Prepared remarks
Welcome to Franklin Resources earnings conference call for the quarter ending 06/30/2026. Hello. My name is Maria, and I will be your call operator today. As a reminder, this conference is being recorded. 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. 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 2000. 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 Chief Executive Officer.
Thank you, Selene. Welcome, everyone, and thank you for joining us today to review Franklin Templeton's third fiscal quarter results. I am joined today by Matthew Nicholls, our Co-President and CFO, and Daniel Ernesto Gamba, our Co-President and Chief Commercial Officer. We will answer your questions momentarily. But first, I would like to highlight key results and themes shaping our business. This was another strong quarter for Franklin Templeton that demonstrated our strategy is working. We delivered another quarter of positive long-term net inflows with positive flows across every asset class and every geography. We also reached new highs in assets under management across many of our key growth businesses, including alternatives, ETFs, retail SMAs, Canvas, and our institutional pipeline. Together, these results reflect the strength of our global platform and the momentum we are building across the business. Today, we are ahead of our 5-year plan, a testament to disciplined execution. We have broadened our capabilities across public and private markets, deepened client relationships, and expanded the ways clients access our investment expertise. These investments are creating multiple sources of organic growth and positioning us well for the future. At the center of our strategy is One Franklin Templeton. Increasingly, clients are turning to us not just as an asset manager, but as a trusted partner that combines investment expertise, innovation, and global scale to help them navigate complex markets and achieve their long-term objectives. We continue to simplify our go-to-market approach to better serve clients and capture opportunities across the business. The results we reported today reflect strong execution in the quarter, with $18.4 billion in long-term net inflows, bringing fiscal year-to-date long-term net inflows to $63.3 billion. This was another consecutive quarter of positive net flows with positive net flows across every asset class and geography. Long-term inflows reached a record $122 billion and assets under management grew to a record $1.8 trillion. Each of our key growth areas, including alternatives and private markets, ETFs including fundamental active ETFs, retail SMAs, Canvas multi-asset solutions, and our international franchise contributed meaningfully to the quarter. That broad-based performance reflects the investments we have made over the past several years to build a more diversified business. The strength of our business today is translating into future opportunities. Our institutional pipeline of won but unfunded mandates reached a record $28.6 billion, increasing more than $8 billion from last quarter. Institutional clients continue to seek strategic partners that can deliver integrated solutions across public and private markets rather than individual products, and that plays directly to the strengths of our platform. One of the most encouraging developments this quarter was the continued strengthening of our public markets franchise, with growth broadening across asset classes and investment capabilities. Equity returned to positive net flows of $2 billion, reflecting strong demand across U.S. large-cap value, U.S. large-cap core, international equity, infrastructure, and systematic strategies. Our global fixed income platform generated $2.6 billion of net inflows supported by broad-based demand across enhanced liquidity, municipals, multisector, stable value, as well as highly customized institutional mandates. Excluding Western Asset, Franklin Templeton fixed income delivered its 10th consecutive quarter of positive net flows with $3.5 billion of net flows while Western continued to stabilize. We are also seeing clients think differently about credit. While they do view public and private markets separately, they are looking for integrated solutions. Franklin Templeton's fixed income $520 billion platform together with our private credit capabilities of more than $100 billion gives us more than $620 billion in AUM across the full credit spectrum. That breadth positions us well as clients increasingly seek fewer partners that can provide solutions across public and private credit. We won a multi-asset credit mandate from a public plan and are participating in various RFPs. Multi-asset has consistently been an important contributor to growth, and this quarter generated $4.7 billion of positive net flows, led by Canvas, Franklin Income Fund, and Franklin Templeton Investment Solutions. As mentioned earlier, these results reinforce that our public markets franchise is broadening the sources of our organic growth, with clients increasingly relying on Franklin Templeton for active strategies, outcome-oriented solutions, and customized portfolios. Private markets remain one of the industry's most compelling long-term growth opportunities, and we believe Franklin Templeton is uniquely positioned as a leading partner in this space. We built one of the industry's largest and most diversified private markets platforms spanning secondary private equity, private credit, real estate, and venture capital. Alternative AUM reached a record $294 billion during the quarter after $3 billion of realizations and distributions. We raised $11.8 billion across our alternatives platform during the quarter, including $10.3 billion in private markets, bringing fiscal year-to-date fundraising to $33 billion, already exceeding our original full-year target with one quarter remaining. Fundraising remained diversified across strategies and client channels, reflecting the breadth of our platform and continued demand from both institutional and wealth clients. As private markets become more accessible, we are also seeing continued growth in the wealth management channel. Our evergreen platform across secondary private equity, private credit, and real estate grew to $8.9 billion in AUM, reflecting increasing adoption by individual investors. Wealth management accounted for approximately 20% of our private market fundraising year-to-date across evergreen and drawdown vehicles, demonstrating the progress we are making in bringing institutional-quality private market capabilities to a broader range of investors. We believe expanding access to private markets will be one of the industry's most significant long-term growth opportunities, and Franklin Templeton's long-standing adviser relationships position us well to capitalize on that trend. More broadly, clients increasingly want choice, not only in what they invest in but how they access investment capabilities. Because preferences vary across client segments, distribution channels, and geographies, we offer a broad range of investment vehicles to meet those evolving needs. That strategy continues to gain momentum with record AUM across our ETF, retail SMA, and Canvas businesses. Our ETF franchise reached a record $75.6 billion in AUM, with $7.1 billion of net inflows during the quarter. ETFs have become an increasingly important way clients access our investment capabilities, and we continue to expand our offering by bringing more of our highest-conviction active strategies into the ETF wrapper. Active ETFs account for 61% of ETF net flows, reflecting both the strength of our investment platform and continued demand for differentiated active strategies. Demand for personalized investing continued to grow. Our retail SMA business reached a record $188 billion AUM, with $4.4 billion of net inflows, while Canvas, our custom portfolio solutions platform, grew to a record $30.3 billion in AUM with $3.7 billion of net inflows. During the quarter, we also launched our preferred partner program, extending Canvas' tax overlay capabilities to strategic partners. With clients in over 150 countries, about 80% of the world, and an on-the-ground presence in over 30 countries, international business continues to be an important differentiator for Franklin Templeton. International AUM reached approximately $525 billion with positive long-term net flows in every region. Innovation also remains central to how we continue to evolve our business. We are investing in new capabilities, technologies, and distribution channels that expand client access and strengthen our competitive position, and digital assets are a good example. Digital asset AUM ended the quarter at $3.2 billion, including $2.4 billion in tokenized funds and approximately $600 million in crypto ETFs. During the quarter, we completed our acquisition of 250 Digital and launched Franklin Crypto, expanding capabilities across the digital asset ecosystem. We also announced a partnership with MoonPay, and we will collaborate with Payward, the parent of Kraken, to expand access to tokenized investment products and bring traditional financial assets on chain. These initiatives reflect our belief that blockchain will become an increasingly important part of financial markets and Franklin Templeton intends to be at the forefront of the evolution. Strong investment performance remains fundamental to earning our clients' trust and supporting long-term growth. More than half of our mutual fund and ETF AUM outperformed peers over the 3-, 5-, and 10-year periods; nearly half is rated 4 or 5 stars by Morningstar. Our strategy composites also delivered strong long-term results, with 55% or more of AUM outperforming benchmarks over the 3- and 5-year periods and 70% over 10 years. Consistent performance across market cycles continues to strengthen our ability to win and retain clients. Turning briefly to our financial results, adjusted operating income increased to $508.9 million, up 7% from the prior quarter and 35% from a year ago. The improvement reflects higher average AUM, disciplined expense management, and the continued execution of our efficiency initiatives, demonstrating the operating leverage of our diversified business model. As we look ahead, we are confident in the direction of the business. The investments we have made over the past several years have created a broader, more diversified Franklin Templeton, and we believe that positions us well to continue serving clients and delivering long-term growth. We remain disciplined in managing expenses while continuing to invest strategically in capabilities and maintaining financial flexibility to drive long-term growth and return capital to shareholders. This quarter, we returned $521.5 million to shareholders, including $348.1 million in share repurchases. In the spirit of One Franklin Templeton, as announced today in our earnings press release, our parent company will officially change its corporate name from Franklin Resources, Inc. to Franklin Templeton, Inc. on August 17, 2026. This change reflects the continued evolution of our firm as a unified global organization and aligns our corporate name with the Franklin Templeton brand. This is a corporate name change only and will not affect the company's corporate or capital structure, domicile, outstanding shares, CUSIP number, or the voting or other rights of its stockholders. The company's common stock will continue to be traded on the New York Stock Exchange under the ticker symbol BEN. Aligning our legal corporate name with our global brand reinforces our commitment to One Franklin Templeton: one organization, one brand, and one consistent experience for clients, investors, partners, and employees around the world. Finally, I would like to thank our employees around the world. Their dedication and commitment to our clients are what make these results possible. I will open up the call for your questions. Operator?
Questions and answers
Thank you. If you would like to ask a question, please press 1 on your telephone keypad. The confirmation tone will indicate that your line is in the question queue. To allow for additional participants on the call this morning, our first question is from Bill Katz with TD Cowen. Please proceed with your question.
Great. Thank you very much for taking the questions—or question, I should say. Jenny, you laid out very strong growth beginning of the year for private markets and that you have already exceeded your year-to-date target with one quarter to go. Can you unpack where you are seeing the strength and where you might be in terms of Lexington 11 and the outlook for that as well? Thank you.
Sure. Thanks for the question, Bill. So, at the beginning of the year, we had a target of $25 billion to $30 billion as far as the raise in private markets. As you pointed out, we are now at $33 billion, and we expect to end the year at about $40 billion. Lexington's flagship fund by September— they are very much on track with their fundraising expectations. By September, they should exceed $10 billion of what we have raised so far. Let me talk about this quarter. We did $10.3 billion this quarter. Lexington is about 40% of that. However, that 40% is in four strategies: their flagship fund, their middle market fund, their continuation vehicle, and the perpetual all raised and contributed to that. In addition, of the $10.3 billion, every single one of our private market managers contributed. So it is secondaries, it is real estate, it is private credit— all three of the private credit managers that are under BSP contributed to that as well as venture. Actually, it is more than 30 different strategies that were all part of that $10.3 billion. What makes us really excited about it is that this is not a one-off kind of just the Lexington flagship. This is really a diverse fundraise, and we are continuing to see momentum across the board. One area that has come back a bit this year is real estate, which was really out of favor, and we are starting to see some good traction there.
Our next question comes from Alexander Blostein with Goldman Sachs. Please proceed with your question.
Hi. Good morning. Wanted to ask you guys around fixed income strategy broadly. You have made some changes trying to bring the liquid and private pieces together. Given the convergence in this part of the market, can you talk through your new go-to-market approach? How are you thinking about the opportunity in fixed income broadly? And how much could it accelerate growth for Franklin as a whole between the liquid and private side of the house?
Yeah. Thanks for that question, Alexander. I will start, and then I will have Daniel add on a bit. We think that any fixed income manager of the future is going to have to have visibility both on the public and private side. If you do not have some way to have insights into the private markets in your traditional fixed income manager, we think you are managing money with pretty big blinders on. We are doing a lot. We have already integrated Brandywine and Putnam into Franklin fixed income with great traction there—we have had 10 consecutive quarters of positive flows—and have been working on bringing Western in. A lot of the work on Western was around back office and integration in areas like client service, institutional client service and institutional sales. On the investment side, Mike Buchanan, the CIO of Western, is now reporting into Sonal. The key is not to confuse the independence of an investment team with the ability to have greater access to resources. For example, the work we are doing in AI opens up a lot more data available to the analyst to leverage and to engage with sector analysts in other areas. We have the private markets team; today they talk, they work together, they discuss macro. But as we look forward, we think it will be more and more important that they continue to get closer. We are a $620 billion fixed income manager, about $100 billion of which is private markets. We want to present to clients much more as one big fixed income manager. We also hired an origination team. Any fixed income manager of the future is going to have to have some of their own sourcing, and we think that is going to be an important part of the future. Teams will be able to choose whether they want to opt into certain deals or not. As we look at product development, you are going to see more fixed income that incorporates both public and private. We think it is a better way to manage that under one umbrella versus independent sleeves. Daniel, do you want to add anything?
Of course, Alexander. Thanks for the question. I will have three quick things. Number one, the reaction to the Western settlement has been positive from clients. The client service teams have conducted outreach to distribution partners and institutional clients. The main questions were stability of the investment team and no changes to the investment philosophy, and the feedback has been quite positive. We are excited about the reengagement process that we are doing as we speak, which I think has upside on the institutional side given the strength of Western's clients and relationships over the years. Second, one area of focus, as mentioned by Jenny, is multi-asset credit. That is where we develop solutions by not only combining sleeves; a lot of what we have seen in the market is sleeves. People want co-PMs to actually work together to bring capabilities across the spectrum of credit. We just won a multi-asset credit mandate from a public pension in the U.S., and we are actively in several RFPs and advanced conversations across multi-asset credit. We are very excited about what is happening in multi-asset credit. Last point, new products. We just launched our target date—we repositioned one of them, called Retirement Advantage Plus, to include private markets between 2.8% private real estate and private credit—and it is having initial good looks from clients. We are also in the process of launching an infrastructure product that combines public and private capabilities, and we are doing other products that combine our private market partners and public reach. This is an area you are going to hear more from us about because it is a key differentiator given our integrated capabilities and because investors are starting to see insights across teams. It is an area of future development.
Alrighty. Thanks so much.
Our next question comes from Daniel Thomas Fannon with Jefferies. Please proceed with your question.
Great. Thanks. I wanted to expand on the $11.8 billion in fundraising. How much of that is actually fee-paying AUM? Also, what is the average fee rate of the assets you are raising across these 30 different strategies? Some blended averages would be helpful.
So the 30-plus strategies is a little over 30 across our private markets platform. About 80% is fee-generating. That gives you the number. It varies a bit depending on strategy and vehicle type. I do not have the blended number off the top of my head; Matthew?
The blended number is about 65 basis points. It ranges between roughly 40 basis points and over 100 basis points, plus performance fees.
Okay. Thank you.
Our next question comes from Glenn Paul Schorr with Evercore ISI. Please proceed with your question.
Hi. Thanks very much. On Canvas, I'm interested: if you look at the flows in the quarter relative to overall AUM, that's an enormous growth rate. You did have some white-label wins—I'm curious if you can parse some of that out—and then more big-picture, what kind of growth are you expecting? Are there other white-label opportunities in the pipeline? And then a sidebar: in terms of strategies that you deploy, how much touches on areas that drew some Treasury comments during the quarter? I appreciate it.
Thanks. Since we acquired Canvas, they have gone from $2 billion to $30 billion—a tremendous growth rate—and we think this is still early. If you think about what Canvas is, many tax-optimized platforms were developed by tax people and have a fair bit of manual labor, which limits flexibility. Canvas was developed by quant managers, so they are very tech-focused, and there are features other platforms cannot do. For example, the managed options strategy allows them to handle concentrated stock positions and help diversify portfolios tax-efficiently. They can accept in-kind transfers. Those are unique features about Canvas. The way we look at it is every time we sign up a new RIA or a new wirehouse platform, it widens the funnel of what is going to come in. Occasionally, you will have a one-off switch, but more importantly, it opens up a funnel as people select Canvas as their platform. The future of Canvas that gets us really excited is being able to move from direct indexing to a tax overlay on active strategies. Today, our SMA business is $187 billion. We are a large SMA provider. What really gets exciting is when you can add Canvas capabilities as a tax overlay on SMA platforms and active strategies. Our preferred partners program has been selected by some firms who manage active strategies; they selected Canvas to be the overlay on their strategies, which is a white-labeled version. It is because it is excellent technology. Daniel, do you want to add anything?
I would add that this quarter we continued to onboard new partners and that is a big driver of growth. We added 26 new partners this quarter, bringing the total to 220 partners, which is a big driver of the flows. The strength of the product is driving success: more frequent rebalancings and the ability to receive in-kind holdings are powerful. As advisers move money from commission-based to fee-based, Canvas is a transition tool some partners use. We are excited about the pipeline. The pipeline is strong.
Our next question comes from Patrick Davitt with Autonomous Research. Please proceed with your question.
Hey. Good morning, everyone. Couple of guidance cleanups. Sorry if I missed it in the release, but could you give the scale of the catch-up fees and management fees? And then on the expense guide, just confirming that we should add some variable expense to that based on whatever revenue growth we are assuming for Q4? Thank you.
Yes. Good morning, Patrick. For the quarter we are reporting, the catch-up fees were $14 million. We expect it to be about the same in Q4. In terms of guidance: we expect the effective fee rate to be roughly the same as this quarter, in the mid-to-high 30s basis points—again, very similar to the quarter we are reporting. Compensation, we expect to be $850 million, which assumes a $50 million performance fee level at a 55% payout. IS&T (Information Systems & Technology) we expect to be $165 million; this includes investments in AI, data, and security. Occupancy we expect to be $70 million, consistent with previous quarters. G&A we expect to be $400 million; this includes elevated fundraising and advertising that we also discussed last quarter. We expect the tax rate to be between 25% and 27% for both the fourth quarter and the fiscal year as a whole. For the full guidance for 2026, you can add the numbers I just went through to the three quarters we reported already. As outlined on page 14 of the IR deck, this assumes flat markets from now and excludes performance fees. It is inclusive of our savings presented in previous quarters. We expect expenses to be about 3% to 3.5% above full year 2025. This modest increase is driven by increased markets to date, higher sales and fundraising to date, and strong performance. Inclusive of the performance fee guide I mentioned, total expenses would be about 2% to 2.5% higher versus 2025. Importantly, taken in conjunction with revenue increases to date and revenue as expected for the rest of the year, we again have moved further ahead on our margin expansion targets. Specifically, we expect to reach very close to 30%, if not at 30%, for our fiscal Q4, and at least in the mid-20s (maybe a little better than the mid-20s) for the full year 2026. We expect to reach at least a 30% margin, probably 30%+, later in 2027. Specifically, in 2027, we would expect the full year margin to be between something like 29% and 30%. In terms of the effective fee rate for the full year, we expect it to remain stable at around 37.7 to 37.8 basis points, something like that in the high 30s.
As a reminder, if you would like to ask a question, please press 1 on your telephone keypad. Our next question comes from Benjamin Budish with Barclays. Please proceed with your question.
Hi. Good morning. Maybe following on Patrick's question: I think you answered some questions around what spending might look like in fiscal 2027. On the fundraising side for alternatives, which is probably the most controllable or where you have the most visibility, can you give a bit of a sense for what you would expect to have in the market? Is it too early to give a full-year fundraising expectation? What does the product pipeline look like, and are there any implications for the effective fee rate? If you keep at this level, assuming markets, that could continue to be constructive. Any additional color would be helpful. Thank you.
Yes. We will give you more detail next quarter for 2027 projections. We have a real advantage in alternatives in the wealth channel because alternatives sold in the wealth channel require adviser-by-adviser education; our coverage gives us an advantage there. We've always said our goal is to have 20% to 30% of alternatives distributed in the wealth channel. We are at 20% now and hope to continue growing that. We will provide 2027 guidance at the end of next quarter. For this coming quarter, we expect to end the year at about $40 billion.
Same thing on expense guidance—we expect the margin uplift we presented. For 2027, we will give more details in the next quarter as we present the fourth quarter and go into 2027. In terms of the effective fee rate, our analysis expects it to remain stable in the mid-30s basis points.
I will add color on alternatives in wealth because it's worthwhile. This quarter we had $3 billion of fundraising in the wealth channel for the quarter across evergreen and drawdown strategies; fiscal year-to-date that's $6.6 billion, which is the 20% Jenny mentioned. Also, international continued to be strong: 29% of the sales are international, with Europe and the Middle East about 18% and APAC about 11%, driven by new markets signing up to our evergreen program and some institutional sales in Asia. We are broadening structures: real estate debt is gaining momentum, CPREC is having good momentum, and we continue to innovate. We announced model portfolios with CoraStone to deliver SMA-style model portfolios with a single ticker, and we see demand in infrastructure, venture, and growth—areas that will continue to strengthen our presence in wealth on alternatives.
Okay. Great. Thanks for all the extra color.
Our next question comes from Michael Cyprys with Morgan Stanley. Please proceed with your question.
Good morning. Thanks for taking the question. Over the last year, you rolled out a number of AI initiatives across investments, distribution, and operations, including a partnership with Microsoft. Could you follow up on where you're seeing the highest return on investment? Where has adoption been slower than initially expected? Over the next couple of years, which workflows or functions could be most fundamentally redesigned and have the most meaningful impact on the business from AI?
Thanks, Michael. I will start with the Intelligence Hub, which was our partnership with Microsoft. This was an early project, and after a couple of years we are starting to get real metrics. The goal was to ensure salespeople are seeing the right clients and having the right conversations efficiently. It required agents that communicate with each other, which is why Microsoft was excited. In territories where it is broadly rolled out, we've seen a 25% increase in the number of clients salespeople are able to contact and about an 11% uplift in sales. We expect that to continue. On the investment side, our approach has been to let teams build: we have over 1,000 agents working across different investment teams and multiple partners including Microsoft, Amazon, and vendors like OpenAI and others. We encourage our investment people to build agents and get comfortable. Over time, we will evaluate effectiveness and cost. Today it's about efficiencies in research and giving analysts more time and potentially better insights. We have funded three strategies as experiments: one uses AI for the research function, another uses AI for portfolio construction to learn from that process, and the third is a fully AI-driven investment strategy. Our goal is learning; we don't care if they are commercial—we care about the learnings. In operations and technology, we track metrics like how much code is written by AI. Within operations, AI helps with RFP processing, due diligence, and marketing tasks to create efficiencies. Each department has initiatives with targets for cost savings or productivity improvements, and we are tracking those. We are balancing encouraging usage with cost control because agents that run continuously can become expensive. Overall, we are seeing promising results and are focused on realizing both production uplift and longer-term efficiencies.
We track AI spending and why we are doing it on the left side of our tables, and on the right side what we expect to get back in production and efficiency. So far, we're focused on production and effectiveness, but longer term we expect meaningful efficiencies across front-office, HR, finance, tech, ops, and risk management. It is costing a lot today, but we expect strong returns over months and years.
The honest challenge with AI is you need teams to become comfortable using it. You do not want to be too constricted, but you also must control costs. We are trying to balance that.
Thanks so much for all the color. If I could ask a follow-up on tokenization: you have been an early mover with tokenized money funds and have had early success. You described wallets as a potential distribution channel. How do you think about the economics of that channel versus traditional wealth platforms? Does it expand the addressable market or just shift where assets are held? More broadly, how might your wallet strategy evolve over the coming years?
Sure. Tokenization is a programming language that can enable real efficiencies. When the SEC approved our tokenized money market fund some years ago, they required parallel processing, and we found it to be significantly more cost-effective. In an industry with constant pressure to reduce costs, blockchain rails can be powerful, and we believe financial services will increasingly run on blockchain, although adoption will be gradual because it threatens many business models. You cannot sell a tokenized product unless somebody has a wallet. A wallet is essentially a crypto receiver for the token. In digital distribution, we're focused on three areas: distribution, product capabilities, and the underlying infrastructure to support tokenized products like the Ben money market fund. On distribution we are focused on entities that already have wallet infrastructure—the top crypto exchanges with hundreds of millions of wallets. Our partnerships with MoonPay and Payward (parent of Kraken) are about integrating our tokenized products so their users can move from stablecoins to yield-bearing products like our tokenized money market fund or tokenized ETFs. We also speak to traditional distributors whose clients want to hold crypto assets alongside traditional investments; they are exploring building wallet infrastructure. But you cannot sell tokenized products without wallets, and many traditional players do not yet have that. On product capabilities, we closed on 250 Digital, which is like a venture firm for digital assets, and institutional clients are increasingly comfortable investing via Franklin Templeton. Finally, the underlying infrastructure we built—wallets and shareholder recordkeeping—raises the question of whether we should commercialize those capabilities. Those are the things we are thinking about in digital assets.
Great. Thanks for all the color.
Our next question comes from Alexander Blostein with Goldman Sachs. Please proceed with your question.
Hi, thank you for taking the follow-up. A couple of cleanups. Matthew, on margins, when you talk about 2027, you use standard methodology not assuming market returns. When you talk about 29% to 30% for 2027, exiting north of 30%, I just wanted to confirm that assumes flat markets from here. Also, I don't think anyone asked about capital return and buybacks, but there's a meaningful step-up in buybacks this quarter. Can you flush out how you're thinking about buybacks and capital management from here?
Thanks, Alexander. A couple of comments. First, on capital management: we are very focused on organic growth. As you grow private markets, you need to use the balance sheet to co-invest alongside strategies. We have $3 billion of our balance sheet invested in funds—about $1.75 billion in private markets and $1.25 billion in public markets—and see that growing into 2027. Second, we are focused on increasing our dividend over time. Third, we will always repurchase shares to offset employee grants and keep share count at least even. Fourth, we will be opportunistic in share repurchases. Over the last couple of years, some strategic activity and the Western matter limited our ability to repurchase during blackouts, but now we have more clear air and can be opportunistic. This past quarter we repurchased $350 million of shares. That included an opportunistic purchase from Great-West Life, which had a 4.9% strategic investment in Franklin in connection with the Putnam acquisition and signaled its intention to sell amounts above that level. They sold over 1% of outstanding shares, and we repurchased those. Fifth, acquisitions: we remain disciplined and will pursue acquisitions at a high bar, focusing on areas where we cannot grow fast enough organically or where acquisitions accelerate strategic relevance, such as globalizing real estate, distribution, or partnerships. Finally, debt service: over the last two years we delevered, but we may access long-term debt markets in the short term to refinance the revolver and reload cash to accelerate strategy. That's the overview on capital management. Jenny, do you want to add?
No, I think Matthew covered it well. Thanks.
Thanks, Matthew. Alright, thanks.
Our next question comes from Bill Katz with TD Cowen. Please proceed with your question.
Okay, great. Thank you. I was keen on that margin update as well. One broader question: you seem to be running ahead of your 5-year plan. You've mentioned possibly investing in more scalable, lucrative businesses. Is 30%+ the endpoint or is that a stop along the route?
I would say 30% is a stop along the route. The question is how quickly you can get there. This business has constant pressure on distribution fees and other areas. We believe we should be able to expand margin over time above 30%. The honest thing is we do not yet fully know the end state of AI impact; new technology first makes existing processes more efficient, and only over a couple of years will teams see new opportunities. We are optimistic about AI's ability to expand margin.
I would add a reminder of how much we have invested in the business. Investment management used to be capital-light, but it is no longer capital-light in terms of what you need to invest to be a winner. We've invested significantly in ETFs, Canvas, alternatives, and the wealth channel. We are beginning to realize the potential of those investments and getting margin uplift. I think 30% to 35% is the industry zone; that includes where we've invested and there is upside from scaling those investments. We are planning an Investor Day either late this calendar year or early next year to present our progress and proof points.
Thank you for taking the extra questions. Thanks, Bill.
Our next question comes from Patrick Davitt with Autonomous Research. Please proceed with your question.
Hey. Thanks for the follow-up. Jenny, you mentioned distribution expense pressure. There is news this month that Merrill Lynch is planning to make significant increases in revenue sharing and platform fees across product wrappers, and earlier this year Schwab made changes on ETFs. What's your updated view on the risk that this is becoming a bigger trend and could cause incremental net revenue or expense headwinds?
Rev-share programs have been around for a long time. What has changed is the vehicles and the influence of the end adviser. Even large RIAs are starting to discuss sharing economics. It is a natural evolution: where a firm can influence distribution, conversations about platform fees occur, and where they cannot, we push back. Platforms will look for some amount of platform fee as SMAs and ETFs grow, but these fees cannot be as high as some traditional distribution fees historically were. We view it as business as usual and will respond accordingly.
This concludes today's Q&A session. I would now like to hand the call back over to Jenny Johnson, Franklin's CEO, for final comments.
Well, thank you, everybody, for participating in today's call. We remain deeply grateful to our employees around the world for their ongoing dedication and commitment to serving our clients. We look forward to speaking with all of you again next quarter. Thanks, everybody.
Thank you. This concludes today's conference call. You may now disconnect.