Franklin Resources, Inc.

Franklin Templeton reported $18.4 billion of long-term net inflows in the quarter and $63.3 billion fiscal year to date. Long-term inflows reached a record $122 billion and assets under management hit a record $1.8 trillion. Adjusted operating income was $508.9 million, up 7% from the prior quarter and 35% from a year ago. On the business mix side, equity had $2 billion of net inflows, global fixed income had $2.6 billion, multi-asset had $4.7 billion, ETFs had $7.1 billion, retail SMAs had $4.4 billion, and Canvas had $3.7 billion of net inflows. Private markets raised $11.8 billion in the quarter, including $10.3 billion in private markets, and alternative AUM reached $294 billion. Guidance: management expects private markets fundraising to end the year at about $40 billion; catch-up fees to be about $14 million in Q4; the effective fee rate to stay in the mid-to-high 37s; compensation at $850 million; IS&T at $165 million; occupancy at $70 million; G&A at $400 million; tax rate at 25%-27%; expenses for fiscal 2026 to be about 3%-3.5% above fiscal 2025 (or 2%-2.5% higher including performance fees); fourth-quarter margin to be very close to 30% or at 30%; full-year fiscal 2026 margin in the mid-20s; and fiscal 2027 margin around 29%-30% assuming flat markets.

Jennifer Johnson emphasized that the quarter showed Franklin Templeton’s strategy is working, highlighting broad-based flows, record AUM, and progress in alternatives, fixed income, ETFs, SMAs, Canvas, international, and digital assets. She framed the company as operating as “1 Franklin Templeton,” with clients increasingly wanting integrated public/private and multi-asset solutions rather than standalone products. Her tone was confident and forward-looking, repeatedly saying the firm is ahead of its five-year plan and positioned for long-term growth.

Matthew Nicholls focused on operating leverage, saying adjusted operating income increased to $508.9 million, up 7% quarter over quarter and 35% year over year. He gave detailed expense guidance: compensation $850 million, IS&T $165 million, occupancy $70 million, G&A $400 million, with a 25%-27% tax rate, and said expenses for fiscal 2026 should be about 3%-3.5% above fiscal 2025, or 2%-2.5% higher including performance fees. He also highlighted capital return and balance-sheet flexibility, noting $521.5 million returned to shareholders this quarter, including $348.1 million of buybacks, and said the company has $3 billion of its own balance sheet invested in funds, with about $1.75 billion in private markets and $1.25 billion in public markets.

Analysts pressed on the sustainability of private markets fundraising, the mix of fee-paying AUM, Canvas growth and white-label opportunities, AI ROI, tokenization economics, margin targets, buybacks, and distribution fee pressure. Management said private markets fundraising is broad-based across about 30 strategies, with Lexington contributing roughly 40% of the quarter’s private fundraising but not being the only driver, and said 80% of the private markets platform is fee-generating with a blended fee rate around 65 bps. On Canvas, management said growth is being driven by new partners and that the platform’s tax-overlay capabilities are expanding use cases. On AI, they cited a 25% increase in client contacts and a little over 11% sales uplift in rolled-out territories, while saying they are still investing and learning. They also said rev share and platform fees are a normal part of the business and not a new structural issue.