Franklin Resources(BEN) - 2025 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - For Q4 2025, ending AUM reached $1.66 trillion, a 3.1% increase from the prior quarter, while average AUM increased by 4.4% to $1.63 trillion [31] - Adjusted operating revenues increased by 13.9% to $1.82 billion from the prior quarter, driven by elevated performance fees and higher average AUM [31] - Adjusted net income and adjusted diluted earnings per share increased by 35.7% and 36.7% from the prior quarter to $357.5 million and $0.67, respectively [32] Business Line Data and Key Metrics Changes - In public markets, over 50% of mutual funds, ETFs, and composites outperformed peers and benchmarks across all standard time periods, indicating improved investment performance [9] - Private markets saw fundraising of $22.9 billion, contributing to a total of $270 billion in alternative AUM, with expectations to increase fundraising to between $25 billion and $30 billion in fiscal 2026 [11] - The SMA business grew at a 21% compound annual rate since 2023, with AUM of $165 billion across more than 200 strategies [15] Market Data and Key Metrics Changes - Internationally, Franklin Templeton managed nearly $500 billion in assets, achieving $10.7 billion in positive long-term net flows in markets outside the U.S. [26] - Fixed income net inflows were $17.3 billion for the year, with positive net flows for seven consecutive quarters [28] - Alternatives and multi-asset generated $25.7 billion in net flows for the year, reflecting broad-based client demand [29] Company Strategy and Development Direction - The company is focused on deepening client partnerships, broadening investment capabilities, and strengthening its diversified model as part of a five-year plan [7] - Franklin Templeton aims to democratize private assets and expand its wealth management offerings, targeting to double Fiduciary's AUM by 2029 [20] - The company is investing in innovation, particularly in digital assets and AI, to redefine how investors access opportunities and improve operational efficiency [22] Management's Comments on Operating Environment and Future Outlook - The management expressed optimism about the strong public equity gains and the overall constructive view of private markets, despite a complex geopolitical backdrop [24] - The company anticipates continued growth in alternatives, particularly in the retail market, driven by partnerships and innovative product offerings [13] - Management highlighted the importance of selectivity and discipline in navigating the current market dynamics, which present opportunities across public and private markets [25] Other Important Information - Franklin Templeton was named 2025 Asset Manager of the Year in the $500 billion-plus AUM category, reflecting its leadership in innovation and investment advisory solutions [7] - The company has integrated certain corporate functions to drive efficiency and enhance client service, particularly in response to challenges faced by Western Asset Management [29] - The firm is focused on capital management, returning $930 million to shareholders through dividends and share repurchases [36] Q&A Session Summary Question: Fundraising target for fiscal 2026 - The target is between $25 billion and $30 billion, with contributions expected from various funds including Lexington, Clarion, and Alcentra [43] Question: Expense guidance for 2026 - The company expects to achieve $200 million in cost savings for 2026, with a focus on maintaining or reducing total expenses compared to fiscal 2025 [44][46] Question: Infrastructure product pipeline - The company is building a fund around partnerships with DigitalBridge, Copenhagen Infrastructure Partners, and Actis to participate in infrastructure deals [48] Question: AI and tokenization opportunities - The company is leading in tokenization, offering unique features for money market funds and exploring new distribution capabilities through partnerships with exchanges like Binance [51][53] Question: Update on Lexington flagship fund - The target size for the Lexington flagship fund is about $25 billion, with expectations for the first close in the first half of 2026 [54]