• Assets Under Management (AUM): Ended the quarter at $1.54 trillion, a decrease from the prior quarter.
• Institutional One-but-Unfunded Pipeline: Increased by $2.3 billion to $20.4 billion.
• Long-term Net Outflows: $26.2 billion, including $3.3 billion of reinvested distributions.
• Equity Long-term Inflows: $38.9 billion.
• Fixed Income Net Outflows: $30.5 billion; excluding Western, net inflows were $2.8 billion.
• Fundraising in Alternatives: Generated $6.8 billion for the quarter, with private market assets totaling $6.1 billion.
• ETF Net Flows: Attracted $4.1 billion during Q2, reaching a record-high AUM of $37 billion.
• Retail SMA AUM: $144.2 billion, with net inflows of $1.5 billion; excluding Western, record net inflows of $3.2 billion.
• Adjusted Operating Income: $377.2 million, a decrease of 8.6% from the prior quarter.

• Warning! GuruFocus has detected 6 Warning Signs with BEN.

Release Date: May 02, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Franklin Resources Inc (NYSE:BEN) reported a significant increase in its institutional one-but-unfunded pipeline, reaching $20.4 billion, the highest level since 2022.
• The company has a diversified asset management platform with $1.54 trillion in assets under management, spread across various asset classes, vehicles, and geographies.
• Franklin Resources Inc (NYSE:BEN) saw positive net flows in multi-asset and alternatives, generating a combined $9.7 billion in positive net flows.
• The ETF business experienced its 14th consecutive quarter of positive net flows, attracting $4.1 billion during Q2, with a record-high AUM of $37 billion.
• The company launched its first perpetual secondaries private equity fund, raising an initial combined $2 billion, demonstrating strong growth in the wealth management channel.

Negative Points

• Franklin Resources Inc (NYSE:BEN) faced long-term net outflows of $26.2 billion, primarily due to the impact of long-term net outflows at Western Asset and negative markets.
• Fixed income net outflows were significant at $30.5 billion, although excluding Western, fixed income net inflows were $2.8 billion.
• The company experienced a decrease in adjusted operating income by 8.6% from the prior quarter, primarily due to compensation expenses and the impact of Western.
• Western Asset Management, a subsidiary, faced $10 billion in outflows in April, indicating ongoing redemption pressures.
• The company is navigating market volatility and geopolitical tensions, which have created uncertainties and challenges in maintaining stable growth.

Q & A Highlights

Q: Can you provide guidance on fiscal-year expenses given recent market movements and pressures on AUM? A: Matthew Nicholls, CFO and COO, stated that the effective fee rate for the third quarter is expected to remain around 38 basis points, potentially increasing slightly in the fourth quarter. Compensation and benefits are projected to decrease to approximately $810 million, assuming $50 million in performance fees. Expenses for IS&T are expected to be $155 million, with occupancy costs remaining flat at around $70 million. General and administrative expenses are anticipated to be similar to the current quarter at $185 million. For the full year 2025, expenses are expected to be roughly flat compared to 2024, with strategic investments in growth areas funded by cost savings elsewhere.

Q: What is the base fee organic growth rate, including Western, and how does it affect the blended fee rate? A: Jennifer Johnson, CEO, explained that while it's difficult to specify the exact organic growth percentage, excluding Western, long-term debt flows were about $7.4 billion. Fixed income flows were positive at $2.9 billion, with Franklin Fixed Income seeing $5.4 billion in positive flows. The institutional pipeline is strong, particularly in Franklin Fixed Income. The effective fee rate for Western assets is in the high 15-basis-point area. Despite volatility, ex-Western flows were about flat for April.

Q: How are retail products performing amid market volatility, and what are the growth aspirations for private markets management fees? A: Jennifer Johnson noted that Franklin Templeton has raised $10.4 billion in private markets so far, approaching the lower end of their $13 billion to $20 billion guidance range. Lexington's flagship secondaries fund is expected to close later in 2025 or early 2026. The wealth channel presents a significant opportunity, with advisors aiming to increase their allocation to alternatives. Franklin Templeton's broad product capabilities and distribution network position them well to capture this growth.

Q: Can you expand on the fixed income strategies seeing success and provide an update on Western Asset Management's status? A: Jennifer Johnson highlighted that Western Asset Management's performance has been strong despite challenges, with $10 billion in outflows in April but $5 billion in gross sales. They remain part of the institutional pipeline. Adam Spector, Head of Global Distribution, added that munis, stable value, high yield, and short-duration products are seeing strong flows. The insurance sector and CLOs have also been successful areas.

Q: How is Franklin Templeton's international business contributing to revenues and flows, and what initiatives are in place to accelerate growth overseas? A: Adam Spector explained that Franklin Templeton is positive in gross sales across all regions, with a presence in over 30 countries. Regional trends include a focus on alternatives in Australia and income-oriented products in Asia. The firm is well-positioned with international and global equity products, benefiting from shifts towards non-dollar assets and value stocks. The international business accounts for $470 billion in AUM, with positive net flows in EMEA and the Americas.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.