BEN - NYSE

Welcome to the Franklin Resources earnings conference call for the quarter ended March 31, 2025. Hello. My name is Rob, and I will be your call operator today. As a reminder, this conference is being recorded. At this time, participants are in listen-only mode. I would now like to turn the conference over to your host, Selene Oh, Head of Investor Relations for Franklin Resources. You may begin.

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'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 would like to turn the call over to Jenny Johnson, our President and Chief Executive Officer.

Thank you, Selene. Welcome, everyone, and thank you for joining us to discuss Franklin Templeton's second fiscal quarter results. I am here with Matt Nichols, our CFO and COO, and Adam Spector, our head of global distribution. We will answer your questions momentarily, but first, I would like to review some highlights from the quarter. The first few months of 2025 have been marked by significant market turbulence globally resulting from heightened geopolitical trade policy and consequently economic uncertainty. As our clients try to separate the signal from the noise, we are positioned to help them navigate this period of market volatility and benefit from emerging trends. Periods with major market resets often act as catalysts for client changes to asset allocation and portfolio construction. This is one key reason why our diversified company is designed to benefit a broad range of clients through various market conditions and cycles. With money on the move, Franklin Templeton is poised to help our clients grow their assets with leading capabilities across public and private investments. Despite the volatility, we continue to see strong client activity across our key growth areas. For instance, our institutional one but unfunded pipeline increased by $2.3 billion to $20.4 billion during the quarter, its highest level since 2022. One of our firm's greatest strengths is the depth and breadth of perspective provided by our specialist investment managers who offer investment expertise across the full spectrum of asset classes. This comprehensive expertise is increasingly valuable as asset owners seek to consolidate relationships with managers who can offer a full range of investment solutions across geographies. By partnering with Franklin Templeton, clients gain access to broad capabilities delivered through a single integrated global platform. We provide deep industry insights to help clients protect wealth and unlock opportunities for growth. In April, for instance, the Franklin Templeton Institute delivered timely insights, adviser materials, and webinars to help clients make sense of headlines and uncover new opportunities. In the days following April's tariff announcements, the Franklin Templeton Institute held a dozen webinars attended by over 11,000 advisers. Today, our firm reaches all corners of the world. Since our first office outside of North America opened in 1986 in Taiwan, international markets have been a key part of our growth story. As one of the first global firms to establish local asset management capabilities over thirty years ago, we have offices in over 30 countries, and our clients are located in over 50 countries. Our goal is to manage each local business on a global scale, focusing on local investing and client needs. We have $470 billion or about 30% of our AUM in countries outside the US, and approximately 50% of our employees work outside of the US. Within public equity markets, obviously, there were several notable developments that unfolded during the quarter reflecting a broader shift in global market dynamics. For the first time in many years, several foreign markets outperformed US indices, signaling a potential reversal of long-standing trends. As we have been anticipating in the US and abroad, equity performance has broadened beyond the narrow leadership of the magnificent seven. As investors rotated into other sectors, styles, and regions, Europe outpaced the US, and the US dollar weakened. We also saw striking reversals in other areas. Bitcoin declined, while gold surged almost 20%, the largest quarterly gain in US dollar terms in over forty years. The so-called deep seek moment sparked questions around the need for AI-related spending, contributing to a pullback in previously high-flying areas. Meanwhile, sectors like financials, healthcare, consumer staples, and utilities have led the market year to date, underscoring the shift in investor sentiment and sector leadership. For the remainder of 2025, our investment teams remain cautiously constructive on the outlook for global equity markets. Their caution stems from uncertainty tied to softer US growth, driven in part by cuts to federal government employment and services as well as the ripple effects of newly implemented US tariffs and retaliatory measures, particularly from China. The primary concern is an erosion of profitability related to weaker global economic activity and margin pressures as tariff costs filter their way through supply chains. Within US equities, a key theme remains broadening as investors seek out returns in companies with durable earnings support and favorable valuations. While we have seen sharp declines in the technology sector, including the magnificent seven, some recovery of mega-cap stocks is likely. European stocks, particularly in areas related to defense spending and infrastructure, will benefit from stepped-up government expenditures as Europe addresses its security concerns. While new tariffs could be significant and a likely drag on global growth, our consensus is that a recession in the US is not a foregone conclusion. It is important to note that the economic impact of tariffs will likely be asymmetric, affecting the US far less than our trading partners. The US economy, with its $30 trillion size, and only about $3 trillion in exports, is probably better insulated from recession than countries whose economies are more dependent on exports. Turning to the rate market, the recent quarter has been dominated by uncertainty on US trade policy and its potential economic fallout. The execution of the tariffs rollout has exacerbated market volatility. Nonetheless, it has also cast a spotlight on the actual problem of large persistent trade deficits, which over time does need to be addressed, including through smaller US fiscal deficits. The US economy came into 2025 with strong momentum. While last quarter's GDP contracted by 0.3%, this largely reflected a surge in imports ahead of tariffs. Household consumption has remained relatively robust, and so far, labor markets have proved resilient. Confidence indicators have weakened, and many corporations have paused investment plans. So underlying activity could well weaken somewhat in the current quarter. However, if the administration's focus reverts to tax cut extensions and deregulation, this together with progress on trade negotiations should provide support for growth and allow the US economy to avoid a recession this year. Bond yields have experienced high volatility but appear most recently to have become range-bound at levels consistent with relatively resilient economic growth. We continue to expect one more rate cut by the Fed this year, with additional monetary easing possible should growth deteriorate more sharply. Tariff-driven price pressures and a still large fiscal deficit seem likely to exert some upward pressure on yield. Market volatility is likely to remain elevated until we get greater clarity on trade and fiscal policy. Turning to private markets, 2025 started with optimism for a more business tax and regulatory-friendly environment with more IPOs and greater M&A activity. Heightened policy uncertainty and recent setbacks in global equity markets have tempered enthusiasm, particularly for IPOs and M&A activity. However, we believe that increased market volatility may spur interest in secondary private equity offerings as sources of liquidity. The undercapitalized secondary market enables firms like Lexington Partners to be highly selective and focus on quality assets as they deploy capital consistently during the year. Furthermore, these market dislocations can create attractive buying opportunities for this asset class. Increased market volatility also creates an attractive backdrop for our alternative credit businesses like direct lending, real estate credit, and special situations. In these markets, where there is greater dispersion between the best and worst credits, Benefit Street Partners is well-positioned given its conservative approach to underwriting and our deep portfolio management expertise. Meanwhile, real estate valuations have declined significantly from their 2021 peaks, and our investment teams are finding selective opportunities in areas such as industrials, housing, and healthcare. Market dislocations and global volatility often create opportunities for active managers like Franklin Templeton, that offer a full range of investment capabilities as reflected in our institutional one but unfunded pipeline, the highest it has been in three years. The pipeline remains diversified by asset class, and across our specialist investment managers and is particularly strong in Franklin Templeton fixed income. The combination of unpredictable fiscal policies, trade uncertainties, and geopolitical tensions require a balanced approach. Now turning to highlights from the quarter. Our results demonstrate progress across our business. Our assets under management continue to be well diversified across specialist investment managers, asset classes, vehicles, and geographies and ended the quarter at $1.54 trillion. This was a decrease from the prior quarter due to the impact of long-term net outflows at Western Asset and negative markets. Excluding reinvested distributions, long-term inflows increased 9% quarter over quarter. This quarter, gross sales increased across all asset classes. Long-term net outflows were $26.2 billion, including $3.3 billion of reinvested distributions. Excluding Western, long-term net inflows were $7.4 billion. Ex Western, we were net sales positive for the last six quarters in a row. Multi-asset and alternatives generated a combined $9.7 billion in positive net flows. Equity long-term inflows were $38.9 billion, and gross sales have increased for the past six consecutive quarters. Given the risk-off environment, equity net outflows were $5.4 billion, primarily reflected in growth strategies. We did see positive net flows into large-cap value, smart beta, and international strategies. Fixed income net outflows were $30.5 billion. However, excluding Western, fixed income net inflows were $2.8 billion, and we are positive in multisector munis, stable value, and high yield strategies. Franklin Templeton fixed income continues to see positive flows and maintains a strong one but unfunded pipeline. Fundraising and alternatives generated $6.8 billion for the quarter, of which private market assets totaled $6.1 billion and were broadly distributed across strategies. Aggregate realizations and distributions were $2.8 billion. We see a significant opportunity in the wealth management channel for our alternatives business. Based on our data and calculations, we project that approximately $800 billion will be allocated to democratize alternatives industry-wide over the next five years. And as I have mentioned before, this is a key focus of growth for us. Over the past several years, we have acquired relevant alternative asset management capabilities, built a dedicated distribution effort, and have had success placing our products on a number of leading platforms. As a result, so far today, a little over 10% of our alternative assets are from the wealth channel. We have learned a great deal about this opportunity, but it is still early days. As alternatives by Franklin Templeton continues to progress in the wealth management channel, it is imperative that we continue to deliver innovative, top-performing solutions as well as a first-class client experience. This quarter, we launched our first perpetual secondaries private equity fund, the Franklin Lexington Private Market Fund, in the US and internationally, designed for Wealth Channel clients. These funds raised an initial combined $2 billion. We now have three perpetual offerings in the major asset class: secondary private equity with Lexington, real estate debt with Benefit Street Partners, and Clarion's Real Estate Equity. All three of these strategies are north of a billion dollars in assets. Since January, we are one of the top 10 largest fundraisers of perpetual funds and the largest traditional asset manager. As for multi-asset, we saw net inflows of $3.3 billion led by Franklin Templeton Solutions, our custom indexing platform Canvas, Franklin Income Investors, and Fiduciary Trust International, our private wealth management business. Turning to investment vehicles, we saw strong client demand and positive flows into ETFs, retail SMAs, and Canvas. Our ETF business saw its fourteenth consecutive quarter of positive net flows, attracting $4.1 billion during Q2, and a record high AUM of $37 billion. Twelve of our ETFs now are over $1 billion in AUM, ten in the US, and two non-US. The growth of our ETF business reflects our commitment to staying at the forefront of innovation. During the quarter, we launched the Franklin Crypto Index ETF, which offers investors indirect exposure to the two largest digital assets, Bitcoin and Ethereum, through a single investment vehicle. The Franklin Crypto Index ETF is our third digital asset ETP launch in just over a year. Also launched Europe's first-ever tokenized usage fund, the Franklin Unchained US Government Money Fund. The retail SMA market has experienced considerable growth in recent years, and this trend is expected to continue. From 2022 to 2024, industry-wide, SMAs saw 30% asset growth and are expected to reach $3.6 trillion by the end of 2027, from $2.4 trillion today due to tax advantages and lower minimums. Our retail SMA AUM was $144.2 billion, with net inflows of $1.5 billion. And excluding Western, had record net inflows of $3.2 billion. Our non-US business saw positive net flows in the EMEA and Americas region, ending the quarter with approximately $470 billion in AUM. As previously mentioned, we benefit from the geographic diversification of the firm. Now in terms of investment performance, over half of the mutual fund AUM is outperforming its peer median across the one, three, five, and ten-year periods. Compared to the prior quarter, investment performance improved in both the one and five-year periods, with one of our largest funds managed for yield now outperforming for those same periods. Over half of strategy composite AUM is outperforming its benchmark over the three and five-year periods, and 63% doing so over the ten-year period. Turning briefly to financial results, adjusted operating income was $377.2 million, a decrease of 8.6% from the prior quarter. The decrease was primarily due to compensation expense related to the start of the calendar year and the impact of Western, partially offset by the prior quarter annual deferred compensation acceleration for retirement-eligible employees. As always, we continue to focus on disciplined expense management. In January, we announced that Western would integrate select corporate functions into Franklin Templeton, creating efficiencies and giving Western access to broader resources. After careful planning, we have begun the integration of certain functions across back office, middle office, and support teams. Importantly, as with all specialist investment managers, Western's investment team will maintain its autonomy. Our top priority is to ensure this process is seamless to clients. Notwithstanding the recent market challenges, we remain on track in terms of the five-year plan presented at fiscal year-end, including priorities across public and private markets distribution, private wealth management, and innovations in digital assets and technology. These combined with disciplined expense management and operational efficiencies as well as effective capital management, will allow us to deliver value to our clients and shareholders over the long term. Finally, this quarter, we were excited to bring our New York-based employees together in a modern space with new technology. We relocated employees from 10 separate Manhattan office buildings into One Madison Avenue. We have already hosted clients from around the world, and the feedback has been overwhelmingly positive. At Franklin Templeton, we are driven by a shared mission to help people all over the world achieve their most important financial milestones. That mission remains constant, even as the industry and our organization continue to evolve. A key to that focus is understanding their unique goals and being their trusted partner in navigating the complexities of the market together. We have built an all-weather platform that mitigates concentration risks across specialist investment managers, asset classes, vehicles, and geographies for the benefit of all stakeholders. And importantly, I would like to thank our talented and dedicated employees for their commitment, efforts, and always putting clients first. Now let's open the call up to your questions. Operator?

Thank you. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. If anyone should require operator assistance during the conference, to allow for additional participants on this call this morning. Thank you. And our first question comes from the line of Benjamin Budish with Barclays Capital. Please proceed with your questions.

Hi. Good morning, thank you for taking the question. Just curious, last quarter, we got some guidance on how fiscal year expenses should shake out comp and benefits, some of the other line items. Just curious how you are thinking about that now just given some of the market movements and the sort of natural pressure on AUM. Where is there some flex in the model? How should we be thinking about the range of outcomes for the year? Thank you.

Yes. Why I take that? It is Matt. Morning. Bear in mind that we ended April at about the same AUM, a little bit below, but it is gonna be about $1.535 trillion, maybe a little bit higher. Trillion of AUM. Where we started the month. So we know, obviously, that April was very volatile. In the markets, but just, just bear that in mind. What I will do is I will give you the quarterly guidance, and I will talk about the annual that I touched on in the last quarter. So we expect our effective fee rate for the third quarter to remain in the 38 basis point area. We think that that may increase a little bit going into the fourth quarter to finish the year. But appreciate basis point area. We expect comp and benefits to come down to around $810 million assuming that we have $50 million of performance fees. We expect IS and T to be $155 million. That is up driven by the fact that we added a vendor in IT. That means that we will have two vendors overlapping for a period of two quarters that added about $3 million. That is not too far different from last quarter, but just about a few million dollars. Occupancy, we expect to remain flat at around $70 million. We are shedding the double rent at One Madison, and we have about $3.5 to $4 million of that left for the next quarter. And that will lead us to about $70 million, so flat to the last quarter. And G and A, we expect to be also very similar to this to the quarter we are reporting today at around $185 million. In terms of the full year guidance for full year '25, adjusting for the additional quarter of Putnam, and excluding performance fee compensation, we expect our expenses to be roughly flat to 2024, very similar to 2024. We continue to make important strategic investments in the areas that Jenny mentioned in her prepared remarks in alternative assets, ETFs, Canvas solutions, including digital assets, in particular, and are funding these with cost saves elsewhere in the business. So while our expenses are expected to be flat to last year for fiscal 2025 adjusted for Putnam and performance fees, as I mentioned, it is important to note that we are being disciplined with the circulation of savings, additional savings in the business into those very significant growth areas for us. And then I will finally say that in the last quarter, I mentioned fiscal 2026 because, obviously, we are managing through the Western situation where we have had revenue declines there, but we are supporting the team in terms of expenses that have impacted our margin, again, that I explained last quarter. But I said that we had several expense initiatives underway at both Franklin and Western and these are expected to position us to enter fiscal 2026 with about a $200 million to $250 million run rate of cost savings, going into '26. Just to be clear, that is fiscal 26. So fiscal 25, I would expect a flat situation. In fiscal 26, we expect to achieve $200 to $250 million expense savings. The only caveat to this is that, as Jenny referenced in her opening remarks, we have several quite significant growth areas in alternative assets. If we grow faster in some of these areas, those additional sales and thumb raises do come with additional expenses, which we will highlight in the event that we are in that situation.

Alright. That was very detailed. Thank you very much. Thank you. Thank you. Our next question comes from the line of Craig Siegenthaler with Bank of America. Please proceed with your question.

My question is on the positive long-term net flow trend ex Western.

And I am wondering, do you have an estimate for the base fee organic growth rate including Western? And I am curious just given how the lower fee rate on that Western business is and you can see that your blended fee rate is rising. And if you do not have the numbers handy, high-level commentary would be helpful too. Thank you.

Yes. I mean, you know, like, it is a little hard to tell. I cannot tell you exactly what the organic growth percentage. But if you just look at this quarter, right, excluding Western, long-term net flows were about $7.4 billion. I think what is particularly positive is excluding Western, the fixed income flows were positive of $2.9 billion interestingly, Franklin fixed income actually had positive flows of $5.4 billion. And, you know, you can see in our one but unfunded institutional pipeline, you know, which is up, the biggest sim in that is actually the Franklin fixed income, which historically was not known for being an institutional manager. And you could see, and part of that is the great performance and contributions of Putnam. Part of that is I think, some of the changes that sold to Tsai has made over time. And so they are becoming a much more institutional manager. And you can see that in those numbers. If you look at private markets, we had $6.8 billion in alternatives fundraising, of which $6.1 billion is private market, so it is positive. Multi-assets have been positive. Some of the biggest growth areas with vehicles have tremendous growth rates. You know, the $4.1 billion in ETFs is on a base of $37 billion. And, you know, we have 35 ETFs. We are selling them in all regions. So it is a great opportunity. Our SMA business is $144 billion. We have 200 you know, individual SMA types of products there. And the thing about SMAs is it is actually complicated to get them set up in the SMA channel. So the fact that we have such diverse sims all contributing to SMAs, a big area of growth we think, a great opportunity. Ex Western with positive flows in the US, were positive flows internationally. So the challenge has obviously been that you know, it masks a bit of the really important growth that is happening. But in the areas where the industry is growing, we are growing and, in many cases, faster than that. And we are growing in the places we want to grow. So I think, you know, all of those bode very well. And, again, you know, when we just look at obviously, equities are outflows as an industry. But you look at what has happened with Putnam, I think they are up quarter over quarter from acquisition 82%. In inflows. When you take great performance and you add it to the global distribution platform that we have, that combination can be very positive even for active equities. And of course, market times like this of volatility, people are reminded why active management matters. Active managers have to think about risk-adjusted returns. And I always say nobody talks about how beta gets more risky over time. And when you have a concentration and active managers have to consider that. So volatility is great fertile ground for active managers. You have got to prove it. And I think our performance is continued to improve. So all those things we think are really positive. And again, I think with the global breadth of our distribution and no other firm has a kind of local asset management capabilities that we have in these big growing markets like in India, you know, we have local manager 80% of flows in markets tend to go to local managers. We are local in so many of these markets. So I do not have that the I do not know if I bought Matt time to calculate it or Adam. So go ahead and you guys could add to it.

Yeah. Two Just add two things. One, the effective fee rate of the assets that we have for Western is in the high 15 basis point areas of 15.8 to, I think, 16. The other thing I will point out is for April, it is really it is it is obviously early. We are reporting next week, but ex Western, our lows are about flat flattish. For the month, and that is in a very volatile month. So it is worth noting as well. And month by month can obviously change quite a bit and leads to the results at the end of the quarter, but so it is worthwhile pointing that out. As the month was so so volatile.

And, Matt, I would only add that, you know, Jenny talked about having strong sales growth in areas where the industry is growing. But even where the industry is shrinking in in places like active equity, our gross sales are up six quarters in a row now. So we really do see strength across the business gross sales up in every region, in every asset class this quarter, and when it comes to fees, fees are really gonna be impacted by asset mix. And I would only comment there that our business is far more diversified than it once was. We look at our top 10 selling strategies for the quarter, three were in equity, three were in fixed income, three were in alternatives, and one was multi-asset class. So a very diversified business, but with obviously different fee rate and where we win more will impact what that fee rate ends up being.

Yep. Thank you.

Thank you. The next question is from the line of Alex Blostein with Goldman Sachs. Please proceed with your question.

Hey, Jenny. Good morning, everybody. Was hoping we could dig in a little a little more into your comments around private markets and the track you are seeing there. I guess, first, would love to get your insight on how the retail products have done, through April. I mean, obviously, all the volatility, it seems like the industry has held up quite well. Curious if you are seeing something similar. And I guess when you zoom out a little further, I believe Lexington, will be in the market with their large flagship secondary fund. It is an area where there is quite a bit of bright spots, and good momentum in that business for the industry as well. So curious how you are thinking about sizing that as well and what that ultimately means for your sort of aspirations for growth, in private markets management fees over the next twelve months.

Sure. So a couple things. So one is let me just because because we had guided originally to $13 billion to $20 billion in in the the private markets. And we are at $10.4 billion so far. So we have raised in alternatives, I think, 12.1 or something. But of that 10.4 is in private market. So we are you know, edging up closer to the lower end of the of the range. And the message was we would be on the higher end of the range if Lexington had a first close in September, which we thought was you know, unlikely but a possibility. We we now think that that is pushed out further. But you know, the the kind of again, this quarter at $6.1 billion. And and by the way, that is well represented from BSP, Alcetra. So private credit, Clarion with real estate, as well as Lexington. And, you know, Lexington had obviously the flex and Flex I funds, which raised $2.1 billion plus they are in the market with their continuation vehicle in their middle market, so they are getting flows there. And Franklin Venture also had flows. So that 6.1 represents all four of our alternatives managers. We think going forward, this year, since Lexington probably will push the close will be more towards the latter, of '25 potentially even early twenty six. And I will talk about kind of what we think that opportunity is there in a second. They are still going to come in probably right we will still come in probably right in the midrange of of that original range just because of the strength of the other areas that we are getting good positive flows in. Now the question around when we see the opportunities look. The well channel just a massive opportunity. Today, advisers have about 5% of their book to alternatives. You know, they would like that number to be closer to 15%. Our internal calculations is in the next you know, five years, that is $800 billion. But if you read, like, Goldman's numbers and others, you are talking like a $4 trillion. It is just massive. And our ability to combine the product breadth that we have and I think we are pretty unusual. Maybe one other firm has something similar. With our DNA in the wealth channel. And, again, selling alternatives in the wealth channel is hand to hand combat. The first and probably easiest thing is to get on the platform. The challenge goes into the education of individual financial advisers, making sure from a suitability because they have to decide client by client what is suitable. And then also having the tremendous product capability that you have. So think about today, we have three evergreen perpetual products that are a billion or more, one for Clarion, one for BSP with BSP's real estate debt fund, and now Lexington Flex. So we have tremendous product capabilities there that are that are perfect for that channel. So we think that, you know, really good opportunities, and then we have 90 people who are just dedicated we have built this over the last few years to being able to support our market leaders as specialists who are helping, our market leaders out there with wholesalers or with advisers to think about how to sell those products. And I think the success that we have had on Flex demonstrates really what that opportunity is. Now with respect to Lexington's fund eleven, you know, they would tell you that the time of the market, it is it is absolutely, you know, a tremendous time to be in secondaries. The challenge, of course, is that the LPs are sitting there with less realizations than they have had. And to put that in context, between, like, '21 to '24, they were usually getting cash flows from realizations kicked off from their alternatives portfolios around 20% to 24% of what their AUM in that area was. That is cut in half. So in order to fund their future opportunities, they have to be able to come up with cash. And that is where you are seeing you know, that they are going in and talking to Lexington. So as far as opportunity to put money to work, and therefore being able to scale the Evergreen Fund alongside with their traditional funds is it is just a tremendous you know, they they have no concerns about the ability to put that to work. And then what is happening is you have, you know, managers, they recognize the opportunity in the secondary space. And so they want to do it. They just have to figure out ways to make it you know, the the the make that space in the in their portfolios. But they are actually afraid of missing out on, you know, this vintage. And so you know, Lexington intends, as you would expect, this fund to be bigger than fund 10. I ask the question, is there any concern that flex and FlexEye would in any way cannibalize the 20% that you raised in Fund X in in fund 11 and know they are confident that it is really focused on a different group. And so we think really that that that Flex and, you know, the Evergreen Funds, perpetuals there have actually just opened up to a broader sec section of clients. So you know, if if Matt and and Adam, if there is anything you want to add here.

Yeah. Jenny, the only thing I would say is that you are right. The launch of three scaled perpetuals allows us to constantly be in market. And just being there talking to advisers, giving Alts education gives us continued momentum. But that also helps us with our drawdown raises. And it is not just the Lexington flagship where we can raise, money from the retail channel. It is things like, co-invest and continuation vehicles, middle market, those products also have good momentum in the retail channel and are helped by the fact that we are always in market with the perpetuals.

Very helpful. Thank you. The next question is from the line of Dan Fannon with Jefferies. Please proceed with your question.

My question is on fixed income. You have mentioned flows ex Western being positive. Could you expand upon some of the strategies that are seeing that success? And then also just an update on Western and where you think you are in the kind of redemption trends and the conversations they are having with clients and you know, just just an overall update on on the health of that subsidiary would be helpful. Thank you.

So why do not I I will start on Western, and then, Adam, why do not you cover the fixed income strategies that that we are getting, you know, most traction in. So, look, you know, Western good news is during this really volatile time, Western's performance has been very good. We feel confident that the team is stable, engaged, and very motivated. I think it is important to remember, Western is a $245 billion asset manager on its own. So it has scale and size on its on its own. You know, the has $10 billion in outflows. Which was anticipated, obviously difficult, but that is the reality. I think it masks the fact that they also have $5 billion in gross sales. And they continue to be part of the institutional one, but unfunded pipeline. So institutions are still allocating to Western. They still have great relationships with their with a lot of insurance companies, strong muni and cash franchises, still getting flows into core and core plus. So there is still support there. And then I would just say, again, this this demonstrates, I think, the strength of our model. If you look at Franklin in the past, we we had oftentimes real concentration on very successful products. Now we have true diversification across. And so you look at the flows that are going into both the private credit side of the business as well as Franklin fixed income. And the good news is we are able despite having one sim going through a difficult time, to be able to pivot and have and capturing the opportunities in the market in, in fixed income with other SIMs. Adam, you want to talk about the specific.

Sure. If I take a look at where we are having specific success, you know, Munis was one area. We raised about a billion dollars in Munis. That was a really strong area for us. We also saw good flows and stable value. And high yield as well where we have a number of top-performing products. The insurance sector is something that has been strong for us across the board and in customized and corporate strategies there. We have seen very good flows. And depending on how you want to bucket CLOs, with $2 billion raised in CLOs. That has been, quite strong for us. Short duration is the other area. We see that clients on both the retail and in institutional side, US and non-US, want to, keep a little powder dry. Until the rate situation clarifies a bit. And for that reason, we have seen very good flows into our short duration product. The final thing I would note is that depending on how things unfold on the macro side, we are very well positioned in some of our non-dollar fixed income products, and we think that flows could well accelerate there as well.

And and I will just I just want to because I I gave a little bit information in April, those numbers are preliminary. We do anticipate despite this incredibly volatile time to be about flat. In April as far as flows.

And and from a fixed income standpoint, if we look at things going forward, about half of our one but unfunded pipeline is fixed income, and the largest single component of that is Franklin fixed income.

Thank you. The next question is from the line of Michael Cyprys with Morgan Stanley. Please proceed with your question.

Hey. Good morning. Thanks for taking the question. I was hoping you could spend a moment on your international business. You guys have a a pretty broad, large overseas footprint. I was hoping you could elaborate a bit more on how it is contributing to revenues and flows today where you are seeing the most traction overseas. And if you could talk to some of your initiatives to help accelerate the growth from overseas and particularly how you see demand evolving for non-U.S. strategies this backdrop?

Thank you. Great. Adam, you want to wanna take that, or you want.

Yep. Look. We we we are positive in terms of our momentum in gross sales in every region, and we are as Jenny said in her remarks, in over 30 countries on the ground. That allows us to play as a local player with locally oriented and global product in most of the markets we serve. Some of the trends we see are regional specific, for instance, Australia tends to be a more alternative-oriented market for us. Asia tends to be a more income-oriented market for us. There are some things like US technology, that tend to sell well, for us across the board. In terms of, how we are set up, our, business in Asia tends to be a bit more institutionally focused than in some other markets. And I would say a market like Canada tends to have most of the kind of hand-to-hand retail distribution that we see in other places. If we look at our success, core sales is doing well. All of those markets. Our bumpiest ride this quarter was probably, in the APAC region. That is just because we happen to have a number of large institutional clients there who were derisking their portfolios and we were on the riskier side of the asset allocation there. Terms of our exposure to equities and higher return oriented and fixed income products. Nothing, I think, that is telling about the future. But the Asian market does tend to be more institutional, and we were on the wrong side of some allocations there this quarter. If we take a look at the overall AUM, it is about $470 billion outside of the US. And for this quarter, we are net flow positive in both the EMEA and Americas regions. With gross sales up in every region.

Our next question is from the line of Bill Katz with TD Cowen. Please proceed with your question.

Great. Thank you very much. Can you guys just clarify excuse me, just the flows at WAMCO. Was the $10 billion was that the net of the $5 billion or is that the net outflows. And then the broader question, Jenny, it seemed like you put together a pretty strong platform that can invest across credit both, or private markets, both public and private. But there have been a number of alliances coming up around you. KTR Capital Group, I think, couple weeks ago now, Blackstone, Wellington, and Vanguard. What is your thinking strategically about setting up an alliance that might accelerate the opportunity set as the public-private world sort of becomes more intersected? Thank you.

Yeah. Thanks, Bill. Actually, I knew it when I said it. I probably confused a little bit. It is a net outflow number that that is inclusive of the $5 billion in gross sales. I was just trying to make the point that there are clients still allocating. But as you can see, there is obviously redemption pressures there at Western. Look, I think that my view is I think we are incredibly fortunate to have the stable of alternatives capabilities that we have that we did it early, and it is going to be extremely difficult for traditional managers to build that kind of one is it is virtually impossible to do organically. It is really hard to scale organically especially this mature in the alternative space. And honestly, the the write-off that we have this this quarter was our attempt to do a private equity at Climate Alpha Fund organically. And so but to be able to go out and acquire is difficult. And if you are a partnership, it is impossible. So one is I am incredibly pleased with the product capabilities that we have. And I have to tell you, just take the f f brand product, which is the real estate debt fund that actually came out of a conversation that the BSP team, they have about $10 billion. They had, at the time, $10 billion about real estate. Debt. And they thought, well, gosh, if we have to foreclose on a property, we do not run properties. We should talk to Clarion and get some advice from them. And in those conversations, conversations, Clarion said, hey. There is a bit of real retrenchment of regional banks and the real estate's debt. Funding. You guys should, you know, think about that. And and there before we launched that product that came out of literally the the leadership teams of two different sims just talking. That to us is the great opportunity. And so when we look we have done partnerships. We launched a partnership with Apollo in the DC space where I think it is Leaf House where Clarion is asleep, Apollo is asleep. So we are going to do those two. Where we think the great opportunity is going to be going forward is actually now just imagine you are a research analyst and you only cover, say, high yield, and you do not have any insights into what is going on in the private market. It is literally like managing and researching with half the data. So we actually think over time, the ability to think about how these teams are structured and how you have to be careful because there are ethical walls and information walls that are there. But how they are structured to be building products and gaining insights that it is going to be better that these the managers are under the same umbrella instead of just being sleaze. And then the final piece is it is not clear whether the gatekeepers want managers to put together their own partnership or whether they want to serve in that role where they are selecting who the two sleeves are. And so I think that remains to be seen. But I have to say, I like where we are. We are both open to partnerships as well as able to build products and opportunities across private and public ourselves.

Thank you. The next question is from the line of Glenn Schorr with Evercore ISI. Please proceed with your question.

Hello there. A follow-up on on private markets if we could. So I watch a lot of basketball, so I have seen a lot of the Sprinkle and Tim built in alternatives by Franklin Templeton advertising. Been, I think, good general brand building. I am curious when it gets towards if it gets to specific products or if that is a hand-to-hand thing in in the channel. And then bigger picture, I think a lot of us agree with your $800 billion over the next five years. Probably a lot of us would take the over. How much of that do you think you touch through Lexington, Clarion, and BSP? And and do you have interest in building out the asset classes within private markets that you would not be touching right now that are part of that $800 billion expected growth? Thanks.

Great. Thanks. I will start, and then, Adam, please feel free to fill in. So first of all, think that the only thing we do not really have is infrastructure if that actually takes off in private space. But the private markets in the wealth channel it matters. What is your distribution capabilities? Our DNA is in the wealth channel. We sell to a hundred of an adviser's book, which means we have more people out there touching the adviser. And then when you find the adviser interested in you know, alternatives, we can bring in both the education from our academy and our institute as well as one of the 90 specialists who can focus on alternatives. So our ability to cover the globe on on you know, in the wealth channel with just scale of people I think it is going to be difficult for the folks who are just alternative managers to be able to do that. The second thing is so one, it is that education. The second thing is, do you have those the capabilities? And as I said, you know, other than infrastructure, infrastructure, I think we cover it completely. And the third is, do you have the right vehicles? And the fact that we are sitting here today with Clarion, VSPs, a private credit real estate, and and secondaries with perpetual products that are over a billion dollars. So you immediately have scale. It is just a huge opportunity. Versus others who are going to try to enter the market. And I think that we told the story about the success we had with Lexington Funds ten in the wealth channel with a large distributor. And Adam, I think it is something like 44% of the advisers. Correct me on what the number had never sold an alternative product before. The fact that our flex fund, when we came out you know, we just launched it with a couple of distributors and small RIAs, and we ended up, shutting it off early because we were worried about the ability to source deals and keep the quality of deals versus keeping too much in cash. So we literally slowed it down and then and then did not it open it up to to more firms as quickly as we thought because we wanted to make sure that we could you know, source those deals and get the cash to work. Unlike a drawdown where you are calling the money when you need it, the the challenge you always have in perpetuals is if if you end up with too much demand and you cannot source good deals, you are going to be you know, your performance is going to fall a little bit. And so it is clear that there is huge demand there. And then the fact that we were able to take flex I internationally and raise just under $800 million in the first quarter I think, again, demonstrates the breadth of our capability of support there. Adam, you want to add anything to that?

I I would only add, Jenny, that when we raised the money for Flex and Flexi, we did it really with with significantly only two partners because we wanted to to launch and launch right and have an appropriate escrow process. We are about to broaden that group out and are working on doing that. I only significant demand there, that really should help us. The other thing I would note is that there are different types of advisers. You have at the high end, you have private bankers who have been doing alternatives for years, have well-diversified portfolios, and might be adding drawdowns sites. You have others who are going to want to do perpetual products like like Flex, FB Red, CP Rex, etcetera. What we are starting to do now is to talk to advisers who have never done alternatives before. And the fact that we have such broad reach the traditional side allowing us to get that access early and provide that education. Our belief is that being the first one in to provide that education is going to allow us to execute on sales in the coming quarters.

Great. Thanks. And and and the only thing that I would add is that we do actually have liquid infrastructure. And we do have infrastructure debt. We have in infrastructure debt, although it is a little bit a little bit smaller. So to Jenny's point, we do want to add private equity infrastructure. And to Jenny's earlier remarks, I think the the only way for us to really do that is to acquire something. So over time, we have mentioned this on multiple calls. We are likely to do that in some form or another.

The next question is from the line of Brian Bedell with Deutsche Bank. Please proceed with your question.

Great. Thanks. Good morning. Thanks for taking my question. Maybe just go back to the $470 billion for first can you clarify? I think that is by the region where the product is domiciled as opposed to the strategy. It is a and this is on slide six, I think. By region. And if you can clarify that, and then the question really is if there is a rotation away from U.S. strategies non-US strategies. How do you how are you positioned from that dynamic within these regions? So, would they be potentially selling Franklin U.S. Strategies? But then are you positioned well to capture that flow into non-U.S. Strategies? And then, I guess, more broadly, how do you feel you are positioned if there is just a, you know, a a general know, client shift in terms of competition versus other peers? Sure.

Okay. Great. So the $470 billion really is where the AUM is sourced for. Not what we are investing for. So that $470 billion is sourced from outside of the United States. I think if you see investor behavior, there were a few shifts we saw recently. One of them was a preference for nondollar assets. I think that was the right investment decision if you take a look. If you take a look, especially on the smaller cap markets, if you look at know, German small and mid cap versus US small and mid cap for the for for the recent period, that was one of the strongest trades out there. So there was a performance difference, and I think that drove some of the allocation. We are well positioned and have a number of international and global equity products. In fact, that is some of the hallmarks of what we are known for. Outside of the United States. So that trend, I think, actually bodes well for us. The other thing I would say is that if there were two trends we saw in allocation, on the equity side, one was a little more to nondollar. The other was a shift from growth to value. To the extent that you are you are buying growth stocks, you have to predict a little further into the future. I think the future is a bit murkier to us all right now, and that gives value stocks a bit of an advantage. In the minds of many investors. Especially, where valuations are. So we have seen a shift of allocations from growth to value on the equity side. That is another area where we have some real relative strength.

Yeah. That is great color. Thank you.

Thank you.

Our next question is from the line of Patrick Davitt with Autonomous Research. Please proceed with your question.

Hey, good morning, everyone. You mentioned the insurance channel earlier. In that vein, could you update us on where the Great Western relationship stands? How much of their initial commitment is still left to fund, and any new potential commitments in the works. Thank you.

Great. Matt, you want to take that?

Yes. So first of all, we have formed a really great relationship with with the power group of companies. Out of the initial $25 billion that they agreed to allocate to us. We have about three to four left, I think. It is so we are in the low 20 billions. So that is that. But we continue to explore many other different avenues of growth. Across our franchise and their franchise. So let us say that the, that that partnership is living up to its expectations in terms of what we described when we announced the transaction. Terms of the Putnam aspect of that overall transaction, I think we mentioned this on the last call, we we really could not be happier with the with the strength and quality of that team. And the output speaks for itself. We have almost, I think, $30 billion of net new flows from Putnam since we closed the transaction last January.

I know whether, Adam, you have anything to add to to that.

Just in would only say that just in terms of the future, we we have had success in the insurance channel. We were recently got some significant mandates from an insurance company that consolidated from 20 or so managers down before. We are in discussions, with others, for similar types of, opportunities. And feel that we offer these clients, really, a breadth of opportunity, in a channel where so much of the goes to alternatives. We are very well positioned.

Thank you.

Thank you. This concludes today's question and answer session. I would now like to hand the call back over to Jenny Johnson, Franklin's President and CEO for final comments.

Great. Well, listen, everybody. Thank you for participating in today's call. And, you know, once again, we are people business. I would like to thank our employees for their hard work and dedication. And we look forward to speaking with you again next quarter. Thanks, everybody.