Franklin Resources 2026 Q3 Earnings Call

You may begin. 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 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, Selene. Welcome everyone, thank you for joining us today to review Franklin Templeton's third fiscal quarter results. I'm joined today by Matt Nicholls, our Co-President and CFO, and Daniel Gamba, our Co-President and Chief Commercial Officer. We'll answer your questions momentarily, First I'd like to highlight key results and themes shaping our business. This was another strong quarter for Franklin Templeton that demonstrated our strategy is working. We delivered another quarter of positive long-term net inflows with positive flows across every asset class and every geography. We also reached new highs in assets under management across many of our key growth businesses, including alternatives, ETFs, retail SMAs, Canvas, and our institutional pipeline. Together, these results reflect the strength of our global platform and the momentum we're building across the business. Today we are ahead of our five-year plan, a testament to disciplined execution.

We have broadened our capabilities across public and private markets, deepened client relationships and expanded the ways clients access our investment expertise. These investments are creating multiple sources of organic growth and positioning us well for the future. At the center of our strategy is one Franklin Templeton. Increasingly, clients are turning to us not just as an asset manager, but as a trusted partner that combines investment expertise, innovation and global scale to help them navigate complex markets and achieve their long-term objectives. We continue to simplify our go-to-market approach to better serve clients and capture opportunities across the business. The results we reported today reflect strong execution in the quarter, with $18.4 billion in long-term net inflows, bringing fiscal year-to-date long-term net inflows to $63.3 billion. This was another consecutive quarter of positive net flows with positive net flows across every asset class and geography.

Long-term inflows reached a record $122 billion and assets under management grew to a record $1.8 trillion. Each of our key growth areas, including alternatives and private markets, ETFs including fundamental active ETFs, retail SMAs and Canvas, multi-asset solutions and our international franchise contributed meaningfully to the quarter. That broad-based performance reflects the investments we've made over the past several years to build a more diversified business. The strength of our business today is translating into future opportunities. Our institutional pipeline of won but unfunded mandates reached a record $28.6 billion, increasing more than $8 billion from last quarter. Institutional clients continue to seek strategic partners that can deliver integrated solutions across public and private markets rather than individual products. That plays directly to the strengths of our platform.

One of the most encouraging developments this quarter was the continued strengthening of our public markets franchise, with growth broadening across asset classes and investment capabilities. Equity returned to positive net flows of $2 billion, reflecting strong demand across U.S. large cap value, U.S. large cap core, international equity, infrastructure and systematic strategies. Our global fixed income platform generated $2.6 billion of net inflows supported by broad-based demand across enhanced liquidity, municipals, multi-sector, stable value as well as highly customized institutional mandates. Excluding Western Asset, Franklin Templeton Fixed Income delivered its tenth consecutive quarter of positive net flows with $3.5 billion of net flows while Western continued to stabilize. We're also seeing clients think differently about credit. Rather than viewing public and private markets separately, they're looking for integrated solutions.

Franklin Templeton Fixed Income $520 billion platform together with our private credit capabilities of more than $100 billion gives us more than $620 billion in AUM across the full credit spectrum. That breadth positions us well as clients increasingly seek fewer partners that can provide solutions across public and private credit. We won a multi-asset credit mandate from a public plan and are participating in various RFPs. This quarter generated $4.7 billion of positive net flows led by Canvas, Franklin Income Fund, and Franklin Templeton Investment Solutions. As mentioned earlier, these results reinforce that our public markets franchise is broadening the sources of our organic growth with clients increasingly relying on Franklin Templeton for active strategies, outcome-oriented solutions, and customized portfolios.

Private markets remain one of the industry's most compelling long-term growth opportunities. We believe Franklin Templeton is uniquely positioned as a leading partner in this space. We've built one of the industry's largest and most diversified private markets platforms spanning secondary private equity, private credit, real estate, and venture capital. Alternative AUM reached a record $294 billion during the quarter after $3 billion of realizations and distributions. We raised $11.8 billion across our alternatives platform during the quarter, including $10.3 billion in private markets, bringing fiscal year-to-date fundraising to $33 billion, already exceeding our original full-year target with one quarter remaining. Fundraising remained diversified across strategies and client channels, reflecting the breadth of our platform and continued demand from both institutional and wealth clients. As private markets become more accessible, we're also seeing continued growth in the wealth management channel.

Our Evergreen platform across secondary private equity, private credit, and real estate grew to $8.9 billion in AUM, reflecting increasing adoption by individual investors. Wealth management accounted for approximately 20% of our private markets fundraising year-to-date across Evergreen and drawdown vehicles. Demonstrating the progress we're making in bringing institutional-quality private market capabilities to a broader range of investors. We believe expanding access to private markets will be one of the industry's most significant long-term growth opportunities, and Franklin Templeton's longstanding advisor relationships position us well to capitalize on that trend. More broadly, clients increasingly want choice, not only in what they invest in, but how they access investment capabilities. Because preferences vary across client segments, distribution channels, and geographies we offer a broad range of investment vehicles to meet those evolving needs. That strategy continues to gain momentum with record AUM across our ETF, retail SMA, and Canvas businesses.

Our ETF franchise reached a record $75.6 billion in AUM with $7.1 billion of net inflows during the quarter. ETFs have become an increasingly important way clients access our investment capabilities, and we continue to expand our offering by bringing more of our highest conviction active strategies into the ETF wrapper. Active ETFs account for 61% of ETF net flows, reflecting both the strength of our investment platform and continued demand for differentiated active strategies. Demand for personalized investing continued to grow. Our retail SMA business reached a record $187.6 billion in AUM with $4.4 billion of net inflows, while Canvas, our custom portfolio solutions platform, grew to a record $30.3 billion in AUM with $3.7 billion of net inflows. During the quarter, we also launched our preferred partner program extending Canvas's tax overlay capabilities to strategic partners.

With clients in over 150 countries, or about 80% of the world, and on-the-ground presence in over 30 countries, our international business continues to be an important differentiator for Franklin Templeton. International AUM reached approximately $525 billion with positive long-term net flows in every region. Innovation also remains central to how we continue to evolve our business. We're investing in new capabilities, technologies, and distribution channels that expand client access and strengthen our competitive position. Digital assets are a good example. Digital asset AUM ended the quarter at $3.2 billion, including $2.4 billion in tokenized funds and approximately $600 million in crypto ETFs. During the quarter, we completed our acquisition of 250 Digital and launched Franklin Crypto, expanding capabilities across the digital asset ecosystem.

We also announced a partnership with MoonPay and will collaborate with Payward, the parent of Kraken, to expand access to tokenized investment products and bring traditional financial assets on chain. These initiatives reflect our belief that blockchain will become an increasingly important part of financial markets. Franklin Templeton intends to be at the forefront of the evolution. Strong investment performance remains fundamental to earning our clients' trust and supporting long-term growth. More than half of our mutual fund and ETF AUM outperformed peers over the three, five, and 10-year periods, while nearly half is rated four or five stars by Morningstar. Our strategy composites also delivered strong long-term results with 55% or more of AUM outperforming benchmarks over the three and five-year periods, and 70% over 10 years. Consistent performance across market cycles continues to strengthen our ability to win and retain clients. Turning briefly to our financial results.

Adjusted operating income increased to $508.9 million, up 7% from the prior quarter and 35% from a year ago. The improvement reflects higher average AUM, disciplined expense management, and the continued execution of our efficiency initiatives, demonstrating the operating leverage of our diversified business model. As we look ahead, we're confident in the direction of the business. The investments we made over the past several years have created a broader, more diversified Franklin Templeton, and we believe that positions us well to continue serving clients and delivering long-term growth. We remain disciplined in managing expenses while continuing to invest strategically in the capabilities, while maintaining financial flexibility to drive long-term growth and return capital to shareholders. This quarter, we returned $521.5 million to shareholders, including $348.1 million in share repurchases.