previous, uh, employees. So, uh, but I'll get what that number, um, could be going forward in terms of, um, but it'll definitely be smaller, um, in terms of the, uh, third quarter—or sorry, second quarter, uh, guide I already mentioned, if—are we—
And up. We're standing all the Investments that we've talked about making, uh, in the company and at a higher margin. As I mentioned, when I answered, uh, Alex, Alex's question.
Expected to be in line with this, uh, with this quarter. And as I mentioned, um,
Thank you. Next question, comes from the line of Ben British with Barkley's, please, just you with your questions.
The last two quarters, we have some upside potential in EFR related to potential fundraising in alternative assets.
Um, comp and benefits, we expect to be around $860 million. This includes $30 million of calendar year resets, you know, for the 401(k), payroll, salary increases, and so on. It also assumes $50 million of performance fees, and a 55%. Um, uh,
Hi uh, good morning and thank you for taking the question. Um, I was wondering if you could maybe talk a little bit about the equity flows in the quarter. I know you know, calendar Q4 is typically seasonally stronger, uh, and obviously, there's been a trend of improvement over the last couple of years, but but this quarter looked particularly strong anything, um, unusual or 1 time you to call out or, or did it was it more, you know, broad-based and um, you know, I know it's still a bit earlier in the fiscal year but, you know, any thoughts on how uh, the rest of the Year may shake out? Um, would be helpful. Thank you.
Performance fee compensation ratio on that.
Um,
Matthew Nicholls: G&A, 1.90 to 1.95, again, in line with the previous quarter. This assumes a little bit higher fundraising expenses, and a little bit higher professional fees. And then the tax rate, we guided last time for the year, 26% to 28%. We're keeping that guide, but we're now on the lower end of the guide, or low to mid, let's say, in that guide. So we're bringing the guide down on taxes for the year from the higher end, which I think I said last quarter, to the lower to mid part of that guide. And then really importantly, I just want to reiterate for 2026, 'cause I know you- you'll be calculating back what should...
G&A, 1.90 to 1.95, again, in line with the previous quarter. This assumes a little bit higher fundraising expenses, and a little bit higher professional fees. And then the tax rate, we guided last time for the year, 26% to 28%. We're keeping that guide, but we're now on the lower end of the guide, or low to mid, let's say, in that guide. So we're bringing the guide down on taxes for the year from the higher end, which I think I said last quarter, to the lower to mid part of that guide. And then really importantly, I just want to reiterate for 2026, 'cause I know you- you'll be calculating back what should...
We expect it to be $155 million, consistent with last quarter occupancy; $70 million, again consistent with last quarter. And as we've guided in the past, G&A, $190 to $195 million, again in line with the previous quarter.
I, I'll start, and then, I know, Gail want to jump in. I mean, you know, obviously it's a quarter that you have a strong reinvested, uh, dividends. Um, so that is, is part of the flows, which is, which is important. But I have to tell you, I mean, putham, putham continues to have excellent performance and continues to have very, very strong flows. Um, and and, and honestly, that has the even continued into January. Um, I I want to steal the Thunder here in January hasn't closed yet, but we actually are looking like we will be positive. Uh, net flows, inclusive of Western, which has been a long time since that in January. Now again a caveat that since it hasn't actually closed today but part of that is just been the stripe of putham uh okay I know you want to add
This, uh, assumes, uh, uh, a little bit higher fundraising expenses and a little bit higher professional fees, and then the tax rate—um, we guided, uh, last time, uh, for the year, 26% to 28%. Um, we're keeping that guide, but we're now on the lower end of the guide, or low to mid, let's say, in that guide. So we're bringing the, uh, guide down on top.
Matthew Nicholls: How do we get to the flat expense guide all else equal and excluding performance fees and the other assumptions we put in the deck? How do we get to that guide? I would add the quarter I just gave you to the first quarter and then look at the last two quarters, and just spread the expense savings over those two quarters. We recognized about 20% of the $200 million in the first quarter. And we expect to spread the rest of it out over the next three, but there'd be larger amounts of it in the last two quarters.
How do we get to the flat expense guide all else equal and excluding performance fees and the other assumptions we put in the deck? How do we get to that guide? I would add the quarter I just gave you to the first quarter and then look at the last two quarters, and just spread the expense savings over those two quarters. We recognized about 20% of the $200 million in the first quarter. And we expect to spread the rest of it out over the next three, but there'd be larger amounts of it in the last two quarters. And again, we expect to end the year in a very similar expense position as we were to 2025, and notwithstanding all the investments that we've talked about making in the company and at a higher margin, as I mentioned when I answered Alex's question.
In the deck—um, how do we get to that guide? Uh, I would add the quarter I just gave you to the first quarter, and you look at the last two quarters.
I I think it's a, I think you, you got it. I will say, It's a combination of padnam clearly on Lasha value, on Research. Also, on Emerging Markets, we got some, um, institutional flows from our temple on Mari markets capability, which is very, very encouraging. And I will also say um our ETF franchise had excellent results, especially on the active ETFs, which is also a combination of the results from our boss on Affiliates. But also a couple of clear, breach fans, did also very well on on that and the momentous continue to be. We on
Yes, we had a great quarter, 75% of the quarter was on active ETFs. So it's it's continued to actually show that that that's where the industry is going. And we have we have a very ambitious plan to continue that growth.
Matthew Nicholls: And again, we expect to end the year in a very similar expense position as we were to 2025, and notwithstanding all the investments that we've talked about making in the company and at a higher margin, as I mentioned when I answered Alex's question.
Um and uh and just spread the expense savings, over those 2 quarters, we recognize about 20% of the 200 uh in in in the first quarter, uh and we expect uh to spread the rest of it out over the next 3. But there'd be larger amounts of it in the, in the last 2 quarters.
All right. Thank you very much.
Um, and again, we expect to end the year in a very similar expense position as we were to '25.
Thank you. Our next question is from the line of Bill cats with TDC please. See if there are questions
And up, withstanding all the investments that we've talked about making in the company, and at a higher margin. As I mentioned when I answered Alex's question.
Operator: Thank you. The next question comes from the line of Ben Budish with Barclays. Please proceed with your question.
Operator: Thank you. The next question comes from the line of Ben Budish with Barclays. Please proceed with your question.
Benjamin Budish: Hi, good morning, and thank you for taking the question. I was wondering if you could maybe talk a little bit about the equity flows in the quarter. I know, you know, calendar Q4 is typically seasonally stronger, and obviously there's been a trend of improvement over the last couple of years, but this quarter looked particularly strong. Anything unusual or one-time you had to call out, or was it more, you know, broad-based? And, you know, I know it's still a bit earlier in the fiscal year, but, you know, any thoughts on how the rest of the year may shake out would be helpful. Thank you.
Benjamin Budish: Hi, good morning, and thank you for taking the question. I was wondering if you could maybe talk a little bit about the equity flows in the quarter. I know, you know, calendar Q4 is typically seasonally stronger, and obviously there's been a trend of improvement over the last couple of years, but this quarter looked particularly strong. Anything unusual or one-time you had to call out, or was it more, you know, broad-based? And, you know, I know it's still a bit earlier in the fiscal year, but, you know, any thoughts on how the rest of the year may shake out would be helpful. Thank you.
Thank you. Next question comes from the line of Ben British with Barclays. Please, just you with your question.
Jenny Johnson: I'll start, and then I know Daniel will want to jump in. I mean, you know, obviously it's a quarter that you have strong reinvested dividends, so that is part of the flows which is important. But I have to tell you, I mean, Putnam continues to have excellent performance and continues to have very, very strong flows. And honestly, that has even continued into January. I don't want to steal the thunder here, but and January hasn't closed yet, but we actually are looking like we will be positive net flows, inclusive of Western, which has been a long time since that in January. Now, again, I caveat that, since it hasn't actually closed today, but part of that has just been the strength of Putnam. Daniel, you want to add?
Great. Thanks for taking the extra question, just a couple cleanups for me. Um, 1. Can you just remind us what the, uh, variable expense is against net asset value. I think about the incremental margin on Market action. Uh, number 2, um, maybe just on the wamco side having to ask about this in a while, but it seems like volumes there, uh, are stabilizing how our conversations progressing, uh, with the investment Community, given that some without all the overhang with the regulatory investigation is sort of winding down. And then, uh, finally, I was wondering if you could talk a little bit about broadly, you mentioned that, um, Lexington was not in this roster as a quarter. How do we think about maybe the, the pace of opportunity on Lexington? And maybe broadly, where you see the big opportunities for growth in 20 fiscal 26. Thank you.
Jenny Johnson: I'll start, and then I know Daniel will want to jump in. I mean, you know, obviously it's a quarter that you have strong reinvested dividends, so that is part of the flows which is important. But I have to tell you, I mean, Putnam continues to have excellent performance and continues to have very, very strong flows. And honestly, that has even continued into January. I don't want to steal the thunder here, but and January hasn't closed yet, but we actually are looking like we will be positive net flows, inclusive of Western, which has been a long time since that in January. Now, again, I caveat that, since it hasn't actually closed today, but part of that has just been the strength of Putnam. Daniel, you want to add?
Hi uh, good morning and thank you for taking the question. Um, I was wondering if you could maybe talk a little bit about the equity flows in the quarter. I know you know, calendar Q4 is typically seasonally stronger, uh, and obviously, there's been a trend of improvement over the last couple of years, but but this quarter looked particularly strong anything, um, unusual, or 1 time me to call out or, or does it was it more, you know, broad-based and um, you know, I know it's still a little bit earlier in the fiscal year but, you know, any thoughts on how uh, the rest of the Year may shake out? Um, would be helpful. Thank you.
Great. So I'll take the Western alts and then I'll turn it back to Matt on the, uh, on the very little extensors. So, just 1 on Western. I mean, it it helped a lot obviously, uh, you know, the doj came out and said that they're not going to pursue criminal charges and it will be uh, resolved through a disposition and acknowledge. I think this was also important that the additional time needed was not, uh, due
Daniel Gamba: I think it's, I think you got it. I will say it's a combination of Putnam, clearly on large cap value, on research, also on emerging markets. We got some institutional flows from our Templeton emerging markets capability, which is very, very encouraging. And I will also say our ETF franchise had excellent results, especially on the active ETFs, which is also a combination of the results from our Boston affiliate, but also a couple of ClearBridge funds did also very well on that. And the momentum continues to be on ETFs, we had a great quarter.
I'll, I'll start. And then, I know Daniel want to jump in, I mean, you know, obviously, it's a quarter that you have a strong reinvested, uh, dividends. Um, so that is, is part of the flows, which is, which is important. But I have to tell you, I mean, putham, putham continues to have excellent performance and continues to have very, very strong flows. Um, and, and honestly, that has the even continued into January, um, I I don't want to steal the Thunder here in January hasn't closed yet, but we actually are looking like we will be positive. Uh, net flows, inclusive of Western, which has been a long time since that in January. Now, again a caveat that since it hasn't actually closed today. But part of that is just been the strength of putham uh do I know you want to add?
Daniel Gamba: I think it's, I think you got it. I will say it's a combination of Putnam, clearly on large cap value, on research, also on emerging markets. We got some institutional flows from our Templeton emerging markets capability, which is very, very encouraging. And I will also say our ETF franchise had excellent results, especially on the active ETFs, which is also a combination of the results from our Boston affiliate, but also a couple of ClearBridge funds did also very well on that. And the momentum continues to be on ETFs, we had a great quarter. 75% of the quarter was on active ETFs, so it's continued to actually show that that's where the industry is going, and we have a very ambitious plan to continue that growth.
Uh with clients that is um that essentially is calm them a bit. I mean we did while they're still in outflows, they did have I think it was 6.6 billion in gross sales in uh in in the last quarter. So there's obviously a clients that are still allocating to Western
I I think it's a, I think you you got it. I will say It's a combination of Pam clearly on Lasha value, on Research. Also on Emerging Markets, we got some um, institutional flows from our Templeton Mar markets capability which is very very encouraging. And I will also say um our ETF franchise had excellent results. Especially on the active ETFs, which is also a combination of the results from our boss and Affiliates, but also a couple of clear, breach fans, did also very well on on that and the momentous continue to be we on it.
Daniel Gamba: 75% of the quarter was on active ETFs, so it's continued to actually show that that's where the industry is going, and we have a very ambitious plan to continue that growth.
Benjamin Budish: All right. Thank you very much.
Benjamin Budish: All right. Thank you very much.
Yes, we had a great quarter. Seventy-five percent of the quarter was on active ETFs, so it's continued to actually show that that's where the industry is going. And we have a very ambitious plan to continue that growth.
All right. Thank you very much.
Operator: Thank you. Our next question is from the line of Bill Katz with TD Cowen. Please proceed with your question.
Operator: Thank you. Our next question is from the line of Bill Katz with TD Cowen. Please proceed with your question.
Thank you.
Bill Katz: Great, thanks for taking the extra question. Just a couple cleanups for me. One, can you just remind us what the variable expense is against net asset value? We're having about the incremental margin on market action. Number two, maybe just on the WAMCO side, I haven't asked about this in a while, but it seems like volumes there are stabilizing. How are conversations progressing with the investment community, given that some, but not all, the overhang with the regulatory investigation is sort of winding down? And then, finally, I was wondering if you could talk a little bit about broadly, you mentioned that Lexington was not in this most recent quarter. How do we think about maybe the pace of opportunity on Lexington and maybe broadly, where you see the big opportunities for growth in fiscal 2026?
Bill Katz: Great, thanks for taking the extra question. Just a couple cleanups for me. One, can you just remind us what the variable expense is against net asset value? We're having about the incremental margin on market action. Number two, maybe just on the WAMCO side, I haven't asked about this in a while, but it seems like volumes there are stabilizing. How are conversations progressing with the investment community, given that some, but not all, the overhang with the regulatory investigation is sort of winding down? And then, finally, I was wondering if you could talk a little bit about broadly, you mentioned that Lexington was not in this most recent quarter. How do we think about maybe the pace of opportunity on Lexington and maybe broadly, where you see the big opportunities for growth in fiscal 2026? Thank you.
Questions from the line of Bill Hats with TD Cowen. Please see if there are questions.
Um with respect to alts, you know as as Matt said so we had a very strong quarter you know, our Target for the year is 25 to 30. We're going to it's you know still still early. So we're going to maintain that Target. But obviously at 9.5 billion coming in to uh the private markets and that is across all private credit, secondaries real estate and Venture so it's nice and diverse a little over half of it is in the private credit area. None of it was Lexington's Flagship fund 11. Uh Lexington did have uh you know it was a combination of 8 code vests. Flexible Market. There were over 33 vehicles that had influence in our private markets this quarter. Um so or so you know tells you it's it's really broadly distributed which for us is exciting. Um Lex Flagship fund 10 or active or 11 or actively fundraising in the market right now. Um, you know, their target is to be about where they were on their last fun.
On. Um, they they would expect a first close this this year, uh, but you know, it'll depend
Bill Katz: Thank you.
Jenny Johnson: Great. So I'll take the Western Asset, and then I'll turn it back to Matt on the, on the variable expense there. So just one on Western. I mean, it helped a lot, obviously. You know, the DOJ came out and said that they're not gonna pursue criminal charges, and it'll be resolved through a disposition and acknowledged, I think this was also important, that the additional time needed was not due to Western. So I think that gave clients a little bit of a breather of an uncertainty. And, you know, you have the benefit, the investment team is incredibly stable. They have very, very good performance. We've been integrating the corporate functions. We've been integrating the institutional sales and the client service. That's going very well.
Jenny Johnson: Great. So I'll take the Western Asset, and then I'll turn it back to Matt on the, on the variable expense there. So just one on Western. I mean, it helped a lot, obviously. You know, the DOJ came out and said that they're not gonna pursue criminal charges, and it'll be resolved through a disposition and acknowledged, I think this was also important, that the additional time needed was not due to Western. So I think that gave clients a little bit of a breather of an uncertainty. And, you know, you have the benefit, the investment team is incredibly stable. They have very, very good performance. We've been integrating the corporate functions. We've been integrating the institutional sales and the client service. That's going very well.
Great. Thanks for taking the extra question, just a couple cleanups for me. Um, 1. Can you just remind us of what the uh, variable expenses against net asset value, or I think about the incremental margin on Market action. Uh, number 2, um, maybe just on the wamco side, having to ask about this in a while, but it seems like volumes there. Uh, are stabilizing how our conversations progressing, uh, with the investment Community, given that some but not all the overhang with the regulatory investigation is sort of winding down and then, uh, finally, I was wondering if you could talk a little bit about broadly, you mentioned that, um, Lexington was not in this most recent quarter. How do we think about maybe the, the pace of opportunity on Lexington? And maybe broadly, where you see the big opportunities for growth in 20 fiscal 26. Thank you.
Secondary continues to be just a great space to be last year, was a record number in secondaries transactions. Um, Lexington is considered 1 of the trustist, uh, trusted and long-term partners with experience, and they're not affiliated to any single PE firm, so that also gives them an advantage. Um, so they're, they're having very good strong conversations but we're pleased to see the extent of of inflows and growth even without the Lexington Flagship fund so Matt and I'll turn it over to you to get from the last part of that.
Great. So I'll take the Western alt and then I'll turn it back to Matt on the, uh, on the variable expenses. So, just one on Western—I mean, it helped a lot, obviously. You know, the DOJ came out and said that they're not going to pursue criminal charges and it'll be, uh, resolved through a disposition and acknowledgment. I think this was also important, that the additional time needed was not, uh, due—
Jenny Johnson: And so I think that, with clients that is, that essentially has calmed them a bit. I mean, we did, while they're still in outflows, they did have I think it was $6.6 billion in gross sales in the last quarter. So there's obviously clients that are still allocating to Western. With respect to alts, you know, as Matt said, so we had a very strong quarter. You know, our target for the year is 25 to 30. We're gonna it's, you know, still early, so we're gonna maintain that target, but obviously at $9.5 billion coming into the private markets, and that is across all private credit, secondaries, real estate, and venture. So it's nice and diverse. A little over half of it is in the private credit area.
And so I think that, with clients that is, that essentially has calmed them a bit. I mean, we did, while they're still in outflows, they did have I think it was $6.6 billion in gross sales in the last quarter. So there's obviously clients that are still allocating to Western. With respect to alts, you know, as Matt said, so we had a very strong quarter. You know, our target for the year is 25 to 30. We're gonna it's, you know, still early, so we're gonna maintain that target, but obviously at $9.5 billion coming into the private markets, and that is across all private credit, secondaries, real estate, and venture. So it's nice and diverse. A little over half of it is in the private credit area.
Sure, thanks, thanks Jenny. Um, so bill on the variable question about 30 between 35 and 40% of our expenses are variable and I'm sorry, I didn't address the, I remembered you all set this question at the end of your previous, uh, question. Um, where you said, if the market goes down, do we have flexibility in our expense base? The answer is, yes, we always have variability in our expense space and you bet the market goes, goes goes down. So that's the answer to that. And, and, and then to answer, uh, another expense question that Patrick had Patrick just to, um, uh, make sure I fully answer your question as it relates to the geography of performance fee related compensation. Um, first of all, we would always uh,
Jenny Johnson: None of it was Lexington's flagship fund eleven. Lexington did have, you know, it was a combination of Vsco, Invest, Flex, Middle Market. There were over 33 vehicles that had inflows in our private markets this quarter. So, you know, it tells you it's really broadly distributed, which for us is exciting. Lex Flagship Fund 10 or 11, they're actively fundraising in the market right now. You know, their target is to be about where they were on their last fund. They would expect to first close this year, but, you know, it'll depend. The secondaries continues to be just a great space to be. Last year was a record number in secondaries transactions.
None of it was Lexington's flagship fund eleven. Lexington did have, you know, it was a combination of Vsco, Invest, Flex, Middle Market. There were over 33 vehicles that had inflows in our private markets this quarter. So, you know, it tells you it's really broadly distributed, which for us is exciting. Lex Flagship Fund 10 or 11, they're actively fundraising in the market right now. You know, their target is to be about where they were on their last fund. They would expect to first close this year, but, you know, it'll depend. The secondaries continues to be just a great space to be. Last year was a record number in secondaries transactions.
Guide to apply 55% to the number of performance fee, uh, overall. So 55% is the correct application. Whether it's in our compensation line, or the GNA line. And we do, as I mentioned, uh, the answer to the question initially, we expect that number to be quite low. In the GNA segment, the GNA segment is just literally, for former employees, that where we have to where we're paying a, um, a, uh, you know, a portion of the compensation out that they owned. But that's, that's the minimum at this. At this point, it was just larger that 1 quarter. I think it was 24 million to be specific the last quarter. And, and uh, that was because it was a, a large order fund, um, that has a number of folks that are no longer at the retired, from the company that had interests, uh, in the performance piece.
Thank you. Thank you. This concludes this Q&A session. I'd now, like, to hand the call back over to, Jenny Johnson, Franklin's, president, and CEO for final comments.
Okay. Well I'd like to thank everybody for participating in today's call and more importantly. Once again, would like to thank our employees for their hard work and dedication to delivering this strong quarter and we look forward to speaking with all of you again next quarter. Thanks everybody.
You know tells you it's it's really broadly distributed which for us is exciting. Um, Lex Flagship fund 10. They're active or 11, they're actively fundraising in the market right now. Um, you know, their target is to be about where they were on their last fund. Um, you they they would expect a first close this this year, uh, but you know, it'll depend
Jenny Johnson: Lexington is considered one of the trusted and long-term partners with experience, and they're not affiliated to any single PE firm, so that also gives them an advantage. So they're having very good, strong conversations, but we're pleased to see the extent of inflows and growth even without the Lexington Flagship Fund. So Matt, and I'll turn it over to you again for the last part of that.
Lexington is considered one of the trusted and long-term partners with experience, and they're not affiliated to any single PE firm, so that also gives them an advantage. So they're having very good, strong conversations, but we're pleased to see the extent of inflows and growth even without the Lexington Flagship Fund. So Matt, and I'll turn it over to you again for the last part of that.
Matthew Nicholls: Sure. Thanks. Thanks, Jenny. So Bill, on the variable question, between 35 and 40 percent of our expenses are variable. And I'm sorry, I didn't address the... I remembered you asked that, this question at the end of your previous question, where you said, "If the market goes down, do we have flexibility in our expense base?" The answer is yes. We always have variability in our expense base in the event the market goes down. So that's the answer to that. And then to answer another expense question that Patrick had. Patrick, just to make sure I fully answer your question. As it relates to the geography of performance fee-related compensation, first of all, we would always guide to apply 55 percent to the number of performance fee overall.
Matthew Nicholls: Sure. Thanks. Thanks, Jenny. So Bill, on the variable question, between 35 and 40 percent of our expenses are variable. And I'm sorry, I didn't address the... I remembered you asked that, this question at the end of your previous question, where you said, "If the market goes down, do we have flexibility in our expense base?" The answer is yes. We always have variability in our expense base in the event the market goes down. So that's the answer to that. And then to answer another expense question that Patrick had. Patrick, just to make sure I fully answer your question. As it relates to the geography of performance fee-related compensation, first of all, we would always guide to apply 55 percent to the number of performance fee overall.
Secondaries continues to be just a great space to be last year, was a record number in secondary transactions. Um, Lexington is considered 1 of the trustist, uh, trusted and long-term partners with experience, and they're not affiliated to any single PE firm, so that also gives them an advantage. Um, so they're, they're having very good strong conversations but we're pleased to see the extent of of inflows and growth even without the Lexington Flagship fund so Matt and I'll turn it over to you to get from the last part of that.
Matthew Nicholls: So 55 percent is the correct application, whether it's in our compensation line or the G&A line. And we do, as I mentioned, in the answer to the question initially, we expect that number to be quite low in the G&A segment. The G&A segment is just literally for former employees that where we have to where we're paying a, you know, a portion of the compensation out that they owned, but that's, that's de minimis at this, at this point. It was just larger, that one quarter. I think it was $24 million, to be specific, last quarter. And, that was because it was a large older fund, that had a number of folks that are no longer, they're retired from the company that had interest, in the performance fees.
So 55 percent is the correct application, whether it's in our compensation line or the G&A line. And we do, as I mentioned, in the answer to the question initially, we expect that number to be quite low in the G&A segment. The G&A segment is just literally for former employees that where we have to where we're paying a, you know, a portion of the compensation out that they owned, but that's, that's de minimis at this, at this point. It was just larger, that one quarter. I think it was $24 million, to be specific, last quarter. And, that was because it was a large older fund, that had a number of folks that are no longer, they're retired from the company that had interest, in the performance fees.
Sure, thanks, thanks Jenny. Um, so bill on the variable question about 30 between 35 and 40% of our expenses are variable and I'm sorry, I didn't address the, I remembered you all set this question at the end of your previous, uh, question. Um, where you said, if the market goes down, do we have flexibility in our expense base? The answer is, yes, we always have variability in our expense space and the event, the market goes, goes, goes down. So that's the answer to that. And, and, and then to answer, uh, another expense question that Patrick had Patrick just to, um, uh, make sure I fully answer your question as it relates to the geography of performance fee related compensation. Um, first of all, we would always, uh, guide to apply 55% to the number of performance fee, uh, overall. So 55% is the correct application. Whether it's in,
Our compensation line, or the G&A line. And we do, as I mentioned, uh, the answer to the question initially, we expect that number to be quite low. In the G&A segment, the G&A segment is just literally for former employees, where we have to—where we're paying a, um, a, uh, you know, a portion of the compensation out that they owned. But that's, that's the minimums at this—at this point, it was just larger that one quarter. I think it was $24 million, to be specific, the last quarter. And, uh, that was because it was a, a large order fund, um, that has a number of folks that are no longer at the company, that retired from the company, that had interests, uh, in the performance piece.
Operator: Thank you. This concludes today's Q&A session. I'd now like to hand the call back over to Jenny Johnson, Franklin's President and CEO, for final comments.
Operator: Thank you. This concludes today's Q&A session. I'd now like to hand the call back over to Jenny Johnson, Franklin's President and CEO, for final comments.
Thank you. Thank you.
Jenny Johnson: Great. Well, I'd like to thank everybody for participating in today's call, and more importantly, once again, would like to thank our employees for their hard work and dedication to delivering this strong quarter. We look forward to speaking with all of you again next quarter. Thanks, everybody.
Jenny Johnson: Great. Well, I'd like to thank everybody for participating in today's call, and more importantly, once again, would like to thank our employees for their hard work and dedication to delivering this strong quarter. We look forward to speaking with all of you again next quarter. Thanks, everybody.
This concludes this Q&A session, and I'll have to hand the call back over to Jennifer Johnson, Franklin's President and CEO, for final comments.
Operator: Thank you. This concludes today's conference call. You may now disconnect.
Operator: Thank you. This concludes today's conference call. You may now disconnect.
Great. Well, I'd like to thank everybody for participating in today's call, and more importantly, once again, would like to thank our employees for their hard work and dedication to delivering this strong quarter. We look forward to speaking with all of you again next quarter. Thanks, everybody.
Thank you. This concludes today's conference call. You may now disconnect.
