Franklin Resources, Inc.

Welcome to Franklin Resources Earnings Conference Call for the quarter ended March 31st, 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, Celine Oh, Head of Investor Relations for Franklin Resources. 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. These forward-looking statements involve a number of known and unknown risks, uncertainties, and other important factors that could cause actual results to differ materially from any future results expressed or implied by such forward-looking statements. These and other risks, uncertainties, and other important factors are just described in more detail in Franklin's recent filings with the Securities and Exchange Commission, including in the risk factors and the MD&A sections of Franklin's most recent Form 10-K and 10-Q filings. Now, I'd like to turn the call over to Jenny Johnson, our Chief Executive Officer. Thank you, Celine.

Welcome, everyone, and thank you for joining us today to review Franklin Templeton's second fiscal quarter results. I'm joined by Matt Nichols, Co-President and CFO, and Daniel Gamba, Co-President and Chief Commercial Officer. 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. 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. 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 remain 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. 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. 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. 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. 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, and we saw positive net flows across large-cap value and core, systematic, and single-country ETFs, infrastructure, and sector strategies. 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. 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 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. 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. 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 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. 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, or 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. A leader in retail SMAs, we managed $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 positive net flows of $5.3 billion, 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. 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'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. 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 a positive long-term net flows of $5.5 billion in aggregate. Non-U.S. 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. Yuznif 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. 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 ten year periods and approximately two thirds over the one and five year periods. 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. In fixed income, 83% and 82% of AUM is outperforming benchmarks over the one and five 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. 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.