Franklin Resources, Inc. Q3 FY2025 earnings call

• Franklin Templeton is evolving into a diversified investment manager with capabilities across public and private markets, focused on being a trusted partner for clients. - Public equity markets had a rebound with S&P 500 up nearly 11%, international and emerging markets outperformed. Public fixed income markets saw stabilization after initial sell-off. Private markets had quarterly volatility affecting IPOs and M&A, but private credit and real estate had opportunities. - Business results showed progress across asset classes, investment vehicles, and geographies. AUM ended at $1.61 trillion, institutional pipeline grew, long-term net outflows improved. Multi-asset and alternatives had positive flows, ETFs and SMAs had positive net flows. - Acquired a majority interest in Apera Asset Management, expanding direct lending capabilities in Europe. Tokenized money market fund launched intraday yield feature.

Assets under management ended the quarter at $1.61 trillion. AUM increased due to positive markets and strengthening flows, partially offset by long-term outflows at Western Asset Management. Institutional pipeline of unfunded mandates rose to a record $24.4 billion. Long-term net outflows improved to $9.3 billion from prior quarter's $26.2 billion. Multi-asset and alternatives had positive net flows, totaling $4.3 billion for the quarter. ETF platform had 15th consecutive quarter of positive net flows, reaching $44.1 billion in AUM. Retail SMAs had positive net flows with AUM up 8% to $156.3 billion. Canvas AUM was $13.7 billion, up 20% from prior quarter.

• For the fourth quarter, expected adjusted expenses to be $1.283 billion to $1.285 billion. Comp and benefits expected $860 million to $870 million, IS&T $155 million, occupancy $69 million to $70 million, G&A $190 million to $195 million. - Fiscal 2025 expenses roughly flat to 2024, perhaps $20 million to $30 million higher. - Entering fiscal 2026 with at least $200 million of run rate cost savings relative to fiscal 2025, offset by higher growth areas and Apera acquisition expenses.

• Market volatility, shifting trade policies, and geopolitical uncertainty pose risks to investment performance and business operations. - Long-term outflows at Western Asset Management and potential impact of regulatory matters on capital deployment and reserves.

Q: Glenn Schorr asked about integrating Apera into the private credit platform.

A: Jennifer M. Johnson said they think of it as a single private credit group, with Apera leveraging the broader organization for sourcing and distribution.

Q: William Raymond Katz asked about tokenization shifting economic value proposition.

A: Jennifer M. Johnson said blockchain will replace existing rails, disintermediate toll takers, and create innovation opportunities, though infrastructure needs time to roll out.

Q: Bill Katz asked about reserves and capital management.

A: Matthew Nicholls said no reserves to report, and capital priorities include dividend, organic growth, share repurchases, debt management.

Q: Alex Blostein asked about private markets growth and wealth channel.

A: Jennifer M. Johnson discussed alts fundraising, perpetual products, and importance of education and relationships in the wealth channel.

Q: Dan Fannon asked about fiscal 2026 expenses.

A: Matthew Nicholls explained $200 million cost savings in fiscal 2026, offset by growth and acquisition expenses.

Q: Kenneth Brooks Worthington asked about tokenization white labeling.

A: Jennifer M. Johnson said they are having conversations with companies, both internationally and in the U.S. due to Genius Act.

Q: Brian Bedell asked about 401(k) market and private-public integration.

A: Jennifer M. Johnson discussed retirement AUM, target date products, partnerships, and challenges in the litigious DC space.

Q: Michael Cyprys asked about non-U.S. allocations.

A: Adam Benjamin Spector said they've seen growth in non-U.S. equity and fixed income strategies due to perceived upside in non-U.S. markets