Franklin Resources, Inc.

Operator: Welcome to Franklin Resources, Inc. Earnings Conference Call for the Quarter Ended 03/31/2026. 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, Selene Oh, Head of Investor Relations for Franklin Resources, Inc. You may begin. Selene Oh: 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 are 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 Resources, Inc.’s recent filings with the Securities and Exchange Commission, including in the Risk Factors and the MD&A sections of our most recent Forms 10-K and 10-Q. Now I would like to turn the call over to Jennifer M. Johnson, our Chief Executive Officer. Thank you, Selene. Jennifer M. Johnson: Welcome, everyone, and thank you for joining us today to review Franklin Resources, Inc.’s second fiscal quarter results. I am joined by Matthew Nicholls, Co-President and CFO, and Daniel Gambach, Co-President and Chief Commercial Officer. We will take your questions shortly, but first I will highlight key results and themes shaping our business. This was an excellent quarter for Franklin Resources, Inc., 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, ETFs, and solutions—contributed meaningfully to these results. This quarter is a clear example of the power of our multiyear 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 Resources, Inc. as their trusted partner for one-firm reach and resilience of a global platform together with the distinct expertise of our investment groups. As client expectations continue to evolve, 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 partner, including increased demand for vehicles such as active ETFs, customization, and tax-managed solutions, and prioritizing firms that can deliver across public and private markets, offer global consistency in how they invest and operate, and bring together capabilities into outcome-oriented solutions. This is not a short-term reaction to market conditions; it reflects a more fundamental change in expectations. 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 centers 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 won 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 remain 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 nineteenth 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 Resources, Inc. 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 fundraised $14.3 billion in alternatives this quarter, including $13.2 billion in private market assets, diversified across alternative credit, secondary private equity, real estate, and venture credit. Fiscal year-to-date fundraising in private markets reached $22.7 billion, already in line with full-year 2025 levels, positioning us to exceed our $25 billion 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. Our alternative credit capabilities in the U.S. 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 Resources, Inc.’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 are 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 eighteenth 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, and 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 manage $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 adviser-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 FranklinCrypto. Alongside Franklin Templeton Digital Assets, we are bringing together crypto-native expertise with Franklin Resources, Inc.’s global distribution to target institutional growth. FranklinCrypto will expand Franklin Resources, Inc.’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 Resources, Inc. manages nearly $500 billion in assets, with 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 Resources, Inc. 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. In April, USENIF 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 median 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 benchmark over all time periods, and 71% over the ten-year period. In fixed income, 83%, and in equities, 82% of AUM is outperforming benchmark 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 multiyear strategic priorities. We are building a more diversified, higher-growth business with multiple drivers of organic growth, and we are 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 are delivering across the firm. With that, we will open the call to your questions. Operator? Operator: If you would like to ask a question, please press 1 on your telephone keypad. The confirmation tone will indicate your line is in the question queue. If anyone should require operator assistance during the conference, please press 0. We request that you limit yourself to one question to allow for participants on the call this morning. Our first question comes from Alexander Blostein with Goldman Sachs. Please go ahead. Alexander Blostein: Thank you. Hey, Jenny. Good morning, everybody. I wanted to start with a question around private markets growth. Obviously good momentum in the quarter, $13 billion. I was hoping you could break that down by key strategies as well as whether Lexington, their flagship fund, contributed to that at all. And as you look out for the rest of the year, what are going to be some of the bigger drivers for the rest of 2026 in private markets fundraising? Jennifer M. Johnson: Sure. Great. Thanks for the question, Alex. As you recall, last year we had set a target of $13 billion to $20 billion in the alt space to raise, and we ended up raising $22.9 billion. This year, we raised that to $25 billion to $30 billion, and we would expect to be above $30 billion. When you look at this quarter, I cannot give you details on Lexington’s flagship funds, but I will give you some insights. Our largest contributor was our private credit managers, but Lexington was meaningful. Lexington is in the market with their flagship fund, and they are right on track. There is demand for secondaries, but they are also in the market with other products—their co-invest and their middle market—which all contributed as well. There were no catch-up fees in this quarter. You will get a specific update on Lexington’s flagship fund when they do a filing, probably towards the second half of 2026. All of our alternative managers contributed to this quarter’s momentum. There were over 30 vehicles that contributed, so it was a very diverse and strong quarter, and we felt very good about the flows across the board. Alexander Blostein: Great. Thank you. You saved me a follow-up on the catch-up fees there. I did want to ask about the comment you have in the release around the dry powder. You give us the total AUM, $263 billion in private markets. Some of this fee-paying, some of this not fee-paying. Is it possible to break down the non-fee-paying piece and help us think through the timing of when that is going to come into the fee-rate run rate? Jennifer M. Johnson: It obviously varies with each manager. Alex, let us get back to you with what we are willing to say publicly on that, so give us a little bit here. Matthew Nicholls: But actually, only fee-earning AUM out of balance is about 90%, approximately 89%. Alexander Blostein: Yep. Do you want to— I think the next question? Operator: Our next question comes from Glenn Paul Schorr with Evercore. Please go ahead. Glenn Paul Schorr: Hi. Thanks very much. A question on Canvas and tax optimization strategy. There has been a lot of growth. There is a lot of competition, but also really low penetration. Could you talk about what you see for further growth in terms of penetrating the current base of clients, any capacity issues you might see, and importantly, how you differentiate in a crowded field, meaning leveraging the brand and distribution relationships that you have? Jennifer M. Johnson: What I would say is, one of the differentiators of Canvas versus others is that it was built by quant people as opposed to tax people. It is much more about the technology, which gives it a lot more flexibility going forward. Canvas is being selected in many cases because people recognize it has really impressive technology. When we added the managed options solution over it, it gave us more creativity around product development. For example, if you have high-basis concentration in a stock, you can use the managed options component to make a more tax-efficient portfolio. What started out as a direct indexing opportunity has evolved into an ability to take that technology as an overlay and create tax-managed, tax-efficient overlays on active strategies. Our conversations are now not just about using it as a platform to manage SMAs or direct indexing, but also using it as a way to optimize the tax efficiency of our strategies, opening up more partner conversations. Daniel, do you want to add? Daniel Gambach: I will add two aspects to the success we are having in the tax alpha and tax optimization space, which is growing very fast for the industry and we are capitalizing on it. First, our retail SMA presence, being so big at close to $170 billion, makes us uniquely positioned, including the legacy business that we have on the SMA side. On Canvas, there are two elements to highlight. One, the tax optimization that we do is unique and differentiated because we can receive in-kind positions and we are very flexible in how we do the optimization, and clients are focused on that. The other part is we add simplicity and we are very innovative. Canvas includes, as Jenny mentioned, not only direct indexing, but we also have risk-factor overlays, we have options for income within the same platform, and we have added fundamental third-party manager tax optimization, including for our different fundamental managers. On top of that we have added long/short—130/30, 140/40—all on the same platform. Finally, we have added municipal bond ladders in the same platform. The simplicity is giving us substantial momentum. It has grown at a 72% CAGR and grown 10 times since acquisition to $23 billion. The momentum will continue. AUM doubled over the past 12 months, and we expect that to continue given how differentiated the platform is. Glenn Paul Schorr: Alright. Thanks for all that, Jenny and Daniel. Appreciate it. Operator: Our next question comes from Craig Siegenthaler with Bank of America. Please go ahead. Jennifer M. Johnson: Operator, maybe— Operator: We can just move to the next one. We will get Craig back on. Seems like there is a technical problem with Craig’s line. Jennifer M. Johnson: Okay. Operator: Our next question comes from Daniel Thomas Fannon with Jefferies. Please go ahead. Daniel Thomas Fannon: Thanks. Good morning. Matt, just wanted to follow up on the guidance that you gave. There has been some change from last quarter, but you also reiterated things you have been saying around flat with fiscal years 2024 and 2025. Could you clarify the moving parts? And in the quarter, there was an announcement of some voluntary retirements across the equity division. I assume that is incorporated in this guidance and maybe the outlook for the year, but is that incremental or not? Matthew Nicholls: Yes, the voluntary buyout is included in our full-year projection. First, I will go through the quarter guidance and then the annual. On the third quarter guide, our effective fee rate we are guiding to mid-to-high 37s, very consistent and stable with the second quarter. Compensation we are guiding at $830 million, assuming a $50 million performance fee at a 55% payout. IS&T is $155 million, which is in line to slightly higher than last quarter based on AI investment specifically. Occupancy is $70 million in the guide. And G&A we expect to be a little higher at $210 million to $215 million, but this includes elevated fundraising-related expenses around $23 million to $25 million and an additional $9 million to $10 million for advertising and marketing. For the full year, as outlined on page 14 in the IR deck, this assumes flat markets from now and excludes performance fees. We continue to guide approximately in line or slightly above fiscal year 2025 expenses excluding performance fees. This assumes current market levels, higher sales and fundraising that we have presented today, and stronger performance. Strong performance means we have some compensation-related expenses tied to better performance that are formula-driven, so that is going up a little bit. For perspective, we end up at the level illustrated on the page, which is about 1.5% higher versus 2025. We would expect investment management fee revenue to increase at 4x that rate at least. Meaning, if expenses increased by 1.5%, we would expect investment management fee revenue to increase by at least 6% year-over-year, all else equal. This is consistent with previous commentary on margin expansion going into our fiscal year-end. That would result in fiscal fourth quarter margin in the high 29s and for the year in the 27s for the full year, both representing meaningful margin expansion ahead of plan and on our way to 30%+ margins later in 2027, all ahead of plan as presented last quarter. Jennifer M. Johnson: Thank you. Next question, operator. Operator: Our next question is from Patrick Davitt with Autonomous Research. Please go ahead. Patrick Davitt: Hey, good morning, everyone. There has been a lot of press focus on secondaries PE strategies and the policy of marking up deals immediately upon close. Much of that has been focused on other companies. Could you give us more color on how much of Lexington’s fund performance is driven by that initial markup versus natural appreciation, and more broadly, do you see the increased attention on this practice impacting regulatory scrutiny or demand for the asset class? Thank you. Jennifer M. Johnson: The issue that happened there was because I think a manager changed the policy and was unclear in how that went down, which created a lot of noise. Traditionally, in secondaries, the discount-to-par markup is about 20% to 25% of total return over the life of a fund. That gives you a sense that most of the appreciation really comes in the asset itself. That is the beauty of a firm like Lexington, a premier buyer of these deals. They are selective as to which deals they choose and they have a ton of information—information on 55 thousand private companies—so they are tracking and deciding which underlying funds they believe are going to have the best upside opportunity. That is how they are underwriting it, and then they negotiate a discount. That gives you a sense. Operator: Our next question comes from Michael J. Cyprys with Morgan Stanley. Please go ahead. Michael J. Cyprys: I wanted to ask about AI. Could you update us on how you are using AI across the organization today, the use cases that have been most impactful so far and key learnings, and if you are able to help quantify any of the benefits that you are seeing? As you look out over the next couple of years, what steps are you taking to further embed AI throughout the organization? I know, Matt, you mentioned some uplift on expenses in part from AI investments. Maybe you could elaborate on some of those investments and how you are thinking about the longer-term benefits. Jennifer M. Johnson: We look at AI across growth and efficiency. Having run technology, I do not think many companies can say AI is yet material; everyone is doing a lot. I am proud of our work because we were early adopters in multi-agent orchestration of AI—our Intelligence Hub—which is our platform used for distribution in partnership with Microsoft. If I bucket our AI efforts, in distribution and investments it is about growth opportunities; in operations and technology it is about efficiencies and throughput. The simple problem is ensuring salespeople are seeing the right clients and having the best conversation. The Hub pulls data from CRM, product systems, external product systems, and maybe social media. LLMs are not great with analytics, so you marry them with other agents. Early on, we see our wholesalers seeing about 10% more clients. It is too early to quantify the sales uplift, but we see administrative efficiency gains and signs of sales uplift, and we are rolling it out more broadly. Our investment teams use AI differently by team. We run hackathons; teams create agents and put them in a central library for reuse. We created a virtual research analyst for one team, where we fed views and philosophy, and it will generate ideas and challenge proposals—“have you thought about these things?”—and it has reviewed historical trades. The important thing is a centralized group to share AI expertise and learnings. Where we outsource, we are reviewing contract lengths so AI efficiencies do not accrue only to vendors. In-house, in reconciliation, RFPs, and other functions, we are seeing some efficiencies. It is early, and in technology we measure how much code is being written by AI to gauge adoption. Matthew Nicholls: In terms of spend, we have a fully staffed dedicated centralized team. Within that team, we have individuals focused on investment and sales functions and on effectiveness and efficiency. There is a revenue part and a cost part. We are tracking dollars spent versus dollars saved or gained from using and adopting AI. It is early days, but we are building that discipline. Operator: Our next question comes from William Raymond Katz with TD Cowen. Please go ahead. William Raymond Katz: Thank you. On the tax minimization/tax optimization side, there has been discussion around a potential adverse tax rule for Exchange 351. It seems arcane, but it has been coming up in investor dialogue. How real is that as a change? Is that more of a disclosure issue? Would that have any impact on the business? Second, on Lexington XI, you previously raised $22 billion, and I know Matt just gave some guides around platform or placement fees into the new quarter. Is there any reason to think that the next fund will not be of similar size? And third, on capital return, could you talk a bit about your priorities looking ahead? Thank you. Jennifer M. Johnson: I will quickly jump on Lexington and then turn it over to Matt on the tax point. There is no reason to believe the next flagship will not be at least the size of the last one. As I said, they are on track and there is good demand for secondaries, and we do not see cannibalization with the evergreen funds we have done in secondary. That is going smoothly. On the tax question— William Raymond Katz: It is a bit arcane, but in the index/ETF world there is discussion between ICI and the IRS. Just in terms of an adverse ruling about tax optimization under the exchange, would that limit maybe the use of options as a way to shield income? Jennifer M. Johnson: I am on the ICI board, and we talk a lot about the unequal tax treatment of mutual funds versus ETFs because of in-kind redemptions. There is always a worry that goes away. The reality is it is actually unfair that a mutual fund investor has to pay capital gains because the fund experienced gains versus their individual ownership, like they would if they owned a stock. That has been a disadvantage for mutual funds. ICI discussion is often about making mutual fund treatment more fair. I am not aware of discussions about ETFs losing theirs as much as the hope that mutual funds become more fair. Daniel Gambach: I will add that none of our major ETFs use options overlays in the way in which they are constructed. We have not been hit with that question given the nature of our current ETFs. We do have an excellent options capability within our SMA business, which we call MOST, and we have seen substantial demand there. On SMAs with individual securities, there is no such discussion. But on 351 exchanges in ETFs, we are not part of those; we do not have products structured like that. Jennifer M. Johnson: And to clarify the point, there are some strategies for high-net-worth investors who contribute via 351 exchanges. We have not really participated in that. It could impact ETF share classes as part of a mutual fund; we will see how that evolves. Operator: Our next question comes from Brennan Hawken with BMO Capital Markets. Please go ahead. Brennan Hawken: Hey, good morning. Thanks for taking my question. Two questions on alts fundraising. Thanks for providing the evergreen AUM. Could you talk about what sort of flows you are seeing on a quarterly basis and how we should think about that? And on Lexington, you referenced that you would be giving an update at year-end. Can you help us understand why it would be year-end? Is that your updated expectations for the first close? Jennifer M. Johnson: On Lexington, they are actively fundraising. They will decide on the timing of their first filing. It has not been year to date, so it will be in the second half or towards the end of the year—our fiscal year-end could also see an update, potentially even in July. On evergreen, we have said that we are raising about $200 million a month across our three strategies. We have three that are over $1 billion, and we continue to see that kind of demand—about $200 million a month into the three evergreen strategies. Brennan Hawken: And that has remained consistent recently? Jennifer M. Johnson: Yes. Diversity helps. Daniel Gambach: It is important to say that we do not have a big BDC or large exposure to software within the platform. We have continued to raise in line or higher across all our evergreens—secondary PE, real estate debt, real estate equity—over the last two years, in line with our penetration in the wealth business. We have not seen a slowdown from our end. Operator: Our next question is with Benjamin Budish from Barclays. Please go ahead. Benjamin Budish: Hi, good morning, and thanks for taking the question. Following up on alts fundraising, you mentioned that most of it came from credit in the quarter, obviously not from BDCs. Can you unpack what pockets of credit you are seeing the most demand for? And a quick housekeeping on G&A: you mentioned some one-time fundraising expense associated with larger flagships. Should we think about those as recurring or near-term elevated but not in the run rate for next year, unless more flagship fundraising returns? Matthew Nicholls: On expenses, I would not call it one-time in the sense you could have other quarters with elevated fundraising, but $23 million to $25 million is obviously a large number and would be one-time associated with a good fundraise expectation with higher-fee-type alternative asset funds. Jennifer M. Johnson: On alts fundraising, on the credit side, we have both BSP and what was formerly Alcentra, which we are calling BSP Europe. We had strong fundraising from both. Part of it was CLOs, but they also have an opportunity fund, a real estate debt fund, special situations—contributions came across the board. There were at least 15 different funds that contributed to credit. We are also seeing Clarion with real estate pick up. Clarion has tremendous performance. People have been nervous, and there is about $20 billion in redemption requests on private credit managers out there; that money will go somewhere else. People like real estate because it is a good source of income and an inflation hedge, and we are seeing that pickup in interest. Our venture group has done well too. The key message: this was a very diversified raise as opposed to a concentration—over 30 entities raised money in our alts space. Daniel Gambach: One more point: this quarter, we had positive contribution from every region. In the alts fundraise, 40% came from outside the U.S., about 16% from EMEA and 23% from APAC. We launched new vehicles in Korea, Thailand, and Taiwan, with strong momentum in Japan, a key market where we are increasing investment. In EMEA, we now service 11 markets, five more than a year prior, given increasing demand for our LTVs across all three capabilities, including ventures. Benjamin Budish: Great. Thank you all very much. Operator: And our last question comes from Kenneth Brooks Worthington with JPMorgan. We are seeing ETF distribution fees being requested by intermediaries and being dismissed by some of the largest ETF managers. How is Franklin Resources, Inc. thinking about ETFs and distribution fees, and do you see the potential for ETF access to drive market share shifts in ETFs potentially favoring Franklin Resources, Inc.? Jennifer M. Johnson: Since Daniel’s career started at BGI in the early days of ETFs, I will let him answer this one. Daniel Gambach: Thank you for the question. ETFs are one of the most exciting developments at Franklin Resources, Inc. Our platform reached $62 billion at the end of the quarter, double what we had 18 months ago. Organic flow growth fiscal year-to-date—two quarters—is 49%. We are growing across the board. Three main drivers: Active ETFs—45% of what we have—grew 70% year-over-year. Our Focused Large Cap Value ETF (PVAL) is nearing $10 billion and has doubled in six months, and we plan to launch ETFs for every major fundamental PM with a large franchise. Second, we converted 10 muni mutual funds last quarter; now that is a full growth platform, helping growth in ETFs, muni mutual funds, and muni SMAs. Third, single-country and regional ETFs represent 30% of the platform, all with excellent inflows—we grew over $3 billion into country ETFs, including Korea, Japan, and Taiwan. Given our heritage in managing local markets, we will continue to develop and launch more country and regional ETFs. Fourth, systematic and smart beta is 20%, managed by Franklin Templeton Investment Solutions; our Franklin International Low Volatility High Dividend ETF is approaching $5 billion. We have a great track record and are doubling down. Our capabilities leverage excellent relationships and partnerships with clients. Our U.S. wealth platform is almost $800 billion with hundreds of salespeople covering advisers. We review our business with all platforms regularly. As we evolve our platform and value to clients, we will prioritize platforms that deliver the most value to us. On ETF distribution fee discussions, we are creating business plans with partners. Those that invest in education, sales and support, and impact the business will continue to be major partners as we discuss how to grow together. ETFs are an area where you will hear much more from us. Jennifer M. Johnson: To that last point, platforms always want more revenue share. ETFs are not structured the same way as mutual funds. Depending on the platform, they can influence growth and opportunity for ETFs or not. If the platform will have positive influence, then that is a discussion. If they cannot influence, then we would not consider those fees. Kenneth Brooks Worthington: Got it. Because some are not going to participate in or do not want to participate in the fees, do you think it drives share to shift from those that are willing to partner with distribution to those that are not? Jennifer M. Johnson: Different platforms have different influence. If you can heavily influence, yes, there will be some amount of shift on what you can influence. But the reality is financial advisers are getting more independent. If they are on one of these platforms and they are an RIA, they do not care what the platform is telling them; they are going to sell what they sell. That is where having a huge sales force is important because it is hand-to-hand. If they choose the model from the platform, then the platform influences it. Most of the big RIAs who are big ETF users decide on their own. Matthew Nicholls: A quick point of clarification from an earlier question. I think Alex asked about alternative asset fee-generating versus non-fee-generating. To be clear, approximately 90% is potential to earn fees. Current fee-generating AUM is about 80%. That is on the full $283 billion and varies depending on the manager; that is blended. Operator: Our next question comes from Brian Bertram Bedell with Deutsche Bank. Please go ahead. Brian Bertram Bedell: Great. Thanks for squeezing me in. One on FranklinCrypto. Jenny, could you talk about what market you are targeting and the different product types as you evolve Franklin Templeton Digital Assets? And on tokenization of money funds, the Benji Fund, what is your view on how much tokenized money funds could accelerate given the use cases and yields within digital asset platforms? Jennifer M. Johnson: I love blockchain because it is an efficient technology that drives down costs—good for our industry and clients. But you have to have a wallet to hold a token. All of our traditional distributors, very few have a wallet, so you have to go to the exchanges. The near-term opportunity is with crypto exchanges—Kraken, Ondo, Coinbase, Binance—that have wallets. Two things are happening. One, it is an obvious place to integrate Benji so people can put money into cash. If assets sit in a stablecoin, they do not earn yield; they can shift into a money market fund and earn yield. Second, the top five exchanges have roughly a billion wallets. From a new-client-base perspective, that is interesting, and they are thinking about offering traditional products. We have launched tokenized ETFs—eight on Kraken and five on Ondo—and we are talking to other exchanges. These are for investors interested in more traditional products. You could not hold an ETF or mutual fund unless it was tokenized because they have no other way of custody. We think that is an interesting new opportunity. We are also bringing in a small team, 250 Digital. They have an institutional crypto venture capability. There are institutional investors who want exposure to the space but are not comfortable with a small firm. As part of Franklin Resources, Inc., we think we will see demand from institutional clients interested in investing in the venture part of the crypto space when they start this fall. Brian Bertram Bedell: So we should expect an acceleration of tokenized products as you roll this out over the next few quarters? Jennifer M. Johnson: These things are often a hockey stick. It depends on adoption of tokenized ETFs on exchanges. We are seeing some traction where Benji is an option in programs, and we are starting to see traction there, but it takes time to educate in this space. Matthew Nicholls: We think someone was trying to get in earlier with a question on capital management, so why do we not answer that while we have time? On capital management priorities, our dividend is always top of the list. We want to protect and increase the dividend each year. Our organic growth is taking up more capital than in the past. Our seed capital and co-invest balance sheet allocation has increased to $2.9 billion, up from $2.8 billion last quarter. We expect that to be close to $3.0 billion by the end of the year. We always repurchase our employee-related stock grants to hedge and keep the same amount of shares outstanding. Then we have opportunistic share repurchase. M&A is very active, mostly distribution-related, and some bolt-ons related to alternative assets, in particular overseas. Most of the M&A or inorganic activity is around partnerships and strategic activity in connection with distribution. Jennifer M. Johnson: Great. I think you covered it very well, Matt. Operator? Operator: This does conclude today’s Q&A session. I would now like to hand the call back over to Jennifer M. Johnson, Franklin Resources, Inc.’s CEO, for final comments. Jennifer M. Johnson: Thank you for participating in the call today. We are a people business, and I want to thank all our employees for their hard work and dedication to the company. We look forward to speaking with all of you again next quarter. Thank you. Operator: Thank you. This concludes today’s conference call. You may now disconnect.