Franklin Resources, Inc. Q4 FY2025 earnings call

• Year 1 of the 5-year plan showed progress in alternatives, ETFs, and Canvas, with other areas on track.
• In Investment Management, public markets focused on performance and product lineup, while private markets saw growth with the Apera acquisition and $22.9B fundraising in 2025.
• Distribution had growth in retail SMAs, ETFs, and Canvas, with retail SMAs AUM at $165B, Canvas AUM tripling since 2023, and ETFs with a 75% CAGR since 2023.
• Private Wealth Management's Fiduciary Trust International had $43B AUM in 2025 with a goal to double by 2029.
• Digital Assets and AI initiatives included $1.7B tokenized AUM and AI adoption across investment, operations, sales, and marketing.

Investment Management: Public markets have over 50% of mutual funds, ETFs, and composites outperforming peers and benchmarks. Private markets have $270 billion in alternative AUM, with $95 billion in private credit post-Apera acquisition. Fiscal 2025 private markets fundraising was $22.9 billion, with a target of $25-30 billion in 2026. Distribution: Retail SMAs AUM is $165 billion, growing at a 21% compound annual rate since 2023. Canvas AUM has more than tripled since 2023, with an 82% compound annual growth rate. ETF AUM has grown at a 75% compound annual rate since 2023, with 16 consecutive quarters of net inflows. Private Wealth Management: Fiduciary Trust International AUM stood at $43 billion in fiscal 2025, with a goal to double AUM by 2029. Digital Assets: Tokenized and digital AUM stands at $1.7 billion, up 75% from the beginning of 2025.

• Fiscal 2026 Q1 expects EFR to remain at mid-37 basis points. Compensation and benefits are ~$880M, IS&T ~$155M, occupancy ~$70M, and G&A $190-195M.
• Target to end fiscal 2026 at or below adjusted expenses vs 2025 with a higher operating margin.
• Private markets fundraising target for 2026 is $25-30 billion.

• Market dynamics including geopolitical and macro factors affecting performance.
• Past challenges with Western Asset and integration efforts.
• Pressure from distribution partners on revenue shares for ETFs and other products.

Q: Alex Blostein from Goldman Sachs asked about alts fundraising and Lexington's flagship fund.

A: Jennifer Johnson stated the 2026 alts fundraising target is $25-30 billion, with Lexington potentially contributing half, and the first close of Lexington's flagship fund expected in the first half of 2026.

Q: Benjamin Budish from Barclays inquired about infrastructure product pipeline.

A: Jennifer Johnson explained the infrastructure partnership with DigitalBridge, Copenhagen Infrastructure Partners, and Actis, aiming to build a fund for the wealth channel.

Q: William Katz from TD Cowen asked about AI and tokenization.

A: Jennifer Johnson discussed tokenization's efficiency and new distribution capabilities via partnerships like with Binance, and AI initiatives across investment, operations, sales, and marketing.

Q: Brennan Hawken from BMO Capital Markets asked about Lexington flagship fund timing and size.

A: Jennifer Johnson said the first close of Lexington's flagship fund is expected in the first half of 2026 with a target size of ~$25 billion.

Q: Patrick Davitt from Autonomous Research asked about ETF distribution and fees.

A: Jennifer Johnson and Matt Nicholls explained that ETF growth isn't heavily tied to Schwab, and the focus is on active ETFs and dealing with revenue share programs. The G&A remark referred to alternative asset placement fees, not ETF/mutual fund fees.

Q: Craig Siegenthaler from Bank of America asked about tax-efficient suites and hedge funds.

A: Jennifer Johnson and Adam Spector discussed growth in tax-efficient products like munis, direct indexing, and the MOST options overlay product, with Canvas and direct indexing seeing strong flows.

Q: Brian Bedell from Deutsche Bank asked about credit alternative business.

A: Jennifer Johnson stated no systemic credit deterioration concerns, and the Apera acquisition bolsters direct lending capabilities in Europe.

Q: Dan Fannon from Jefferies asked about fee rate outlook.

A: Matthew Nicholls explained the EFR is stable with upside from alternative asset raises, offset by lower fees in ETFs, Canvas, and multi-asset solutions.

Q: Kenneth Worthington from JPMorgan Chase & Company asked about shareholder servicing fees.

A: Matthew Nicholls and Jennifer Johnson said it's seasonal and related to TA outsourcing arrangements.

Q: Michael Cyprys from Morgan Stanley asked about agentic AI and Wand AI partnership.

A: Jennifer Johnson discussed partnerships with Microsoft, AWS, and Wand AI for AI initiatives across investment, operations, sales, and marketing, with Wand AI providing free resources and co-developing solutions.