Q2 2026 Franklin Resources Inc Earnings Call

April 28, 2026

Operator 2: Welcome to Franklin Resources Earnings Conference Call for the quarter ended 31 March 2026. Hello, my name is Nicole and I will be your call operator today. As a reminder, this conference is being recorded, and at this time, all participants are in a listen-only mode. I would now like to turn the conference over to your host, Selene Oh, Head of Investor Relations for Franklin Resources. You may begin.

Operator: Welcome to Franklin Resources Earnings Conference Call for the quarter ended 31 March 2026. Hello, my name is Nicole and I will be your call operator today. As a reminder, this conference is being recorded, and at this time, all participants are in a listen-only mode. I would now like to turn the conference over to your host, Selene Oh, Head of Investor Relations for Franklin Resources. You may begin.

Speaker #2: As a reminder, this conference is being recorded and at this time all participants are in a listen-only mode. I would now like to turn the conference over to your host, Selene Oh, Head of Investor Relations for FRANKLIN RESOURCES.

Speaker #2: You may begin. 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.

Selene Oh: Good morning. 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 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.

Speaker #2: 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.

Speaker #2: These and other risks, uncertainties, and other important factors are described in more detail in FRANKLIN's recent filings with the Securities and Exchange Commission, including in the risk factors and the MDNA sections of FRANKLIN's most recent Form 10-K and 10-Q filings.

Speaker #2: Now, I'd like to turn the call over to Jenny Johnson, our Chief Executive Officer.

Speaker #3: Thank you, Selene. Welcome, everyone, and thank you for joining us today to review FRANKLIN Templeton's second fiscal quarter results. I'm joined by Matt Nicholls, Co-President and CFO, and Daniel Gamba, Co-President and Chief Commercial Officer.

Jennifer Johnson: Thank you, Selene. Welcome, everyone, thank you for joining us today to review Franklin Templeton's Q2 results. I'm joined by Matthew Nicholls, Co-President and CFO, and Daniel Gamba, Co-President and Chief Commercial Officer. We'll take your questions shortly, first I'll highlight key results and themes shaping our business. This was an excellent quarter for Franklin Templeton, with $16.9 billion in long-term net inflows across public and private markets, reflecting the strength and breadth of our diversified global platform. We delivered record gross sales and generated positive long-term net flows in every region, reflecting sustained client demand and strong local engagement. Importantly, each of our key growth drivers, private markets, retail SMAs and Canvas, which is our customization platform, and ETFs and solutions, contributed meaningfully to these results. This quarter is a clear example of the power of our multi-year strategy in action.

Jenny Johnson: Thank you, Selene. Welcome, everyone, thank you for joining us today to review Franklin Templeton's Q2 results. I'm joined by Matt Nicholls, Co-President and CFO, and Daniel Gamba, Co-President and Chief Commercial Officer. We'll take your questions shortly, first I'll highlight key results and themes shaping our business. This was an excellent quarter for Franklin Templeton, with $16.9 billion in long-term net inflows across public and private markets, reflecting the strength and breadth of our diversified global platform. We delivered record gross sales and generated positive long-term net flows in every region, reflecting sustained client demand and strong local engagement. Importantly, each of our key growth drivers, private markets, retail SMAs and Canvas, which is our customization platform, and ETFs and solutions, contributed meaningfully to these results. This quarter is a clear example of the power of our multi-year strategy in action.

Speaker #3: We'll take your questions shortly, but first I'll highlight key results and themes shaping our business. This was an excellent quarter for Franklin Templeton, with $16.9 billion in long-term net inflows across public and private markets, reflecting the strength and breadth of our diversified global platform.

Speaker #3: We delivered record gross sales and generated positive long-term net flows in every region, reflecting sustained client demand and strong local engagement. Importantly, each of our key growth drivers—private markets, retail SMAs and Canvas—which is our customization platform, ETFs, and solutions—contributed meaningfully to these results.

Speaker #3: This quarter is a clear example of the power of our multi-year strategy in action. We are ahead of our five-year plan and remained focused on delivering strong investment outcomes deepening client relationships and continuing to evolve our capabilities to drive sustainable long-term growth for our clients and shareholders.

Jennifer Johnson: We are ahead of our five-year plan and remained focused on delivering strong investment outcomes, deepening client relationships, and continuing to evolve our capabilities to drive sustainable long-term growth for our clients and shareholders. In my travels meeting clients around the world, one message is consistent: Our clients look to Franklin Templeton as their trusted partner for what's ahead. One firm offering the reach and resilience of a global platform together with the distinct expertise of our investment groups. As client expectations continue to evolve and more asset owners seek multifaceted partnerships with fewer firms that can deliver across asset classes, styles, and regions. We believe our business is well-suited to meet that demand. We are seeing a clear structural shift in how clients allocate capital and choose partners, including increased demand for vehicles such as active ETFs, customization, and tax-managed solutions.

Jenny Johnson: We are ahead of our five-year plan and remained focused on delivering strong investment outcomes, deepening client relationships, and continuing to evolve our capabilities to drive sustainable long-term growth for our clients and shareholders. In my travels meeting clients around the world, one message is consistent: Our clients look to Franklin Templeton as their trusted partner for what's ahead. One firm offering the reach and resilience of a global platform together with the distinct expertise of our investment groups. As client expectations continue to evolve and more asset owners seek multifaceted partnerships with fewer firms that can deliver across asset classes, styles, and regions. We believe our business is well-suited to meet that demand. We are seeing a clear structural shift in how clients allocate capital and choose partners, including increased demand for vehicles such as active ETFs, customization, and tax-managed solutions.

Speaker #3: In my travels meeting clients around the world, one message is consistent: our clients look to FRANKLIN Templeton as their trusted partner for what's ahead.

Speaker #3: One firm, offering the reach, resilience, of a global platform together with a distinct expertise of our investment groups. As client expectations continue to evolve and more asset owners seek multifaceted partnerships with fewer firms that can deliver across asset classes, styles, and regions, we believe our business is well-suited to meet that demand.

Speaker #3: We are seeing a clear structural shift in how clients allocate capital and choose partners, including increased demand for vehicles such as active ETFs, customization, and tax-managed solutions.

Speaker #3: Clients are prioritizing firms that can deliver across public and private markets, offer global consistency, in how they invest and operate, and bring together capabilities into comprehensive outcome-oriented solutions.

Jennifer Johnson: Clients are prioritizing firms that can deliver across public and private markets, offer global consistency in how they invest and operate, and bring together capabilities into comprehensive outcome-oriented solutions. This is not a short-term reaction to market conditions. It reflects a more fundamental change in expectations, where scale, breadth of capabilities, and the ability to deliver them in an integrated way are increasingly defining competitive advantage. Against this backdrop, we remain focused on executing as one Franklin Templeton. This means bringing together our strengths as investment specialists, innovation drivers, thought leaders, and strategic partners seamlessly in every client interaction. To that end, we continue to simplify our go-to-market approach to better serve clients and capture opportunities across the business. Ultimately, our strategy is centered on helping clients achieve better outcomes by staying focused on performance, solutions, and partnership.

Jenny Johnson: Clients are prioritizing firms that can deliver across public and private markets, offer global consistency in how they invest and operate, and bring together capabilities into comprehensive outcome-oriented solutions. This is not a short-term reaction to market conditions. It reflects a more fundamental change in expectations, where scale, breadth of capabilities, and the ability to deliver them in an integrated way are increasingly defining competitive advantage. Against this backdrop, we remain focused on executing as one Franklin Templeton. This means bringing together our strengths as investment specialists, innovation drivers, thought leaders, and strategic partners seamlessly in every client interaction. To that end, we continue to simplify our go-to-market approach to better serve clients and capture opportunities across the business. Ultimately, our strategy is centered on helping clients achieve better outcomes by staying focused on performance, solutions, and partnership.

Speaker #3: This is not a short-term reaction to market conditions. It reflects a more fundamental change in expectations where scale, breadth of capabilities, and the ability to deliver them in an integrated way are increasingly defining competitive advantage.

Speaker #3: Against this backdrop, we remain focused on executing as one FRANKLIN Templeton. This means bringing together our strengths as investment specialists innovation drivers, thought leaders, and strategic partners seamlessly in every client interaction.

Speaker #3: To that end, we continue to simplify our go-to-market approach to better serve clients and capture opportunities across the business. Ultimately, our strategy is centered on helping clients achieve better outcomes by staying focused on performance, solutions, and partnership.

Speaker #3: We are continuing to build a business that is more resilient and more relevant and positioned to deliver long-term value for our clients and shareholders.

Jennifer Johnson: We are continuing to build a business that is more resilient, more relevant, and positioned to deliver long-term value for our clients and shareholders. Now turning to our results. This quarter marks another step forward in the successful execution of our strategy and reflects the growth potential of our business. We delivered another consecutive quarter of positive long-term net flows of $16.9 billion, driven by multiple diversified investment groups with continued progress across our key areas of investment and growth. This momentum is reflected in long-term inflows of $118 billion, up 28% quarter over quarter and 38% over the prior year quarter, excluding reinvested distributions. Gross sales increased across all asset classes, highlighting the strength of our global distribution platform and the progress we are making across the business.

Jenny Johnson: We are continuing to build a business that is more resilient, more relevant, and positioned to deliver long-term value for our clients and shareholders. Now turning to our results. This quarter marks another step forward in the successful execution of our strategy and reflects the growth potential of our business. We delivered another consecutive quarter of positive long-term net flows of $16.9 billion, driven by multiple diversified investment groups with continued progress across our key areas of investment and growth. This momentum is reflected in long-term inflows of $118 billion, up 28% quarter over quarter and 38% over the prior year quarter, excluding reinvested distributions. Gross sales increased across all asset classes, highlighting the strength of our global distribution platform and the progress we are making across the business.

Speaker #3: Now, turning to our results, this quarter marks another step forward in the successful execution of our strategy and reflects the growth potential of our business.

Speaker #3: We delivered another consecutive quarter of positive, long-term net flows of 16.9 billion, driven by multiple diversified investment groups with continued progress across our key areas of investment and growth.

Speaker #3: This momentum is reflected in long-term inflows of 118 billion, up 28% quarter over quarter, and 38% over the prior year quarter, excluding reinvested distributions.

Speaker #3: Gross sales increased across all asset classes, highlighting the strength of our global distribution platform and the progress we are making across the business. Looking ahead, our institutional pipeline of one-but-unfunded mandates remained strong at $20.2 billion, consistent with the prior quarter, supported by steady funding rates and ongoing replenishment from new wins.

Jennifer Johnson: Looking ahead, our institutional pipeline of won but unfunded mandates remained strong at $20.2 billion, consistent with the prior quarter, supported by steady funding rates and ongoing replenishment from new wins. Our assets under management of $1.68 trillion remains well-diversified across asset classes, client segments, regions, and investment groups. Public markets continue to be a core strength and an important driver of growth. Multi-asset AUM stands at $207 billion and generated $9.5 billion in positive net flows, marking our 19th consecutive quarter of positive flows in that asset class. These results reflect growing client demand for outcome-oriented comprehensive solutions that span public and private markets. Across equities, net outflows were $4.7 billion. Investor activity remained selective. We saw positive net flows across large cap value and core, systematic, single country ETFs, and infrastructure and sector strategies.

Jenny Johnson: Looking ahead, our institutional pipeline of won but unfunded mandates remained strong at $20.2 billion, consistent with the prior quarter, supported by steady funding rates and ongoing replenishment from new wins. Our assets under management of $1.68 trillion remains well-diversified across asset classes, client segments, regions, and investment groups. Public markets continue to be a core strength and an important driver of growth. Multi-asset AUM stands at $207 billion and generated $9.5 billion in positive net flows, marking our 19th consecutive quarter of positive flows in that asset class. These results reflect growing client demand for outcome-oriented comprehensive solutions that span public and private markets. Across equities, net outflows were $4.7 billion. Investor activity remained selective. We saw positive net flows across large cap value and core, systematic, single country ETFs, and infrastructure and sector strategies.

Speaker #3: Our assets under management of 1.68 trillion remains well-diversified across asset classes, client segments, regions, and investment groups. Public markets continue to be a core strength and an important driver of growth.

Speaker #3: Multi-asset AUM stands at 207 billion, and generated 9.5 billion in positive net flows, marking our 19th consecutive quarter of positive flows in that asset class.

Speaker #3: These results reflect growing client demand for outcome-oriented, comprehensive solutions that span public and private markets. Across equities, net outflows were 4.7 billion, investor activity remained selective, and we saw positive net flows across large-cap value and core systematic and single-country ETFs infrastructure and sector strategies.

Speaker #3: In fixed income, net outflows were approximately 300 million during the quarter. However, excluding Western, fixed income flows were positive, 3.6 billion, marking a ninth consecutive quarter of positive long-term net flows.

Jennifer Johnson: In fixed income, net outflows were approximately $300 million during the quarter. Excluding Western Asset, fixed-income flows were +$3.6 billion, marking a ninth consecutive quarter of positive long-term net flows. Momentum continued in multi-sector munis, stable value, and global fixed income strategies. Turning to alternatives, Franklin Templeton is a leading manager of alternative assets with $283 billion in alternative AUM. Our breadth and scale continue to position us as a partner of choice for clients seeking differentiated sources of return and access to private markets. We fundraised $14.3 billion in alternatives this quarter, including $13.2 billion in private market assets, which was diversified across alternative credit, secondary private equity, real estate, and venture strategies.

Jenny Johnson: In fixed income, net outflows were approximately $300 million during the quarter. Excluding Western Asset, fixed-income flows were +$3.6 billion, marking a ninth consecutive quarter of positive long-term net flows. Momentum continued in multi-sector munis, stable value, and global fixed income strategies. Turning to alternatives, Franklin Templeton is a leading manager of alternative assets with $283 billion in alternative AUM. Our breadth and scale continue to position us as a partner of choice for clients seeking differentiated sources of return and access to private markets. We fundraised $14.3 billion in alternatives this quarter, including $13.2 billion in private market assets, which was diversified across alternative credit, secondary private equity, real estate, and venture strategies.

Speaker #3: Momentum continued in multi-sector, munis, stable value, and global fixed income strategies. Turning to alternatives, FRANKLIN Templeton is a leading manager of alternative assets with 283 billion in alternative AUM.

Speaker #3: Our breadth and scale continue to position us as a partner of choice for clients seeking differentiated sources of return and access to private markets.

Speaker #3: We fundraise 14.3 billion in alternatives this quarter, including 13.2 billion in private market assets, which was diversified across alternative credit, secondary private equity, real estate, and venture strategies.

Speaker #3: Fiscal year-to-date fundraising in private markets reached $22.7 billion, already in line with full-year 2025 levels and positioning us to exceed our $25 to $30 billion annual fundraising target, which was already adjusted upward at the start of our fiscal year.

Jennifer Johnson: Fiscal year-to-date fundraising in private markets reached $22.7 billion, already in line with full year 2025 levels and positioning us to exceed our $25 to 30 billion annual fundraising target, which was already adjusted upward at the start of our fiscal year. Within alternatives, private credit continues to be an area of focus. While market attention has increased, the opportunity remains highly differentiated across strategies and risk profiles. Our alternative credit capabilities in the US and Europe are focused on the middle market with a disciplined approach to underwriting and credit selection and include diversified portfolios that have less than 10% exposure to software. Alternative credit represents $96 billion in AUM and was a significant contributor to fundraising this quarter.

Jenny Johnson: Fiscal year-to-date fundraising in private markets reached $22.7 billion, already in line with full year 2025 levels and positioning us to exceed our $25 to 30 billion annual fundraising target, which was already adjusted upward at the start of our fiscal year. Within alternatives, private credit continues to be an area of focus. While market attention has increased, the opportunity remains highly differentiated across strategies and risk profiles. Our alternative credit capabilities in the US and Europe are focused on the middle market with a disciplined approach to underwriting and credit selection and include diversified portfolios that have less than 10% exposure to software. Alternative credit represents $96 billion in AUM and was a significant contributor to fundraising this quarter.

Speaker #3: Within alternatives, private credit continues to be an area of focus. While market attention has increased, the opportunity remains highly differentiated across strategies and risk profiles.

Speaker #3: Our alternative credit capabilities in the US and Europe are focused on the middle market, with a disciplined approach to underwriting and credit selection ending include diversified portfolios that have less than 10% exposure to software.

Speaker #3: Alternative credit represents 96 billion in AUM and was a significant contributor to fundraising this quarter. Looking across our broader alternatives platform, we continue to see strong momentum in secondary private equity, where investors are increasingly focused on liquidity solutions portfolio rebalancing and access to high-quality assets.

Jennifer Johnson: Looking across our broader alternatives platform, we continue to see strong momentum in secondary private equity, where investors are increasingly focused on liquidity solutions, portfolio rebalancing, and access to high-quality assets at more attractive entry points. We are also seeing a pickup in demand for private real estate, including in the wealth channel as investors position for opportunities emerging from the current market environment. Franklin Templeton's private markets $8 billion core evergreen products spanning secondary private equity, real estate equity and debt, and private credit continue to gain traction. These products had positive net flows, contributing approximately $1 billion to fundraising in aggregate in each of the last 2 quarters. Across the platform, clients are increasingly engaging with us for broad and differentiated investment vehicles, we're seeing that demand translate into sustained diversified growth.

Jenny Johnson: Looking across our broader alternatives platform, we continue to see strong momentum in secondary private equity, where investors are increasingly focused on liquidity solutions, portfolio rebalancing, and access to high-quality assets at more attractive entry points. We are also seeing a pickup in demand for private real estate, including in the wealth channel as investors position for opportunities emerging from the current market environment. Franklin Templeton's private markets $8 billion core evergreen products spanning secondary private equity, real estate equity and debt, and private credit continue to gain traction. These products had positive net flows, contributing approximately $1 billion to fundraising in aggregate in each of the last 2 quarters. Across the platform, clients are increasingly engaging with us for broad and differentiated investment vehicles, we're seeing that demand translate into sustained diversified growth.

Speaker #3: At more attractive entry points, we are also seeing a pickup in demand for private real estate, including in the wealth channel, as investors position for opportunities emerging from the current market environment.

Speaker #3: FRANKLIN Templeton's private markets 8 billion core evergreen products spanning secondary private equity, real estate equity, and debt, and private credit continue to gain traction.

Speaker #3: These products had positive net flows, contributing approximately $1 billion to fundraising in aggregate in each of the last two quarters. Across the platform, clients are increasingly engaging with us for broad and differentiated investment vehicles, and we’re seeing that demand translate into sustained, diversified growth.

Speaker #3: ETF AUM reached new high of 61.6 billion, a 67% increase from last year, with 4.5 billion of net inflows or 18th consecutive quarter of positive flows.

Jennifer Johnson: ETF AUM reached a new high of $61.6 billion, a 67% increase from last year, with $4.5 billion of net inflows, our 18th consecutive quarter of positive flows. Active ETFs now represent 45% of ETF AUM, further extending our active management strategies into new vehicles. This is evident in areas such as the conversion of 10 of our muni funds into ETFs in Q1, which generated over $600 million in positive net flows this quarter. The success of our Putnam Focused Large Cap Value ETF, which is close to $10 billion in AUM. Delivering personalization at scale continues to represent a compelling long-term opportunity. Advancements in technology are enabling us to extend capabilities traditionally associated with separately managed accounts more efficiently and consistently across a broader client base.

Jenny Johnson: ETF AUM reached a new high of $61.6 billion, a 67% increase from last year, with $4.5 billion of net inflows, our 18th consecutive quarter of positive flows. Active ETFs now represent 45% of ETF AUM, further extending our active management strategies into new vehicles. This is evident in areas such as the conversion of 10 of our muni funds into ETFs in Q1, which generated over $600 million in positive net flows this quarter. The success of our Putnam Focused Large Cap Value ETF, which is close to $10 billion in AUM. Delivering personalization at scale continues to represent a compelling long-term opportunity. Advancements in technology are enabling us to extend capabilities traditionally associated with separately managed accounts more efficiently and consistently across a broader client base.

Speaker #3: Active ETFs now represent 45% of ETF AUM, further extending our active management strategies into new vehicles. This is evident in areas such as the conversion of 10 of our muni funds into ETFs in Q1, which generated over 600 million in positive net flows this quarter, or the success of our Putnam Focus large-cap value ETF, which is close to 10 billion in AUM.

Speaker #3: Delivering personalization at scale continues to represent a compelling long-term opportunity. Advancements in technology are enabling us to extend capabilities traditionally associated with separately managed accounts more efficiently and consistently across a broader client base.

Speaker #3: A leader in retail SMAs, we manage $168.3 billion in AUM and generated $2.7 billion in net inflows during this quarter. With more than 40 years of experience, we are well positioned to deliver at scale through our breadth of capabilities along with our custom indexing platform, Canvas.

Jennifer Johnson: A leader of retail SMAs, we manage $168.3 billion in AUM and generated $2.7 billion in net inflows during this quarter. With more than 40 years of experience, we are well-positioned to deliver at scale through our breadth of capabilities along with our custom indexing platform, Canvas. Canvas continues to gain momentum and reached record AUM of $22.9 billion, a 27% increase from the prior quarter, with +$5.3 billion in net flows, reflecting strong client interest in personalization and tax efficiency. Since its acquisition in 2022, Canvas has been net flow positive in each quarter and continues to scale across all distribution channels, supported by our over 200 partners and expanding adoption across retail, RIA aggregators, and traditional RIAs.

Jenny Johnson: A leader of retail SMAs, we manage $168.3 billion in AUM and generated $2.7 billion in net inflows during this quarter. With more than 40 years of experience, we are well-positioned to deliver at scale through our breadth of capabilities along with our custom indexing platform, Canvas. Canvas continues to gain momentum and reached record AUM of $22.9 billion, a 27% increase from the prior quarter, with +$5.3 billion in net flows, reflecting strong client interest in personalization and tax efficiency. Since its acquisition in 2022, Canvas has been net flow positive in each quarter and continues to scale across all distribution channels, supported by our over 200 partners and expanding adoption across retail, RIA aggregators, and traditional RIAs.

Speaker #3: Canvas continues to gain momentum and reach record AUM of 22.9 billion, a 27% increase from the prior quarter, with positive net flows of 5.3 billion, reflecting strong client interest in personalization and tax efficiency.

Speaker #3: Since its acquisition in 2022, Canvas has been net flow positive in each quarter and continues to scale across all distribution channels supported by our over 200 partners and expanding adoption across retail, RIA aggregators, and traditional RIAs.

Jennifer Johnson: This growth underscores a broader shift in the industry where tax efficiency is becoming increasingly central to portfolio construction and the advisor-client relationship. Including Canvas, our tax-managed products now represent $110 billion in AUM. As the industry evolves, we continue to invest in areas of long-term innovation and digital assets remain a key focus. Earlier this month, we announced plans to acquire 250 Digital, an active cryptocurrency investment management firm, and to launch Franklin Crypto. Alongside Franklin Templeton Digital Assets, we are bringing together crypto-native expertise with Franklin Templeton's global distribution to target institutional growth. Franklin Crypto will expand Franklin Templeton's existing crypto and blockchain venture capital investment offerings and will broaden the firm's digital assets investment management platform. From a regional perspective, our growth remains globally diversified with positive net flows in all regions.

Jenny Johnson: This growth underscores a broader shift in the industry where tax efficiency is becoming increasingly central to portfolio construction and the advisor-client relationship. Including Canvas, our tax-managed products now represent $110 billion in AUM. As the industry evolves, we continue to invest in areas of long-term innovation and digital assets remain a key focus. Earlier this month, we announced plans to acquire 250 Digital, an active cryptocurrency investment management firm, and to launch Franklin Crypto. Alongside Franklin Templeton Digital Assets, we are bringing together crypto-native expertise with Franklin Templeton's global distribution to target institutional growth. Franklin Crypto will expand Franklin Templeton's existing crypto and blockchain venture capital investment offerings and will broaden the firm's digital assets investment management platform. From a regional perspective, our growth remains globally diversified with positive net flows in all regions.

Speaker #3: This growth underscores a broader shift in the industry, where tax efficiency is becoming increasingly central to portfolio construction and the advisor-client relationship. Including Canvas, our tax-managed products now represent 110 billion in AUM.

Speaker #3: As the industry evolves, we continue to invest in areas of long-term innovation and digital assets remain a key focus. Earlier this month, we announced plans to acquire 250 digital, an active cryptocurrency investment management firm and to launch FRANKLIN Crypto.

Speaker #3: Alongside FRANKLIN Templeton Digital Assets, we're bringing together crypto-native expertise with FRANKLIN Templeton's global distribution to target institutional growth. FRANKLIN Crypto will expand FRANKLIN Templeton's existing crypto and blockchain venture capital investment offerings and will broaden the firm's digital assets investment management platform.

Speaker #3: From a regional perspective, our growth remains globally diversified, with positive net flows in all regions. Internationally, Franklin Templeton manages nearly $500 billion in assets, with positive long-term net flows of $5.5 billion in aggregate.

Jennifer Johnson: Internationally, Franklin Templeton manages nearly $500 billion in assets with long-term net flows of +$5.5 billion in aggregate. Non-US gross sales grew 29% quarter-over-quarter, with particularly strong momentum in EMEA and APAC. As a leader in emerging markets, Franklin Templeton was appointed trustee and manager of the National Investment Fund of Uzbekistan in January 2025, supporting the country's privatization agenda and governance reforms across state-owned enterprises. In April, USNF confirmed plans to proceed with a dual listing on the London and Tashkent stock exchanges, marking an important step in advancing Uzbekistan's capital markets and broader privatization strategy. This engagement reflects our role as a trusted partner to official institutions and continues to drive deeper relationships with central banks, sovereign wealth funds, and government-related entities. Turning to investment performance. Investment performance remains competitive, supporting both client retention and organic growth.

Jenny Johnson: Internationally, Franklin Templeton manages nearly $500 billion in assets with long-term net flows of +$5.5 billion in aggregate. Non-US gross sales grew 29% quarter-over-quarter, with particularly strong momentum in EMEA and APAC. As a leader in emerging markets, Franklin Templeton was appointed trustee and manager of the National Investment Fund of Uzbekistan in January 2025, supporting the country's privatization agenda and governance reforms across state-owned enterprises. In April, USNF confirmed plans to proceed with a dual listing on the London and Tashkent stock exchanges, marking an important step in advancing Uzbekistan's capital markets and broader privatization strategy. This engagement reflects our role as a trusted partner to official institutions and continues to drive deeper relationships with central banks, sovereign wealth funds, and government-related entities. Turning to investment performance. Investment performance remains competitive, supporting both client retention and organic growth.

Speaker #3: Non-US gross sales grew 29% quarter over quarter, with particularly strong momentum in EMEA and APAC. As a leader in emerging markets, FRANKLIN Templeton was appointed trustee and manager of the National Investment Fund of Uzbekistan.

Speaker #3: In January 2025, supporting the country's privatization agenda and governance reforms across state-owned enterprises. In April, USNIF confirmed plans to proceed with a dual listing on the London and Tashkent Stock Exchanges, marking an important step in advancing Uzbekistan's capital markets and broader privatization strategy.

Speaker #3: This engagement reflects our role as a trusted partner to official institutions and continues to drive deeper relationships with central banks, sovereign wealth funds, and government-related entities.

Speaker #3: Now, turning to investment performance, investment performance remains competitive, supporting both client retention and organic growth. Over half of our mutual fund and ETF AUM is outperforming its peer medium over the three and 10-year periods, and approximately two-thirds over the one and five-year periods.

Jennifer Johnson: Over half of our mutual fund and ETF AUM is outperforming its peer medium over the 3 and 10-year periods, and approximately two-thirds over the 1 and 5-year periods. This strength is further supported by our municipal strategies, where 95% of AUM is outperforming its peer group over the 3-year period. Similarly, over half of strategy composite AUM is outperforming its benchmarks over all time periods and 71% in the 10-year. In fixed income, 83% and 82% of AUM is outperforming benchmarks over the 1 and 5-year periods, respectively reinforcing the depth and durability of our investment capabilities. Turning briefly to our financial results, adjusted operating income was $475 million, increasing 8.5% quarter-over-quarter and 25.8% from the prior year quarter.

Jenny Johnson: Over half of our mutual fund and ETF AUM is outperforming its peer medium over the 3 and 10-year periods, and approximately two-thirds over the 1 and 5-year periods. This strength is further supported by our municipal strategies, where 95% of AUM is outperforming its peer group over the 3-year period. Similarly, over half of strategy composite AUM is outperforming its benchmarks over all time periods and 71% in the 10-year. In fixed income, 83% and 82% of AUM is outperforming benchmarks over the 1 and 5-year periods, respectively reinforcing the depth and durability of our investment capabilities. Turning briefly to our financial results, adjusted operating income was $475 million, increasing 8.5% quarter-over-quarter and 25.8% from the prior year quarter.

Speaker #3: This strength is further supported by our municipal strategies, where 95% of AUM is outperforming its peer group over the three-year period. Similarly, over half of strategy composite AUM is outperforming its benchmarks over all time periods, and 71% in the 10-year.

Speaker #3: In fixed income, 83% in 82% of AUM is outperforming benchmarks over the one and five-year periods. Respectively, reinforcing the depth and durability of our investment capabilities.

Speaker #3: Turning briefly to our financial results, adjusted operating income was $475 million, increasing 8.5% quarter over quarter, and 25.8% from the prior year quarter. These results reflect the continued execution of our strategy, with disciplined expense management alongside targeted investments in areas of growth and innovation.

Jennifer Johnson: These results reflect the continued execution of our strategy with disciplined expense management alongside targeted investments in areas of growth and innovation, positioning the firm for sustained long-term performance. Taken together, our performance this quarter underscores the strength of our platform and the progress we are making against our multi-year strategic priorities. We are building a more diversified, higher growth business with multiple drivers of organic growth, and we're seeing that momentum continue to build, positioning us to deliver long-term value for our clients, shareholders, and employees. I want to thank our employees around the world for their continued dedication and focus on serving our clients. Their efforts are fundamental to the successful execution of our strategy and the progress we're delivering across the firm. With that, I will open the call up to your questions. Operator.

Jenny Johnson: These results reflect the continued execution of our strategy with disciplined expense management alongside targeted investments in areas of growth and innovation, positioning the firm for sustained long-term performance. Taken together, our performance this quarter underscores the strength of our platform and the progress we are making against our multi-year strategic priorities. We are building a more diversified, higher growth business with multiple drivers of organic growth, and we're seeing that momentum continue to build, positioning us to deliver long-term value for our clients, shareholders, and employees. I want to thank our employees around the world for their continued dedication and focus on serving our clients. Their efforts are fundamental to the successful execution of our strategy and the progress we're delivering across the firm. With that, I will open the call up to your questions. Operator.

Speaker #3: Positioning the firm for sustained long-term performance, taken together, our performance this quarter underscores the strength of our platform and the progress we are making against our multi-year strategic priorities.

Speaker #3: We are building a more diversified, higher-growth business with multiple drivers of organic growth, and we're seeing that momentum continue to build, positioning us to deliver long-term value for our clients, shareholders, and employees.

Speaker #3: I want to thank our employees around the world for their continued dedication and focus on serving our clients, their efforts are fundamental to the successful execution of our strategy, and the progress we're delivering across the firm.

Speaker #3: With that, I will open the call up to your questions. Operator.

Operator 2: Thank you. If you would 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 during the conference, please press star zero on your telephone keypad. We request that you limit yourself to one question to allow for additional participants on the call this morning. Our first question comes from Alexander Blostein from Goldman Sachs. Please go ahead.

Operator: Thank you. If you would 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 during the conference, please press star zero on your telephone keypad. We request that you limit yourself to one question to allow for additional participants on the call this morning. Our first question comes from Alexander Blostein from Goldman Sachs. Please go ahead.

Speaker #1: Thank you. If you would 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.

Speaker #1: If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. We request that you limit yourself to one question, to allow for additional participants on the call this morning.

Speaker #1: Our first question comes from Alex Blossom from Goldman Sachs. Please go ahead.

Speaker #2: Thank you. Hey, Jenny. Good morning, everybody. I wanted to start with a question around private markets growth. So, obviously, good momentum in the quarter—$13 billion.

Alexander Blostein: Thank you. Hey, Jenny. Good morning, everybody. I wanted to start with a question around private markets growth. Obviously good momentum in the Q, $13 billion. I was hoping you could break that down by sort of key strategies as well as whether Lexington Partners, their flagship fund, contributed to that at all. As you look out for the rest of the year, what are likely going to be some of the bigger drivers for the rest of 2026 in private markets fundraising?

Alex Blostein: Thank you. Hey, Jenny. Good morning, everybody. I wanted to start with a question around private markets growth. Obviously good momentum in the Q, $13 billion. I was hoping you could break that down by sort of key strategies as well as whether Lexington Partners, their flagship fund, contributed to that at all. As you look out for the rest of the year, what are likely going to be some of the bigger drivers for the rest of 2026 in private markets fundraising?

Speaker #2: I was hoping you could break that down by sort of key strategies as well as whether Lexington, their flagship fund, contributed to that at all.

Speaker #2: And as you look out for the rest of the year, what are likely to be some of the bigger drivers for the rest of 2026 in private markets fundraising?

Speaker #3: Sure. Great. Thanks for the question, Alex. So, as you recall, last year we had set a target of $13 to $20 billion in the alts space to raise, and we ended up raising $22.9 [billion], I think.

Jennifer Johnson: Sure. Great. Thanks for the question, Alex. As you recall, last year, we had set a target out of $13 billion to 20 billion in the alt space to raise, we ended up raising $22.9, I think. This year we raised that to $25 billion to 30 billion. Just we would expect to actually be above the $30 billion. When you look at this quarter, I can't give you any details on Lexington's flagship funds, but I'll give you some insights in it. Our largest contributor was actually our private credit managers. Lexington was meaningful. Lexington is in the market with their flagship fund, and they're finding, you know, they're right on track.

Jenny Johnson: Sure. Great. Thanks for the question, Alex. As you recall, last year, we had set a target out of $13 billion to 20 billion in the alt space to raise, we ended up raising $22.9, I think. This year we raised that to $25 billion to 30 billion. Just we would expect to actually be above the $30 billion. When you look at this quarter, I can't give you any details on Lexington's flagship funds, but I'll give you some insights in it. Our largest contributor was actually our private credit managers. Lexington was meaningful. Lexington is in the market with their flagship fund, and they're finding, you know, they're right on track.

Speaker #3: And this year we raised that to $25 to $30 billion just. We would expect to actually be above the $30 billion. And when you look at this quarter, the and I can't give you any details on Lexington's flagship funds, but I'll give you some insight in it.

Speaker #3: Our largest contributor was actually our private credit managers. But Lexington was meaningful. Lexington is in the market with their flagship fund, and it is they're finding they're right on track.

Jennifer Johnson: There's demand for secondaries, they're also in the market with other products, their co-invest, their middle market, which all contributed as well. There are no catch-up fees in this quarter. You'll get a specific update on Lexington's flagship fund when they, you know, do a filing probably towards the end of 2026. All of our alternative managers contributed to this quarter's momentum. There are over 30 vehicles that contributed, it's a very diverse, what we think is a strong quarter. You know, we felt very good about the flows across the board.

Speaker #3: There's demand for secondaries, but they're also in the market with other products. They're co-invest. They're middle market, which all contributed as well. There are no catch-up fees in this quarter.

Jenny Johnson: There's demand for secondaries, they're also in the market with other products, their co-invest, their middle market, which all contributed as well. There are no catch-up fees in this quarter. You'll get a specific update on Lexington's flagship fund when they, you know, do a filing probably towards the end of 2026. All of our alternative managers contributed to this quarter's momentum. There are over 30 vehicles that contributed, it's a very diverse, what we think is a strong quarter. You know, we felt very good about the flows across the board.

Speaker #3: You'll get a specific update on Lexington's flagship fund when they do a filing, probably towards the end of '26. All of our alternative managers contributed to this quarter's momentum.

Speaker #3: There are over 30 vehicles that contributed. So it's a very diverse what we think is a strong quarter. And we felt very good about the flows across the board.

Speaker #2: Great, thank you. You saved me a follow-up on the catch-up fees there. I did want to ask about the comment you have in the release around just the dry powder.

Alexander Blostein: Great. Thank you. You saved me a follow-up on the catch-up fees there. I did want to ask about the comment you have in the release around just the dry powder. You give us the total AUM, $263 billion in private markets. Some of it is fee paying, some of it is not fee paying. Is it possible to break down, like, the non-fee paying piece and help us think through the timing of when that's gonna come in into the fee rate and run rate?

Alex Blostein: Great. Thank you. You saved me a follow-up on the catch-up fees there. I did want to ask about the comment you have in the release around just the dry powder. You give us the total AUM, $263 billion in private markets. Some of it is fee paying, some of it is not fee paying. Is it possible to break down, like, the non-fee paying piece and help us think through the timing of when that's gonna come in into the fee rate and run rate?

Speaker #2: You give us the total AUM, $263 billion, in private markets. Some of the C-paying, some of it is not C-paying. So is it possible to break down the non-C-paying piece and help us think through the timing of when that's going to come in into the fee rate and run rate?

Speaker #3: So it obviously varies with each manager else. Let us get back to you with kind of what we're willing to sort of say publicly on that.

Jennifer Johnson: It obviously varies with each manager. Alex, let us get back to you with kind of what we're willing to sort of say publicly on that. Give us a little bit here.

Jenny Johnson: It obviously varies with each manager. Alex, let us get back to you with kind of what we're willing to sort of say publicly on that. Give us a little bit here.

Speaker #3: So we'll—we have to give us a little bit here.

Matthew Nicholls: Alex, fee earning AUM out of Alex is about 90%, 89% approximately.

Speaker #2: But Alex, fee-earning AUM out of all else is about 90%, 89% approximately, if you want to.

Matthew Nicholls: Alex, fee earning AUM out of Alex is about 90%, 89% approximately.

Jennifer Johnson: Yes.

Jenny Johnson: Yes.

Matthew Nicholls: Do you want to-

Jennifer Johnson: I think. Yeah. Next question.

Jenny Johnson: I think. Yeah. Next question.

Speaker #3: I think it's I think okay. Next question.

Operator 2: Our next question comes from Glenn Schorr with Evercore. Please go ahead.

Speaker #1: And our next question comes from Glenn Shore with Evercore. Please go ahead.

Operator: Our next question comes from Glenn Schorr with Evercore. Please go ahead.

Speaker #4: Hi. Thanks very much. So question maybe on Canvas and tax optimization strategy. Seen a lot of growth. You commented on yours. I'm just curious, with there's a lot of competition, but there's also really low penetration.

Glenn Schorr: Hi. Thanks very much. Question, maybe on Canvas and tax optimization strategy. Seen a lot of growth. You comment on yours. I'm just curious. There's a lot of competition, but there's also really low penetration. I wonder if you could talk to about what you see for further growth in terms of penetrating the current base of clients, any capacity issues you might see, and then very importantly, how you differentiate in a crowded field, meaning leveraging that brand and distribution relationship that you have. Thanks.

Speaker #4: So I wonder if you could talk to about what you see for further growth in terms of penetrating the current base of clients? Any capacity issues you might see?

Speaker #4: And then, very importantly, how do you differentiate in a crowded field—meaning, leveraging that brand and distribution relationship that you have? Thanks.

Speaker #3: Yeah, so what I would say is, first of all, I think one of the differentiators of Canvas versus the others is always—like I said—it was built by quant people as opposed to tax people.

Jennifer Johnson: Yeah, what I would say is, first of all, I think one of the differentiators of Canvas versus the others, I always like it was built by quant people as opposed to tax people. It's much more about the technology, which gives it a lot more flexibility going forward. I think Canvas is being selected in many cases because people recognize that it has really kind of an impressive technology. When we added the managed option solution over it's giving us a lot more creativity around product development. Things like, you know, you have high basis concentration of stock, and you can use the managed options component of it to be able to make a more tax-efficient portfolio.

Jenny Johnson: Yeah, what I would say is, first of all, I think one of the differentiators of Canvas versus the others, I always like it was built by quant people as opposed to tax people. It's much more about the technology, which gives it a lot more flexibility going forward. I think Canvas is being selected in many cases because people recognize that it has really kind of an impressive technology. When we added the managed option solution over it's giving us a lot more creativity around product development. Things like, you know, you have high basis concentration of stock, and you can use the managed options component of it to be able to make a more tax-efficient portfolio.

Speaker #3: And so it's much more about the technology, which gives it a lot more flexibility going forward. And so I think Canvas is being selected in many cases because people recognize that it has the really kind of an impressive technology.

Speaker #3: And when we added the managed option solution over it, it's giving us a lot more creativity around product development. So things like, you have high basis concentration of stock, and you can use the managed options component of it to be able to make a more tax-efficient portfolio.

Jennifer Johnson: I think we're winning because of the actual, you know, vehicle, or not the vehicle, but the technology there. What, you know, started out as a direct indexing opportunity has evolved into an ability to take that technology as an overlay and create tax-managed, tax-efficient over active strategies. Our conversations are now not just, do you want this as a platform to manage separately managed accounts or, you know, direct indexing.

Speaker #3: So, I think we're winning because of the actual vehicle—or not the vehicle, but the technology there. What started out as a direct indexing opportunity has evolved into an ability to take that technology as an overlay and create tax-managed, tax-efficient, or active strategies.

Jenny Johnson: I think we're winning because of the actual, you know, vehicle, or not the vehicle, but the technology there. What, you know, started out as a direct indexing opportunity has evolved into an ability to take that technology as an overlay and create tax-managed, tax-efficient over active strategies. Our conversations are now not just, do you want this as a platform to manage separately managed accounts or, you know, direct indexing.

Speaker #3: And so our conversations are now not just, "Do you want this as a platform to manage separately, manage accounts, or direct indexing?" But we'd love to use it as a way to optimize the tax efficiency of our active strategies.

Matthew Nicholls: We'd love to use it as a way to optimize the tax efficiency of our active strategies. They're open up to a lot of partner conversations. I know, Daniel, you want to add some things to that?

Jenny Johnson: We'd love to use it as a way to optimize the tax efficiency of our active strategies. They're open up to a lot of partner conversations. I know, Daniel, you want to add some things to that?

Speaker #3: And so they're open up to a lot of partner conversations. I don't know, Daniel, you want to add something to that?

Daniel Gamba: I will add two aspects to the success we're having actually on the tax alpha and tax optimization space. This is one space that is really growing very, very fast for the industry, and we're absolutely capitalizing on that. I'll say number one, clearly our retail SMA presence being so big at close to $170 billion makes us very uniquely positioned, including of course, the legacy business that we have on the SMA side. On the Canvas side, there's two elements to highlight. One is the tax optimization that we do is quite unique and differentiated because we do receive in-kind positions from clients. We do that, and we're very flexible in how we do the optimization, and clients are absolutely looking at that.

Speaker #4: Yeah. So I will add two aspects to the success we're having actually on the tax alpha and tax optimization space, which is one space that really growing very, very fast for the industry.

Speaker #4: And we're absolutely capitalizing on that. I'll say number one, clearly our retail SMA presence being so big at the close to 170 billion dollars makes us a very uniquely positioned including of course the legacy business that we have on the SMA side.

Speaker #4: And on the Canvas side, there are two elements to highlight. One is that the tax optimization we do is quite unique and differentiated, because we do receive in-kind positions from clients.

Speaker #4: We do that, and we're very flexible in how we do the optimization, and clients are absolutely looking at that. And the other part is we add a lot of simplicity, and we're very innovative.

Daniel Gamba: The other part is we add a lot of simplicity, and we're very innovating. Canvas includes, as Jennifer Johnson mentioned, not only direct indexing, but we also have risk factor overlays. We have options for income within the same platform. We have added now fundamental third-party manager tax optimization, including for our different fundamental managers, we're adding that. On top of that, we're adding a long short. Long short has already been built into that. We have 130/30, 140/40, all in the same platform. Finally, we also are adding, and we actually added already municipal bond ladders in the same platform. The simplicity is giving us substantial momentum to the degree that it's actually grown at 72% CAGR, and it's grown actually 10 times since acquisition at $23 billion. I think the momentum will continue.

Speaker #4: Canvas includes, as Jenny mentioned, not only direct indexing, but we also have risk factor overlays. We have options for income within the same platform.

Speaker #4: And we have added now fundamental third-party manager tax optimization including for our different fundamental managers. We're adding that. On top of that, we're adding long, short, so long, short has already been built into that.

Speaker #4: We have 130, 30, 140, 40. All in the same platform. And finally, we also are adding and we actually added already municipal bond ladders in the same giving us substantial momentum to the degree that it's actually grown at 72% CAGR and it's grown actually 10 times since acquisition at 23 billion.

Speaker #4: So, I think the momentum will continue. The AUM doubled over the past 12 months, and we expect that to continue, given how differentiated the platform is.

Daniel Gamba: The AUM doubled over the past 12 months, and we expect that to continue given how differentiated the platform is.

Speaker #2: All right. Thanks for all that, Jenny and Daniel. Appreciate it.

Glenn Schorr: All right. Thanks for all that, Jenny and Daniel. Appreciate it.

Operator 2: Our next question comes from Craig Siegenthaler with Bank of America. Please go ahead.

Operator: Our next question comes from Craig Siegenthaler with Bank of America. Please go ahead.

Speaker #1: Our next question comes from Craig Siegenthaler with Bank of America. Please go ahead.

Selene Oh: Craig?

Speaker #2: Craig?

Matthew Nicholls: Operator, maybe. Yeah.

Jenny Johnson: Operator, maybe. Yeah.

Speaker #3: I'm afraid it may be yeah.

Selene Oh: Maybe we can just move to the next one. We will get Craig back on. Seems like there is a technical problem with Craig's line.

Speaker #1: Maybe we can just move to the next one. We'll get Craig back on. Seems like there's a technical problem with Craig's line. Okay. And our next question comes from Dan Fannon with Jefferies.

Operator 2: Okay. Our next question comes from Daniel Fannon with Jefferies. Please go ahead.

Operator: Okay. Our next question comes from Daniel Fannon with Jefferies. Please go ahead.

Daniel Fannon: Thanks. Thanks. Good morning. Matt, just wanted to follow up on the guidance that you gave. There's been some change from last quarter, but you also echoed, reiterated things you've been saying around flat with fiscal years 2024 and 2025. Wanted to just get some clarification around the moving parts. Also in the quarter, there was an announcement of some voluntary retirements across the equity portfolio or equity division. I assume that's incorporated in this guidance and maybe the outlook for next year, but just wondering if that's incremental or not.

Dan Fannon: Thanks. Thanks. Good morning. Matt, just wanted to follow up on the guidance that you gave. There's been some change from last quarter, but you also echoed, reiterated things you've been saying around flat with fiscal years 2024 and 2025. Wanted to just get some clarification around the moving parts. Also in the quarter, there was an announcement of some voluntary retirements across the equity portfolio or equity division. I assume that's incorporated in this guidance and maybe the outlook for next year, but just wondering if that's incremental or not.

Speaker #1: Please go ahead.

Speaker #2: Thanks. Thanks. Good morning. So Matt, just wanted to follow up on the guidance that you gave there's been some change from last quarter, but you also echoed, reiterated the things you've been saying around flat with fiscal years '24 and '25.

Speaker #2: So, I wanted to just get some clarification around the moving parts. And then also, in the quarter, there was an announcement of some voluntary retirements across the equity portfolio or equity division.

Speaker #2: I assume that's incorporated in this guidance and maybe the outlook for next year, but just wondering if that's incremental or not.

Matthew Nicholls: Yes. The voluntary buyout is included in our full year projection. Why don't I go through the quarter guidance, and then I'll talk about the annual as part of that. On the Q3 guide for our effective fee rate, we're guiding mid to high 37s, very consistent, stable with the Q2. Compensation, we're guiding at $830 million, assuming a $50 million performance fee at a 55% payout. IS&T is $155 million, which is in line, maybe a little bit higher than last quarter based on AI investments, specifically. Occupancy, we're at $70 million in the guide.

Speaker #5: Yes. The voluntary buyout is included in our full year projection. First of all, why don't I do that? Why don't I go through the quarter guidance and then I'll talk about the annual as part of that.

Speaker #5: So on the third quarter guide, for our effective fee rate, we're guiding mid to high 37s, so very consistent and stable with the second quarter.

Speaker #5: Compensation, we're guiding at $830 million, assuming a $50 million performance fee at a 55% payout. IS&T is $155 million, which is in line—maybe a little bit higher than last quarter—based on AI investment specifically.

Speaker #5: Occupancy, we're at $70 million. In the guide, and GNA, we expect to be a little bit higher at $210 to $215 million, but this does include elevated fundraising-related fees of about, or expenses around, $23 to $25 million.

Matthew Nicholls: G&A, we expect to be a little bit higher at $210 to $215 million, but this does include elevated fundraising-related fees or expenses around $23 to $25 million, and an additional $9 to $10 million for advertising and marketing. In terms of the full year, as outlined on page 14 that you referred to in the IR deck, this does assume flat markets from now and excludes performance fees. We continue to guide approximately in line or slightly above fiscal year 2025 expenses, excluding performance fees. This assumes current market levels, higher sales and fundraising that we've presented today and seeing, and stronger performance. Stronger performance meaning we have some compensation-related expenses tied to better performance that's formulaic driven. That's going up a little bit.

Speaker #5: And an additional 9 to 10 million dollars for advertising and marketing. In terms of the full year, as outlined on page 14 that you referred to in the IR deck, this does assume flat markets from now and excludes performance fees.

Speaker #5: We continue to guide approximately in line or slightly above, just slightly above, fiscal year '25 expenses, excluding performance fees. This assumes current market levels higher sales and fundraising that we've presented today and seen.

Speaker #5: And stronger performance. Stronger performance meaning we have some compensation-related expenses tied to better performance that's formulaic driven. So that's going up a little bit.

Matthew Nicholls: For further perspective, we end up at the level illustrated on the page, which is about 1.5% higher versus 2025. We would expect investment management fee revenue to increase at 4 times that rate at least. Meaning if expenses increase by 1.5%, we would expect investment management fee revenue would be expected to increase by at least 6% year over year, all else remaining equal. This is consistent with previous commentary on margin expansion going into our fiscal year-end that would result in fiscal Q4 margin in the high 29s and for the year in the 27s for the full year. Both representing meaningful margin expansion ahead of plan and on our way to 30%+ margins later in 2027, all ahead of plan and as presented last quarter.

Speaker #5: But for further perspective, we end up at the level illustrated on the page, which is about 1.5% higher versus 2025. We would expect investment management fee revenue to increase at four times that rate at least.

Speaker #5: Meaning if expenses increase by 1.5%, we would expect investment management fee revenue would be expected to increase by at least 6% year over year all else remaining equal.

Speaker #5: And this is consistent with previous commentary on margin expansion going into our fiscal year end that would result in fiscal fourth quarter margin in the high 29s.

Speaker #5: And for the year in the 27s, for the full year. Both representing meaningful margin expansion ahead of plan. And on our way to 30% plus margins later in 2027.

Speaker #5: All ahead of plan and as presented last quarter.

Daniel Fannon: Thank you.

Dan Fannon: Thank you.

Speaker #2: Thank you.

Matthew Nicholls: Thank you.

Speaker #5: Thank you.

Jennifer Johnson: Next question, operator.

Jenny Johnson: Next question, operator.

Speaker #1: Next question, operator. Our next question is from Patrick David with Autonomous Research. Please go ahead.

Operator 2: Our next question is from Patrick Davitt with Autonomous Research. Please go ahead.

Operator: Our next question is from Patrick Davitt with Autonomous Research. Please go ahead.

Patrick Davitt: Hey, good morning, everyone. There's been a lot of press focus on secondaries PE strategies and the policy of marking up deals immediately upon close. Much of that has been focused on other companies. Could you give us more color on how much of Lexington's fund performance is driven by that initial markup versus natural appreciation? More broadly, do you see this increased attention or the increased attention on this practice impacting regulatory scrutiny or demand for the asset class? Thank you.

Speaker #2: Hey, good morning, everyone. There's been a lot of press focus on secondaries, PE strategies, and the policy of marking up deals, immediately upon close.

Speaker #2: Much of that has been focused on other companies. But could you give us more color on how much of Lexington's fund performance is driven by that initial markup versus natural appreciation?

Speaker #2: And then more broadly, do you see this increased attention or the increased attention on this practice impacting regulatory scrutiny or demand for the asset class?

Jennifer Johnson: The issue that happened there was actually because I think the manager kind of changed the policy and maybe was a little unclear in how that sort of went down. I think that created a huge amount of noise. Here, here's what traditionally the in secondaries, the markup, the discount markup is about 20% to 25% of total return over the life of a fund. That gives you a sense for, you know, most of the appreciation really comes in the asset itself. That's the beauty, I think, of somebody like a Lexington who's got, you know, is a premier buyer of these deals. They get to be pretty selective as far as what deals they choose, and they have a ton of information.

Speaker #2: Thank you.

Jenny Johnson: The issue that happened there was actually because I think the manager kind of changed the policy and maybe was a little unclear in how that sort of went down. I think that created a huge amount of noise. Here, here's what traditionally the in secondaries, the markup, the discount markup is about 20% to 25% of total return over the life of a fund. That gives you a sense for, you know, most of the appreciation really comes in the asset itself. That's the beauty, I think, of somebody like a Lexington who's got, you know, is a premier buyer of these deals. They get to be pretty selective as far as what deals they choose, and they have a ton of information.

Speaker #3: So, the issue that happened there was actually because, I think, the manager kind of changed the policy and maybe was a little unclear in how that sort of went down.

Speaker #3: I think that created a huge amount of noise. Traditionally, in secondaries, the discount or markup is about 20 to 25 percent of total return.

Speaker #3: Over the life of a fund. So that gives you a sense for most of the appreciation really comes in the asset itself. And that's the beauty, I think, of somebody like a Lexington who's got is a premier buyer of these deals.

Speaker #3: They get to be pretty selective as far as what deals they choose. And they have a ton of information. I mean, they have information on 55,000 private companies.

Jennifer Johnson: I mean, they have information on 55,000 private companies, they're really tracking, and they're getting to decide which, you know, which underlying funds they believe are going to have the best upside opportunity. That's how they're really underwriting it. They obviously negotiate a discount. That gives you kind of a sense.

Jenny Johnson: I mean, they have information on 55,000 private companies, they're really tracking, and they're getting to decide which, you know, which underlying funds they believe are going to have the best upside opportunity. That's how they're really underwriting it. They obviously negotiate a discount. That gives you kind of a sense.

Speaker #3: And so they're really tracking, and they're getting to decide which underlying funds they believe are going to have the best upside opportunity. And that's how they're really underwriting it.

Speaker #3: And then they obviously negotiate a discount. So that gives you kind of a sense.

Operator 2: Our next question comes from Michael Cyprys with Morgan Stanley. Please go ahead.

Operator: Our next question comes from Michael Cyprys with Morgan Stanley. Please go ahead.

Speaker #1: Okay. And our next question, comes from Michael Cypress with Morgan Stanley. Please go ahead.

Michael Cyprys: Hey, good morning. Thanks for taking the question. I wanted to ask about AI. I was hoping you could update us on how you're using AI across the organization today and some of the use cases that have been most impactful so far and some of the key learnings that you've had. If you're able to help quantify any of the benefits that you're seeing, that would be interesting. As you look out over the next couple of years, can you talk about some of the steps that you're taking to further embed AI throughout the organization? I know, Matt, you mentioned some uplift on expenses in part from AI investments. Maybe you could elaborate on some of those investments and how you're thinking about the longer term benefits. Thank you.

Speaker #2: Hey, good morning. Thanks for taking the question. I wanted to ask about AI. I was hoping you could update us on how you're using AI across the organization today.

Speaker #2: And some of the use cases that have been most impactful so far. And some of the key learnings that you've had. And if you're able to help quantify any of the benefits that you're seeing, that would be interesting.

Speaker #2: And as you look out over the next couple of years, can you talk about some of the steps that you're taking to further embed AI throughout the organization?

Speaker #2: I know, Matt, you mentioned some uplift on expenses in part from AI investments. Maybe you can elaborate on some of those investments and how you're thinking about the longer-term benefits.

Jennifer Johnson: Yeah. We look at AI. Look, I don't. You know, having run technology, I don't think that there are many companies that they can sit there and say that the AI has yet to be material in their organization, and everybody's doing a ton of stuff in it. I'm proud of the work that we've done because we were early adopters in what is this multi-agent orchestration of AI, and that was the Intelligence Hub, what we call Intelligence Hub, which was our platform used for distribution. The way if I were to bucket the AI efforts, I would say with respect to distribution and investments, it's all about growth opportunities. With respect to operations and technology, or operations, it's about efficiencies, and in technologies, it ultimately will be about getting more through the pipeline.

Jenny Johnson: Yeah. We look at AI. Look, I don't. You know, having run technology, I don't think that there are many companies that they can sit there and say that the AI has yet to be material in their organization, and everybody's doing a ton of stuff in it. I'm proud of the work that we've done because we were early adopters in what is this multi-agent orchestration of AI, and that was the Intelligence Hub, what we call Intelligence Hub, which was our platform used for distribution. The way if I were to bucket the AI efforts, I would say with respect to distribution and investments, it's all about growth opportunities. With respect to operations and technology, or operations, it's about efficiencies, and in technologies, it ultimately will be about getting more through the pipeline.

Speaker #2: Thank you.

Speaker #3: Yeah, so we look at AI. Look, having run technology, I don't think that there are many companies that can sit there and say that AI has yet to be material in their organization.

Speaker #3: And everybody's doing a ton of stuff in it. So I'm proud of the work that we've done because we were early adopters in what is this multi-agent orchestration of AI.

Speaker #3: And that was the intelligence hub, what we call intelligence hub, which was our platform used for distribution. The way if I were to bucket the AI efforts, I would say with respect to distribution and investments, it's all about growth opportunities with respect to operations and technology.

Speaker #3: Operations, it's about efficiencies. And in technologies, it ultimately will be about getting more through the pipeline. So with this multi-agent intelligence hub, we'll start there.

Jennifer Johnson: With this multi-agent Intelligence Hub, we'll start there. This is the one that we announced the partnership with Microsoft, and they came in and helped us build it. I say it's a very simple problem with a complex technical solution. The simple problem is: How do you ensure that your salespeople are seeing the right clients and having the best conversations? That goes in, and it pulls data from your CRM system, from your product system, external product systems, maybe social media. Those are multiple agents, and LLM models tend not to be great with analytics, so you have to marry them with others. We are seeing early on uplift of our wholesalers or our salespeople essentially seeing 10% more clients. I'm not going to share sort of the preliminary numbers.

Jenny Johnson: With this multi-agent Intelligence Hub, we'll start there. This is the one that we announced the partnership with Microsoft, and they came in and helped us build it. I say it's a very simple problem with a complex technical solution. The simple problem is: How do you ensure that your salespeople are seeing the right clients and having the best conversations? That goes in, and it pulls data from your CRM system, from your product system, external product systems, maybe social media. Those are multiple agents, and LLM models tend not to be great with analytics, so you have to marry them with others. We are seeing early on uplift of our wholesalers or our salespeople essentially seeing 10% more clients. I'm not going to share sort of the preliminary numbers.

Speaker #3: This is the one that we announced the partnership with Microsoft. And they came in and helped us build it. And I say it's a very simple problem with a complex technical solution.

Speaker #3: The simple problem is how do you ensure that your salespeople are seeing the right clients and having the best conversations? That goes in and it pulls data from your CRM system, from your product system, external product systems, maybe social media.

Speaker #3: Those are multiple agents. And LLM models tend not to be great with analytics. So you have to marry them with others. We are seeing early on uplift of our wholesalers or our salespeople essentially seeing 10% more clients I'm not going to share sort of the preliminary numbers.

Jennifer Johnson: It's too early to sort of dictate whether that's translated directly into additional sales, from just the efficiency of the administration, and it is looking like we are also getting an uplift in sales from those, and we're rolling that out more broadly. Our investment teams are using it a little bit, you know, depending on the team. We have hackathons done by our investment teams. They create agents. Those agents are put in a central library. We've been doing this for quite a while. I can't remember the number that we have.

Jenny Johnson: It's too early to sort of dictate whether that's translated directly into additional sales, from just the efficiency of the administration, and it is looking like we are also getting an uplift in sales from those, and we're rolling that out more broadly. Our investment teams are using it a little bit, you know, depending on the team. We have hackathons done by our investment teams. They create agents. Those agents are put in a central library. We've been doing this for quite a while. I can't remember the number that we have.

Speaker #3: It's too early to sort of dictate whether that's translated directly into additional sales. But from just the efficiency of the administration, and it is looking like we are also getting an uplift in sales from those.

Speaker #3: And we're rolling that out more broadly. Our investment teams are using it a little bit depending on the team. But we have hackathons done by our investment teams.

Speaker #3: They create agents. Those agents are put in a central library. We've been doing this for quite a while. I can't remember the number that we have.

Jennifer Johnson: Another investment team may, you know, decide, "Oh, I'm going to pull this agent out." We also created a virtual research analyst that sits in one of our investment teams where they have fed in kind of the views of and the philosophy, and it will question. It will come up with investment ideas, and it will actually, you know, if you're thinking about making an idea, it will question like, "Have you thought about these things? You say these are important." It's done a review of historical trades. We have multiple different ways in which our investment teams are leveraging it and learning from it. The most important thing, I think, is we've created this centralized group to share expertise on AI, so they get the learnings from each other.

Jenny Johnson: Another investment team may, you know, decide, "Oh, I'm going to pull this agent out." We also created a virtual research analyst that sits in one of our investment teams where they have fed in kind of the views of and the philosophy, and it will question. It will come up with investment ideas, and it will actually, you know, if you're thinking about making an idea, it will question like, "Have you thought about these things? You say these are important." It's done a review of historical trades. We have multiple different ways in which our investment teams are leveraging it and learning from it. The most important thing, I think, is we've created this centralized group to share expertise on AI, so they get the learnings from each other.

Speaker #3: And so another investment team may decide, "Oh, I'm going to pull this agent out." We also created a virtual research analyst that sits in one of our investment teams where they have fed in kind of the views of and the philosophy and it will question.

Speaker #3: It'll come up with sales or investment ideas. And it will actually if you're thinking about making an idea, it will question like, "Have you thought about these things?" You say, "These are important." And it's done a review of historical trades and we have multiple different ways in which our investment teams are leveraging it and learning from it.

Speaker #3: And the most important thing, I think, is we've created this centralized group to share expertise on AI so they get the learnings from each other.

Jennifer Johnson: You know, this is something we're focused on to the extent that we've outsourced is looking at the length of our outsourced deals because we don't want just to have the AI efficiencies accrue to the outsourced deals. That's a part of our vendor management program. And then in places that we have the operations in-house, reconciliation, other things, RFPs, we are seeing some efficiencies. It's still very early, and we're measuring in our technology group, for example, you know, how much code is being written by AI. That gives you kind of a feel for how we're using it across the firm.

Jenny Johnson: You know, this is something we're focused on to the extent that we've outsourced is looking at the length of our outsourced deals because we don't want just to have the AI efficiencies accrue to the outsourced deals. That's a part of our vendor management program. And then in places that we have the operations in-house, reconciliation, other things, RFPs, we are seeing some efficiencies. It's still very early, and we're measuring in our technology group, for example, you know, how much code is being written by AI. That gives you kind of a feel for how we're using it across the firm.

Speaker #3: We have work this is something we're focused on to the extent that we've outsourced. Is looking at the length of our outsourced deals because we don't want just to have the AI efficiencies accrued to the outsourced dealers.

Speaker #3: So that's a part of our vendor management program. And then in places that we have the operations in-house, reconciliation other things RFPs, we are seeing some efficiencies.

Speaker #3: It's still very early. And we're measuring, in our technology group for example, how much code is being written by AI. So that gives you kind of a feel for how we're using it across the firm.

Matthew Nicholls: Yeah. In terms of how we're spending money, I mean, Jenny already touched on it, to that question, you know, we have a fully staffed, dedicated team, as Jenny mentioned, that's centralized. Within that team, we have, you know, individuals focused on, as Jenny mentioned, investment, sales functions, so that means it becomes a fairly significant group internally. Each of these groups is focused on both the effectiveness piece and the efficiency piece. There's a revenue part of this, and then there's a cost part of this. We're doing our best. It's very early days. We're doing our best to track the dollars we spend versus the dollars that we either save or that we gain through the process of using AI and adoption.

Speaker #2: Yeah. And in terms of how we're spending money, I mean, Jenny already touched on it. But to that question, we have a fully staffed, dedicated team, as Jenny mentioned, that's centralized.

Speaker #2: But within that team, we have individuals focused on, as Jenny mentioned, investment, sales, functions. So that means it becomes a fairly significant group internally.

Speaker #2: And then each of these groups is focused on both the effectiveness piece and the efficiency piece. So there's a revenue part of this. And then there's a cost part of this.

Speaker #2: And we're doing our best. It's very early days. We're doing our best to track the dollars we spend versus the dollars that we either save or that we gain through the process of using AI and adoption.

Speaker #1: Great. Our next question comes from Bill Katz. With TD Cohen. Please go ahead.

Operator 2: Our next question comes from Bill Katz with TD Cowen. Please go ahead.

Operator: Our next question comes from Bill Katz with TD Cowen. Please go ahead.

Bill Katz: Okay. Thank you very much. I just have a couple nits added together, maybe equals one full question. On the tax minimization, tax optimization side, there's been some discussion around potential adverse tax rule for exchange 351. It seems a bit arcane to us, but it's been coming up a lot in investor dialogue. How real is that as a real change, or is that more of a disclosure issue? Would that have any kind of impact on the business? My second question is just on Lexington XI. I think you recently previously raised $22 billion. I know Matt Nicholls just gave some guidance around some platform fees or placement fees into the new quarter or so. Is there any reason to think that that next fund won't be as equals of size?

Speaker #4: Okay. Thank you very much. I just have a couple of nits added together. Maybe it equals one full question. On the tax minimization top tax optimization side, there's been some discussion around potential adverse tax rule for exchange 351.

Speaker #4: It seems a bit arcane to us. But it's been coming up a lot in investor dialogue. A, how real is that? As a real change?

Speaker #4: Or is that more of a disclosure issue? And would that have any kind of impact on the business? My second question is just on Lexington 11.

Speaker #4: I think you recently previously raised $22 billion. And I know Matt just gave some guidance around some platform fees or placement fees into the new quarter or so.

Speaker #4: Is there any reason to think that that next fund won't be as equal of size? And then thirdly, just in terms of capital return, a little bit off a later question, just wondering if you could talk a little bit about your priorities looking ahead.

Bill Katz: Then thirdly, just in terms of capital return, a little bit off late question, just wondering if you could talk a little bit about your priorities looking ahead. Thank you.

Jennifer Johnson: I'll just quickly jump in on the Lexington, then I'll turn over to Matt on the tax stuff. No reason to believe that is not at the size of the last fund. As I said, you know, they're happy and on track, there's good demand for secondaries, we do not see any cannibalization with the evergreen funds that we've done in secondary. I think that, you know, that's going smoothly. Matt, do you want to cover the?

Speaker #4: Thank you.

Jenny Johnson: I'll just quickly jump in on the Lexington, then I'll turn over to Matt on the tax stuff. No reason to believe that is not at the size of the last fund. As I said, you know, they're happy and on track, there's good demand for secondaries, we do not see any cannibalization with the evergreen funds that we've done in secondary. I think that, you know, that's going smoothly. Matt, do you want to cover the?

Speaker #3: I'll just quickly jump in on the Lexington, and then I'll turn it over to Max to Matt on the tax stuff. So, no reason to believe that that is not at the size of the last fund.

Speaker #3: As I said, they are happy and on track. And there's good demand for secondaries, and we do not see any cannibalization with the Evergreen funds that we've done in secondaries.

Speaker #3: So I think that that's going smoothly. Matt, you want to cover the.

Matthew Nicholls: What was the other one?

Jennifer Johnson: I think the other one. What was the tax Section 351?

Jenny Johnson: I think the other one. What was the tax Section 351?

Speaker #2: What's the other question?

Speaker #3: I think the other one—what was the tax, 351? What was the—

Bill Katz: Yeah. It's a bit arcane. Apparently in the index ETF world, there's some discussion between, I think ICI and the IRS. Excuse me. Sorry to be so ticky-tacky on this call. Just in terms of some adverse ruling about tax optimization under the exchange, would that limit maybe the use of options and so forth as a way to shield income? A bit arcane, it's been coming up as a watch point given the really rapid growth in tax optimization.

Speaker #4: Yeah. It's a bit arcane. But apparently in the index ETF world, there's some discussion between, I think, ICI and the IRS. Excuse me. Sorry to be so ticky-tacky on this call.

Speaker #4: Just in terms of adverse ruling about tax optimization under the exchange and would that limit maybe the use of options and so forth as a way to shield income?

Speaker #4: Bit arcane. But it's been coming up as a watch point given the really rapid growth in tax optimization.

Jennifer Johnson: Here's what I would say. I don't, I don't know specifically on that other than I am on the ICI board, and we do talk a lot about, you know, the mutual funds have a sort of unequal tax treatment versus an ETF because you get to do the in-kind. I don't think. There's always a worry that that goes away. The reality is it's actually unfair. Why should your average person in a mutual fund, who tends to be your smaller investor, actually have to pay capital gains just 'cause the fund experienced capital gains versus what their individual ownership is like they would if they owned a stock. That has always been something that has been a disadvantage a bit on mutual funds.

Jenny Johnson: Here's what I would say. I don't, I don't know specifically on that other than I am on the ICI board, and we do talk a lot about, you know, the mutual funds have a sort of unequal tax treatment versus an ETF because you get to do the in-kind. I don't think. There's always a worry that that goes away. The reality is it's actually unfair. Why should your average person in a mutual fund, who tends to be your smaller investor, actually have to pay capital gains just 'cause the fund experienced capital gains versus what their individual ownership is like they would if they owned a stock. That has always been something that has been a disadvantage a bit on mutual funds.

Speaker #3: But here's what I would say. And I don't know specifically on that other than I am on the ICI board. And we do talk a lot about the mutual funds have a sort of unequal tax treatment versus an ETF.

Speaker #3: Because you get to do the in-kind. I don't think there's always a worry that that goes away. The reality is it's actually unfair. Why should your average person in a mutual fund who tends to be your smaller investor actually have to pay capital gains just because the fund experienced capital gains versus what their individual ownership is?

Speaker #3: They would if they owned a stock. So that has always been something that has been a disadvantage a bit on mutual funds. And I think that the ICI, that's one that's always discussed.

Jennifer Johnson: I think that the ICI, that's one that's always discussed. I'm not aware of discussions about the ETF losing theirs as much, as the hope with the ICI that you actually make the mutual fund more fair.

Jenny Johnson: I think that the ICI, that's one that's always discussed. I'm not aware of discussions about the ETF losing theirs as much, as the hope with the ICI that you actually make the mutual fund more fair.

Speaker #3: I'm not aware of discussions about the ETF losing theirs as much as the hope with the ICI that you actually make the mutual fund more fair.

Daniel Gamba: I will also only add that none of our major ETFs use options overlays in the way in which they're constructed. We haven't been hit with that question given the nature of our current ETFs that we have. We do have an excellent options capability within our SMA business, which we call MOST, and we've seen substantial demand on that. On SMAs, clearly on individual securities, there's no such discussion. Clearly on Section 351 exchanges in ETFs, we are not part of those, we don't have those products structured like that.

Speaker #5: I will only add that none of our major ETFs use options overlays in the way in which they are constructed. So we haven't been hit with that question given the nature of our current ETFs that we have.

Speaker #5: We do have an excellent options capability within our SMA business, which we call MOST. And we've seen substantial demand on that. So SMA is clearly on individual securities.

Speaker #5: There's no such discussion. But clearly on 351 exchanges in ETFs, we are not part of those we don't have those products structured like that.

Jennifer Johnson: Yeah. Actually, I just looked it up on Perplexity, and I have a better understanding of what you're saying. There are people, there are some strategies for our network for people who contribute.

Jenny Johnson: Yeah. Actually, I just looked it up on Perplexity, and I have a better understanding of what you're saying. There are people, there are some strategies for our network for people who contribute.

Speaker #3: Yeah. And actually, I just looked it up on Perplexity. So now I have a better understanding of what you're saying. So there are people there are some strategies for high net worth for people who contribute.

Daniel Gamba: Yeah.

Jennifer Johnson: There, yeah, in exchanges, we have not really participated in that. That is one that you could, and it could impact ETF share classes as part of a mutual fund.

Jenny Johnson: There, yeah, in exchanges, we have not really participated in that. That is one that you could, and it could impact ETF share classes as part of a mutual fund.

Speaker #3: Yeah. In exchanges. And we have not really participated in that. That is one that you could. And it could impact ETF share classes as part of a mutual fund.

Bill Katz: Perfect.

Jennifer Johnson: We'll see how that evolves.

Jenny Johnson: We'll see how that evolves.

Speaker #3: We'll see how that evolves.

Operator 2: Our next question comes from Brennan Hawken with BMO Capital Markets. Please go ahead.

Operator: Our next question comes from Brennan Hawken with BMO Capital Markets. Please go ahead.

Speaker #1: Our next question comes from Brennan Hawken with BMO Capital Markets. Please go ahead.

Brennan Hawken: Hey, good morning. Thanks for taking my question. Two questions just circling back on the alts fundraising. Thanks for providing the Evergreen AUM, what you've reached now. Maybe could you talk about what sort of flows you're seeing on a quarterly basis and how we should think about that? Then just a follow-up on Lexington. You referenced that you'd be giving an update at year-end. Can you help us understand why it'd be year-end? Is that your updated expectations for the first close?

Speaker #6: Hey. Good morning. Thanks for taking my question. Two questions just circling back on the alts fundraising. So thanks for providing the Evergreen AUM, which you've reached now.

Speaker #6: Maybe could you talk about what sort of flows you're seeing on a quarterly basis and how we should think about that? And then just a follow-up on Lexington.

Speaker #6: You referenced that you'd be giving an update at year-end. Can you help us understand why it would be year-end? Is that your updated expectation for the first close?

Jennifer Johnson: I think that, on Lexington, you know, they're, like I said, they're actively fundraising. You know, they'll decide kind of on the timing of their first, you know, their first filing. It hasn't been year-to-date, it'll be H2 or towards the end of the year.

Speaker #3: I think that the on Lexington, I think that they're like I said, they're actively fundraising. They'll decide kind of on the timing of their first their first filing.

Jenny Johnson: I think that, on Lexington, you know, they're, like I said, they're actively fundraising. You know, they'll decide kind of on the timing of their first, you know, their first filing. It hasn't been year-to-date, it'll be H2 or towards the end of the year.

Speaker #3: It hasn't been year to date, so it'll be in the second half or towards the end of the year.

Matthew Nicholls: Jennifer Johnson, you meant now fiscal year-end. Now fiscal year-end.

Speaker #2: And Jenny made now fiscal year-end. Now fiscal year-end. Because there could be an update in July or something like that.

Jennifer Johnson: That's September.

Jenny Johnson: That's September.

Matthew Nicholls: There could be an update in July or something like that, you know.

Jennifer Johnson: On the evergreen, we have said that we are raising about $200 million a month. Across our 3, you know, we have over $1 billion. We have 3 over $1 billion. We are continuing to see that same kind of demand, about $200 million a month into the 3 evergreen strategies.

Jenny Johnson: On the evergreen, we have said that we are raising about $200 million a month. Across our 3, you know, we have over $1 billion. We have 3 over $1 billion. We are continuing to see that same kind of demand, about $200 million a month into the 3 evergreen strategies.

Speaker #3: And then on the Evergreen, we have said that we're raising about $200 million a month across our three. We have over a billion. We have three over a billion dollars.

Speaker #3: And we're continuing to see that same kind of demand. About $200 million a month into the three Evergreen strategies.

Matthew Nicholls: That's remained consistent recently with some of the, you know.

Brennan Hawken: That's remained consistent recently with some of the, you know.

Speaker #2: And that's remained consistent recently with some of the.

Jennifer Johnson: Yes.

Jenny Johnson: Yes.

Matthew Nicholls: Moving.

Brennan Hawken: Moving.

Jennifer Johnson: Yeah.

Jenny Johnson: Yeah.

Matthew Nicholls: Yeah. Great.

Brennan Hawken: Yeah. Great.

Speaker #3: Yes. Yeah.

Jennifer Johnson: Yeah. Thank you.

Jenny Johnson: Yeah. Thank you.

Matthew Nicholls: Diversity helps.

Brennan Hawken: Diversity helps.

Speaker #2: Thank you. Vivacity helps.

Daniel Gamba: I think important to say that we don't have a big BDC or large exposure to software within the platform. We've continued to raise in line or even higher across all our evergreens, Secondary PE, RE, like real estate debt, real estate equity. Over the last 2 years, we continued to go in line with the penetration that we have on the wealth business, so substantial growth. We haven't seen any slowdown from our end here.

Speaker #3: Yeah. I think it's important to say that we don't have a big BDC or large exposure to software within the platform. So we've continued to raise in line or even higher across all our Evergreens secondary PE like real estate debt, real estate equity.

Speaker #3: So over the last two years, we continue to go in line with the penetration that we have on the wealth business. So, substantial growth.

Speaker #3: And we haven't seen any slowdown from our end. Yeah.

Matthew Nicholls: Thank you.

Brennan Hawken: Thank you.

Speaker #2: Thank you.

Operator 2: Our next question is with Benjamin Budish from Barclays. Please go ahead.

Operator: Our next question is with Benjamin Budish from Barclays. Please go ahead.

Speaker #1: Our next question is from Ben Buddish at Barclays. Please go ahead.

Benjamin Budish: Hi, good morning, and thanks for taking the question. Maybe just continuing to follow up on the alts fundraising. You mentioned, I think earlier, that most of it came from credit in the quarter, obviously not from BDCs. Can you unpack a little bit, like, what pockets of credit you're seeing the most demand? Then just a quick housekeeping one on the G&A. You mentioned there's some sort of one-time fundraising expenses associated with, I think, the larger flagships. Just curious if we should think about those as recurring or kind of near term elevated, but maybe not in the run rate for next year, or perhaps they come back with more flagship fundraising. Any help there would be great. Thank you.

Ben Budish: Hi, good morning, and thanks for taking the question. Maybe just continuing to follow up on the alts fundraising. You mentioned, I think earlier, that most of it came from credit in the quarter, obviously not from BDCs. Can you unpack a little bit, like, what pockets of credit you're seeing the most demand? Then just a quick housekeeping one on the G&A. You mentioned there's some sort of one-time fundraising expenses associated with, I think, the larger flagships. Just curious if we should think about those as recurring or kind of near term elevated, but maybe not in the run rate for next year, or perhaps they come back with more flagship fundraising. Any help there would be great. Thank you.

Speaker #6: Hi, good morning, and thanks for taking the question. Maybe just continuing to follow up on the alts fundraising—you mentioned, I think, earlier that most of it came from credit in the quarter.

Speaker #6: Obviously, not from BDCs. Can you unpack a little bit what pockets of credit you're seeing the most demand? And then just a quick housekeeping one on the GNA.

Speaker #6: You mentioned there's some sort of one-time fundraising expenses associated with, I think, the larger flagships. Just curious if we should think about those as recurring or kind of near-term elevated but maybe not in the run rate for next year.

Speaker #6: Or perhaps they come back with more flagship fundraising. Any help there would be would be great. Thank you.

Matthew Nicholls: That's the expenses. I'll get that done quickly. That's really. I wouldn't say it's one-time because you may have other quarters that also have elevated fundraising, but $23 to 25 million is obviously a large number, and that would be a one-time associated with, you know, good fundraise expectation, with, you know, let's call it higher fee type alternative asset funds.

Speaker #2: That's the expenses. I'll get that done quickly. That's really a—I wouldn't say it's one-time because you may have other quarters that also have elevated fundraising.

Speaker #2: But 23 to 25 million is obviously a large number. And that would be a one-time associated with a good fund raise expectation. With let's call it higher fee type alternative asset funds.

Jennifer Johnson: On the alts fundraising, remember on the credit side, we have both, well, BSP as well as what was formerly Alcentra, but we're calling BSP Europe. We had good, strong fundraising for both of those. You know, part of it was CLOs, but honestly, there were probably. They have an opportunity fund. They have a real estate debt fund. They have special situations. We got contributions from really across the board, and I think there's at least 15 different kind of funds that had some sort of contribution to the credit. It also, I mean, interestingly, we're seeing Clarion with real estate. That's starting to pick up real estate. Clarion has tremendous performance there.

Jenny Johnson: On the alts fundraising, remember on the credit side, we have both, well, BSP as well as what was formerly Alcentra, but we're calling BSP Europe. We had good, strong fundraising for both of those. You know, part of it was CLOs, but honestly, there were probably. They have an opportunity fund. They have a real estate debt fund. They have special situations. We got contributions from really across the board, and I think there's at least 15 different kind of funds that had some sort of contribution to the credit. It also, I mean, interestingly, we're seeing Clarion with real estate. That's starting to pick up real estate. Clarion has tremendous performance there.

Speaker #3: So, and on the alts fundraising—so we mentioned, remember, on the credit side we have both BSP as well as what was formerly Alcentra.

Speaker #3: But we’re calling BSP Europe. So we had good, strong fundraising from both of those. Part of it will be CLOs. But honestly, there were probably—remember, they have an opportunity fund.

Speaker #3: They have a real estate debt fund. They have special situations. So we got contributions from really across the board. And I think there's at least 15 different kind of funds that had some sort of contribution to the credit.

Speaker #3: It also I mean, interestingly, we're seeing Clarion with real estate. That's starting to pick up. Real estate and Clarion has tremendous performance there. But I think as people have been nervous and we're wondering there's $20 billion in redemption requests on real estate managers out there.

Jennifer Johnson: I think as people have been nervous, we're wondering, you know, there's $20 billion in redemption requests on real estate managers out there. That money's probably going to go somewhere else. Sorry, on the private credit managers out there. People like real estate because it not only gives a good source of income, it has a hedge. You know, it's an inflation hedge. I think that's why we're seeing this pickup in interest in real estate. Our venture group has done well too. You know, I think the key message here is this was a very diversified portfolio, diversified raise, as opposed to a real concentration. There are literally over 30 entities that raise money for in our alt space.

Jenny Johnson: I think as people have been nervous, we're wondering, you know, there's $20 billion in redemption requests on real estate managers out there. That money's probably going to go somewhere else. Sorry, on the private credit managers out there. People like real estate because it not only gives a good source of income, it has a hedge. You know, it's an inflation hedge. I think that's why we're seeing this pickup in interest in real estate. Our venture group has done well too. You know, I think the key message here is this was a very diversified portfolio, diversified raise, as opposed to a real concentration. There are literally over 30 entities that raise money for in our alt space.

Speaker #3: That money's probably going to go somewhere else. People like—sorry—on the private credit managers out there. People like real estate because it not only gives a good source of income.

Speaker #3: It has a hedge. It's an inflation inflation hedge. And so I think that's why we're seeing this pick up in interest in real estate.

Speaker #3: And then our venture group has done well too. was a very diversified portfolio diversified raise as opposed to a real concentration. They're literally over 30 entities that raise money for in our alt space.

Daniel Gamba: I want to point one more point, Jenny, to what you're talking about, which I think this quarter we've had positive contribution from every single region, which is very important.

Speaker #2: And I want to point one more point, Jenny, to what you're talking about, which I think this quarter we've had positive contribution from every single region, which is very important.

Jennifer Johnson: Yeah.

Jenny Johnson: Yeah.

Daniel Gamba: In the alts fundraise, we have seen growing demand outside the US, with 40% coming from outside the US sources, about 16% from EMEA, and 23% for APAC. As an example, we successfully launch new vehicles in Korea, Thailand, Taiwan, with a strong momentum in Japan, which is a key market for us, given we're putting increasing resources there. In EMEA, we're now servicing 11 markets, which is like 5 more markets than a year prior, given increasing demand for our LTFs across all three capabilities, including ventures.

Speaker #2: And in the alts fundraise, we have seen growing demand outside the US with 40% coming from outside the US sources. About 16% from EMEA and 23% for APAC.

Speaker #2: As an example, we successfully launched a funds a new vehicles in Korea, Thailand, Taiwan. With a strong momentum in Japan. Which is a key market for us given and we're putting increasing resources there.

Speaker #2: And in EMEA, we're now servicing 11 markets. Which is like five more markets than a year prior. Given increasing demand for our LTIFs across all three capabilities including ventures.

Benjamin Budish: Okay, great. Thank you all very much.

Ben Budish: Okay, great. Thank you all very much.

Speaker #2: Okay. Great. Thank you all very much.

Operator 2: Our last question comes from Kenneth Worthington with J.P. Morgan. Please go ahead.

Operator: Our last question comes from Kenneth Worthington with J.P. Morgan. Please go ahead.

Speaker #1: And our last question comes from Ken Worthington with JP Morgan. Please go ahead.

Kenneth Worthington: Hi. Good morning. Thanks for taking the question. We're seeing ETF distribution fees being requested by intermediaries and being dismissed by some of the larger or largest ETF managers. How is Franklin thinking about ETFs and distribution fees, and do you see the potential for ETF access to drive market share shifts in ETFs, potentially favoring Franklin?

Ken Worthington: Hi. Good morning. Thanks for taking the question. We're seeing ETF distribution fees being requested by intermediaries and being dismissed by some of the larger or largest ETF managers. How is Franklin thinking about ETFs and distribution fees, and do you see the potential for ETF access to drive market share shifts in ETFs, potentially favoring Franklin?

Speaker #6: Hi. Good morning. Thanks for taking the question. We're seeing ETF distribution fees being requested by intermediaries and being dismissed by some of the larger or largest ETF managers.

Speaker #6: How has Franklin been thinking about ETFs and distribution fees? And do you see the potential for ETF access to drive market share shifts in ETFs, potentially favoring Franklin?

Jennifer Johnson: Well, since Daniel's career started at BGI at the early days of ETF, I'm gonna let him answer this one.

Jenny Johnson: Well, since Daniel's career started at BGI at the early days of ETF, I'm gonna let him answer this one.

Speaker #3: Well, since Daniel's career started at the at BGI at the early days of ETFs, I'm going to let him answer this one.

Daniel Gamba: Yeah. Thank you for that question. I'll say that the ETFs is one of the most exciting developments that we have here in Franklin Templeton. Our platform reached $62 billion at the end of the quarter, and that's double what we have 18 months ago. Our flows, the organic growth of the flows, just the fiscal year to date, which is only 2 quarters, 49%. We're growing really across the board. The three main drivers for ETFs, active ETFs, the industry is talking about it, 45% of what we have. It grew 70% relative to a year ago. We just reached our Putnam Focused Large Cap Value ETF. PVAL is nearing $10 billion and is double in 6 months. We have plans to launch every major fundamental PM with a large franchise will manage their own ETF.

Speaker #6: Yeah. So thank you for that question. I'll say that the ETFs is one of the most exciting developments that we have here in Franklin Templeton.

Speaker #6: Our platform reached 62 billion at the end of the quarter. And that's double what we have 18 months ago. Our flows the organic growth of the flows just fiscal year to date, which is only two quarters, 49%.

Speaker #6: And we're growing really across the board. The three main drivers for ETFs—active ETFs—the industry's talking about it. Forty-five percent of what we have.

Speaker #6: It grew 70% relative to a year ago. We just reached our focus large cap value ETF PVAL is nearing $10 billion. And it's doubled in six months.

Speaker #6: And we have plans to launch every major fundamental PM with a large franchise. We'll manage their own ETF. The other part that I think is worth mentioning is we converted 10 muni mutual funds the last quarter.

Daniel Gamba: The other part that I think is worth mentioning is we converted 10 muni mutual funds the last quarter. Now that's a full growth platform. It's helping growth not only ETFs, but also muni mutual funds, muni SMAs, which is excellent. The other driver is single country and regional ETFs that represent 30% of the platform. They all had excellent inflows. We grow over 3 billion flows into these country ETFs, including Korea, Japan, Taiwan. Given our heritage in managing local assets, we will continue to develop and launch more country and regional ETFs. The third driver is systematic and smart beta, that is 20%, that is managed by our Franklin Templeton Investment Solutions. We have the Franklin International Low Volatility High Dividend Index ETF approaching 5 billion. We will continue to do that.

Speaker #6: And now that's a full growth platform, and it's helping grow not only ETFs but also muni mutual funds and muni SMAs, which is excellent. The other driver is single-country and regional ETFs that represent 30% of the platform.

Speaker #6: They all had excellent inflows. And we grew over $3 billion in flows into these country ETFs, including Korea, Japan, and Taiwan. And given our heritage in managing local assets, we will continue to develop and launch more country and regional ETFs.

Speaker #6: And the third driver is systematic and smart data that is 20% that is managed by our Franklin Templeton Investment Solutions. We have the Franklin International Low Volatility High Dividend ETF approaching $5 billion.

Speaker #6: We will continue to do that. And clearly, we have a great track record on ETFs. And we are doubling down on that. Of course, a lot of our capabilities come from excellent relationships and partnerships with our clients.

Daniel Gamba: Clearly, we have a great track record on ETFs, and we are doubling down on that. Of course, a lot of our capabilities come from excellent relationships and partnership with our clients. We have a US wealth platform that is almost $800 billion and is one of the largest with hundreds of salespeople covering and educating our sales advisors. Of course, we review our business with all our platforms regularly, and as we evolve our platform and value to clients, we will prioritize our platforms that deliver the most value to us.

Speaker #6: We have a US wealth platform that is almost $800 billion. And it's one of the largest with hundreds of salespeople covering an educating our sales advisors.

Speaker #6: Of course, we review our business with all our platforms regularly. And as we evolve our platform and value to clients, we will prioritize the platforms that deliver the most value to us.

Daniel Gamba: On the ETF discussions, we are clearly creating business plans with our partners, and those that have the most impact investing in education, sales, and support, and impact the business will continue to be major partners, and we will continue to discuss how can we grow our business together. Clearly, ETFs is one of the areas where you're gonna hear much more from us going forward.

Speaker #6: So, on the ETF discussions, we are clearly creating business plans with our partners. And those that have the most impact—investing in education, sales, and support, and impacting the business—will continue to be major partners.

Speaker #6: And we will continue to discuss how we can grow our business together. So, clearly, ETFs is one of the areas where you're going to hear much more from us going forward.

Jennifer Johnson: So just, to that last point that Daniel was making, look, platforms always want to have more revenue share. Like that's just the reality. ETFs are not structured in the same way that mutual funds were. Platforms, depending on the platform, they can influence growth and opportunity for ETFs or not. If the platform is actually going to be able to have some positive influence, then that's a discussion we have. To the extent that they can't influence ultimately in the end, then we wouldn't, you know, we wouldn't consider any of those fees.

Jenny Johnson: So just, to that last point that Daniel was making, look, platforms always want to have more revenue share. Like that's just the reality. ETFs are not structured in the same way that mutual funds were. Platforms, depending on the platform, they can influence growth and opportunity for ETFs or not. If the platform is actually going to be able to have some positive influence, then that's a discussion we have. To the extent that they can't influence ultimately in the end, then we wouldn't, you know, we wouldn't consider any of those fees.

Speaker #3: And so just to that last point that Daniel was making, look, platforms always want to have more revenue share. Like that's that's just the reality.

Speaker #3: ETFs are not structured in the same way that mutual funds were. And platforms depending on the platform, they can influence growth and opportunity for ETFs or not.

Speaker #3: And so, if the platform is actually going to be able to have some positive influence, then that's a discussion we have. To the extent that they can't influence, ultimately in the end, then we wouldn't—you know, we wouldn't consider any of those fees.

Kenneth Worthington: Got it. Because some are not gonna participate in or don't wanna participate in the fees, do you think it drives share to shift from those that are willing to partner with distribution from those that are not?

Ken Worthington: Got it. Because some are not gonna participate in or don't wanna participate in the fees, do you think it drives share to shift from those that are willing to partner with distribution from those that are not?

Speaker #6: Got it. And because some are not going to participate in or don't want to participate in the fees, do you think it drives share to shift from those that are willing to partner with distribution from those that are not?

Jennifer Johnson: Different platforms have different influence, right? If you can heavily influence, yes, there'll potentially be some amount of shift on what you can influence. The reality is the financial advisor is getting more and more independent. To the extent that they're on one of these platforms and they're an RIA, they don't care what the platform is telling them. They're gonna sell what they sell. It, it ends up being really kinda, you know. That's where having a huge work sales force is so important because it's hand-to-hand combat. You know, if they choose the model from the platform, then the platform influences it. Most of the big RIAs who are big ETF users actually decide on their own.

Jenny Johnson: Different platforms have different influence, right? If you can heavily influence, yes, there'll potentially be some amount of shift on what you can influence. The reality is the financial advisor is getting more and more independent. To the extent that they're on one of these platforms and they're an RIA, they don't care what the platform is telling them. They're gonna sell what they sell. It, it ends up being really kinda, you know. That's where having a huge work sales force is so important because it's hand-to-hand combat. You know, if they choose the model from the platform, then the platform influences it. Most of the big RIAs who are big ETF users actually decide on their own.

Speaker #3: Different platforms have different influence, right? And so, if you can heavily influence, yes, there'll potentially be some amount of shift on what you can influence.

Speaker #3: But the reality is the financial advisor is getting more and more independent. And to the extent that they're on one of these platforms and they're an RIA, they don't care what the platform's telling them.

Speaker #3: They're going to sell what they sell, and so it ends up being really kind of—you know, that's where having a huge work Salesforce is so important.

Speaker #3: Because it's hand-to-hand combat. You know, if they choose the model from the platform, then the platform influences it. But most of the big RIAs, who are big ETF users, actually decide on their own.

Kenneth Worthington: Thank you.

Ken Worthington: Thank you.

Jennifer Johnson: Thanks.

Jenny Johnson: Thanks.

Matthew Nicholls: Quick point of clarification from an earlier question that we wanted to just clarify that I think Alex asked the question around alternative asset fee versus non-fee generating. Just to be clear, the 90% that we talked about, approximately 90%, that's potential to earn fees on that. The fee-generating, current fee-generating AUM is about 80%, and that's on the full $283 billion.

Speaker #6: Thank you.

Speaker #2: Quick quick point of clarification from an earlier question that we wanted to just clarify that I think Alex asked the question around alternative asset versus non-fee generating.

Speaker #2: Just to be clear, the 90% that we talked about, approximately 90%, that's potential to earn fees on that. The fee generating current fee generating AUM is about 80%.

Speaker #2: And that's on the full $283 billion. Just want to make sure.

Jennifer Johnson: it varies depending on alt manager.

Jenny Johnson: it varies depending on alt manager.

Speaker #3: And it varies depending on alts managers. That's the blended. Yeah.

Matthew Nicholls: Yeah

Jennifer Johnson: Stuff, so blended. Yeah.

Jenny Johnson: Stuff, so blended. Yeah.

Matthew Nicholls: Exactly. Just wanted to make sure we clarify that.

Speaker #2: Exactly. Just wanted to make sure we clarify that.

Operator 2: Our next question comes from Brian Bedell with Deutsche Bank. Please go ahead.

Operator: Our next question comes from Brian Bedell with Deutsche Bank. Please go ahead.

Speaker #1: Our next question comes from Brian Bedell with Deutsche Bank. Please go ahead.

Brian Bedell: Great. Great. Thanks for squeezing me in here. Actually one on Franklin Crypto. Jennifer Johnson, if you could just talk a little bit about, you know, what market are you targeting for that and the different products types as you evolve your Franklin Templeton Digital Assets. Also on the tokenization of money funds, the Benji Fund and your view on, you know, to what extent we'll see the development of tokenized money funds accelerate, you know, given obviously the use cases and the, you know, the yield cases, especially within the digital asset platforms.

Speaker #7: Okay. It's great. Thanks for squeezing me in here. Actually, one on Franklin Crypto. Jenny, if you could just talk a little bit about, you know, what target market you're—or what market are you targeting for that, and the different product types?

Speaker #7: Is as you evolve, you know, Franklin Digital Assets. And then also on the tokenization of money funds, the Benji Fund and your your view on, you know, to what extent we'll see the development of tokenized money funds accelerate.

Speaker #7: You know, given obviously the use cases and the, you know, the you know, the yield cases especially within the digital asset platforms.

Jennifer Johnson: Yeah. Great. First of all, why do I love blockchain? Because it's a really efficient technology that drives down costs. That's a good thing for us as an industry and for our clients. You have to have a wallet to actually hold a token. A wallet is just a cryptography that matches to that token, but you just have to have it. All of our traditional distributors, very few of them actually have a wallet. You have to go to the exchanges. When you ask me where is the kinda immediate opportunity, it's an exchange, a crypto exchange, a Kraken, an Ondo Finance, a Coinbase, Binance that have wallets there. Two things are happening. One is, you know, it's an obvious place to integrate Benji, so people wanna put money into cash.

Jenny Johnson: Yeah. Great. First of all, why do I love blockchain? Because it's a really efficient technology that drives down costs. That's a good thing for us as an industry and for our clients. You have to have a wallet to actually hold a token. A wallet is just a cryptography that matches to that token, but you just have to have it. All of our traditional distributors, very few of them actually have a wallet. You have to go to the exchanges. When you ask me where is the kinda immediate opportunity, it's an exchange, a crypto exchange, a Kraken, an Ondo Finance, a Coinbase, Binance that have wallets there. Two things are happening. One is, you know, it's an obvious place to integrate Benji, so people wanna put money into cash.

Speaker #3: Yeah. Great. So first of all, why do I love blockchain? Because it's a really efficient technology that that drives down costs. So that's a good thing for us as an industry and for our clients.

Speaker #3: But you have to have a wallet to actually hold a token. A wallet is just cryptography that matches to that token. But you just have to have it.

Speaker #3: And all of our traditional distributors, very few of them actually have a wallet. So you have to go to the exchanges. So when you ask me, where's the kind of immediate opportunity?

Speaker #3: It's an exchange, a crypto exchange, a Kraken, an OnDo, a Coinbase. Binance that have wallets there. And two things are happening. One is they're they're, you know, it's an obvious place to integrate Benji.

Speaker #3: So people want to put money into cash. If it's in their stablecoin, they don't earn any yield. So they can shift it into a money market fund and earn yield on that.

Jennifer Johnson: If it's in their stable coin, they don't earn any yield, so they can shift it into a money market fund and earn yield on that. That's an obvious opportunity for us. The second thing that's happening, and you just take the top 5 exchanges, they have a billion wallets there. From a new client base, kinda interesting, and they're thinking about offering traditional products there. We have launched, I think, 8 ETFs, tokenized ETFs on one of the exchanges and 5 on the other, and we're talking to other exchanges. You know, we've got 8 on Kraken and 5 on Ondo. These are just in case those investors are interested in more traditional products. You couldn't hold an ETF or a mutual fund unless it was tokenized, and because they have no other way of holding it.

Jenny Johnson: If it's in their stable coin, they don't earn any yield, so they can shift it into a money market fund and earn yield on that. That's an obvious opportunity for us. The second thing that's happening, and you just take the top 5 exchanges, they have a billion wallets there. From a new client base, kinda interesting, and they're thinking about offering traditional products there. We have launched, I think, 8 ETFs, tokenized ETFs on one of the exchanges and 5 on the other, and we're talking to other exchanges. You know, we've got 8 on Kraken and 5 on Ondo. These are just in case those investors are interested in more traditional products. You couldn't hold an ETF or a mutual fund unless it was tokenized, and because they have no other way of holding it.

Speaker #3: So that's an obvious opportunity for us. The second thing that's happening, and you just take the top five exchanges, they have a billion wallets there.

Speaker #3: So from a new client base, kind of interesting. And they're thinking about offering traditional products there. So we have launched, I think, eight ETFs tokenized ETFs on one of the exchanges and five on the other.

Speaker #3: And we're talking to other exchanges. So, you know, we've got eight on Kraken and five on OnDo. And these are just in case those investors are interested in more traditional products.

Speaker #3: And so you couldn't hold an ETF or a mutual fund unless it was tokenized, and because they have no other way of holding it.

Jennifer Johnson: We think that's an interesting new opportunity for us. The other thing is you saw that we, you know, we're bringing in a small team, 250 Digital, and they actually are, they kind of have an institutional, think of it as a crypto venture fund. What we found is there are institutional investors who would like exposure to the space but aren't comfortable with a small firm. Now that they're part, we think that, they don't start until this fall, but when they start, we'll get some demand from institutional clients who are interested in investing in kind of a venture part of the crypto space.

Jenny Johnson: We think that's an interesting new opportunity for us. The other thing is you saw that we, you know, we're bringing in a small team, 250 Digital, and they actually are, they kind of have an institutional, think of it as a crypto venture fund. What we found is there are institutional investors who would like exposure to the space but aren't comfortable with a small firm. Now that they're part, we think that, they don't start until this fall, but when they start, we'll get some demand from institutional clients who are interested in investing in kind of a venture part of the crypto space.

Speaker #3: So we think that's an interesting new opportunity for us. The other thing is you saw that we you know, we we're bringing a small team 250 digital and they actually are they kind of have an institutional think of it as a crypto venture fund.

Speaker #3: And what we found is there are institutional investors who would like exposure to the space but aren't comfortable with a small firm. And so now that they're part we think that and they don't start until this fall.

Speaker #3: But when they start, we'll get some demand from institutional clients who are interested in investing in kind of a venture part of the of the crypto space.

Brian Bedell: Okay. The punchline, I guess, is that we should expect an acceleration of your tokenized products as you roll this out over the next few quarters, let's say?

Speaker #7: Okay. And so the punchline, I guess, is that we should expect an acceleration of of your tokenized products as you roll this out over the next few quarters, let's say?

Jennifer Johnson: Yeah. I mean, look, these things are always a hockey stick, right? Right now, it just depends on how much adoption, say, the tokenized ETFs get on those exchanges. We are seeing some traction where we are in programs where the Benji product is an option, and so we're starting to see some traction there. I think it takes a little time to kinda sell people and educate on the space.

Jenny Johnson: Yeah. I mean, look, these things are always a hockey stick, right? Right now, it just depends on how much adoption, say, the tokenized ETFs get on those exchanges. We are seeing some traction where we are in programs where the Benji product is an option, and so we're starting to see some traction there. I think it takes a little time to kinda sell people and educate on the space.

Speaker #3: Yeah. I mean, look, these things are always a hockey stick, right? So right now, it's it just depends on how much adoption, say, the the tokenized ETFs get in the on those exchanges.

Speaker #3: We are seeing some traction where we are in programs where the Benji product is an option. And we start we're starting to see some traction there.

Speaker #3: But I think it takes a little time to kind of sell people and educate on the space.

Brian Bedell: Yep. Yep, definitely. Yep. Great. Thank you so much.

Speaker #7: Yep. Yep. Definitely. Yep. Great. Thank you so much.

Matthew Nicholls: We think somebody was trying to get in earlier with a question on capital management, why don't we just answer that.

Speaker #2: We think somebody was trying to get in earlier too, with a question on capital management. So why don't we just answer that, so we have it if we have time?

Jennifer Johnson: Let's do it, yep.

Jenny Johnson: Let's do it, yep.

Matthew Nicholls: If we have time. I think the question was on our capital management priorities. I'll start, and maybe Jenny, then you-

Speaker #2: So I think the question was on our capital management priorities. So I'll stop and maybe, Jenny, you can take over. Jenny, so I think capital management priorities—obviously our dividend is always, you know, top of the list in that regard.

Jennifer Johnson: You go ahead.

Jenny Johnson: You go ahead.

Matthew Nicholls: Great, Jennifer. In capital management priorities, obviously, our dividend is always, you know, top of the list in that regard, so we wanna make sure the dividend is in place and continue to protect the increased dividend that we have each year. Our organic growth is taking up more capital than it has done in the past, so our seek capital and co-invest balance sheet allocation has increased again to $2.9 billion, up from $2.8 last quarter. As I mentioned in the previous quarter, we expect that to be closer to $3 billion by the time we reach the end of the year.

Speaker #2: So we want to make sure the dividend is in place. And continue to protect the increased dividend that we have each year. Our organic growth is taking up more capital.

Speaker #2: And it has done in the past. So our seed capital and co-invest balance sheet allocation has increased again to $2.9 billion, up from $2.8 billion last quarter.

Speaker #2: As I mentioned in the previous quarter, we expect that to be close to 3 billion by the time we end of the reach the end of the year.

Matthew Nicholls: We've always repurchased our employee-related stock grants to make sure we hedge our shares out to basically zero out for the year, keep the same amount of shares outstanding. Obviously, we have opportunistic share repurchases. M&A is, I think you all know, it's just super active. There are some areas of focus here, mostly distribution-related. I'd say Jennifer Johnson may wanna make some additional comments on this. Distribution-related, a little bit bolt-ons related to alternative assets, in particular overseas. We're quite involved in reviewing those things. I'd say most of the M&A/sort of inorganic activity is around partnership strategic activity in connection with distribution.

Speaker #2: We're always repurchase. Our employee-related stock grants to make sure we hedge our our share our shares out to to basically zero out for the year, keep the same amount of shares outstanding.

Speaker #2: Then, obviously, we have opportunistic share repurchase. And then M&A is, I think you all know, just very, very, super active. There are some areas of focus here.

Speaker #2: Mostly distribution-related. I'd say, Jenny, may want to make some additional comments on this. But distribution-related, a little bit bolt-ons related to alternative assets in particular overseas.

Speaker #2: We're quite involved in reviewing those things. But I'd say most of the M&A/inorganic activity is around partnerships, strategic activity, in connection with distribution.

Jennifer Johnson: Great. I think you covered it very well, Matt.

Jenny Johnson: Great. I think you covered it very well, Matt.

Speaker #3: Great. I think you covered it very well, Matt.

Speaker #2: Okay.

Matthew Nicholls: Okay.

Jennifer Johnson: Operator?

Jenny Johnson: Operator?

Speaker #3: Operator?

Operator 2: Okay. This does conclude today's Q&A session. I would now like to hand the call back over to Jennifer Johnson, Franklin's CEO, for final comments.

Operator: Okay. This does conclude today's Q&A session. I would now like to hand the call back over to Jennifer Johnson, Franklin's CEO, for final comments.

Speaker #1: Okay. And this does conclude today's Q&A session. I would now like to hand the call back over to Jenny Johnson. FRANKLIN's CEO for final comments.

Jennifer Johnson: Great. Well, listen, everybody, thank you for participating in the call today. You know, once again, we are a people business, and I wanna thank all our employees for their hard work and dedication to the company, and we look forward to speaking with all of you again next quarter. Thank you.

Jenny Johnson: Great. Well, listen, everybody, thank you for participating in the call today. You know, once again, we are a people business, and I wanna thank all our employees for their hard work and dedication to the company, and we look forward to speaking with all of you again next quarter. Thank you.

Speaker #3: Okay. Well, listen, everybody, thank you for participating in the call today. And, you know, once again, we are a people business. And I want to thank all our employees for their hard work and dedication to the company.

Speaker #3: And we look forward to speaking with all of you again next quarter. Thank you.

Operator 2: 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.

Q2 2026 Franklin Resources Inc Earnings Call

Request DemoDemo

Franklin Resources

Earnings