Franklin Resources, Inc. (NYSE: BEN) Q1 2026 Earnings Call dated Jan. 30, 2026
Corporate Participants:
Selene Oh — Head of Investor Relations
Jennifer M. Johnson — Chief Executive Officer
Matthew Nicholls — Co-President, Chief Financial Officer & Chief Operating Officer
Daniel Gamba — Co-President & Chief Commercial Officer
Analysts:
William Katz — Analyst
Craig Siegenthaler — Analyst
Brennan Hawken — Analyst
Alexander Blostein — Analyst
Glenn Schorr — Analyst
Dan Fannon — Analyst
Kenneth Worthington — Analyst
Michael Cyprys — Analyst
Patrick Davitt — Analyst
Ben Budish — Analyst
Presentation:
operator
Welcome to Franklin Resources Earnings Conference call for the quarter ended December 31, 2025. Hello, my name is Rob and I’ll be your call operator today. As a reminder, this conference is being recorded and at this time all participants are in a listen only mode. I would now like to turn the conference over to your host, Selina oh, Head of Investor Relations for Franklin Resources. You may begin.
Selene Oh — Head of Investor Relations
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 or 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 MDA sections of Franklin’s most recent Form 10K and 10Q filings.
Now I’d like to turn the call over to Jenny Johnson, our Chief Executive Officer.
Jennifer M. Johnson — Chief Executive Officer
Thank you Celine. Welcome everyone and thank you for joining us today as we review Franklin Templeton’s first fiscal quarter results. I’m joined today by Matt Nichols, our co President and cfo, and Daniel Gamba, our co President and Chief Commercial Officer. We’ll answer your questions momentarily, but before we do that, I’d like to review some key themes. We are operating in a period of continued transition for investors marked by significant market turbulence globally resulting from heightened geopolitical trade policy and consequently economic uncertainty. Markets are adjusting to a more persistently volatile environment, shifting capital flows and a growing need for resilience in portfolios across regions and client segments.
Investors are focused on the same fundamental questions, how to generate durable returns, how to manage risk through uncertainty, and how to position portfolios for long term outcomes rather than short term noise. That environment is reshaping what clients expect from asset managers. Over the past few months, I’ve traveled overseas, across Europe, the Middle east and Asia, and in my conversations with clients, it’s clear they are no longer looking for individual products in isolation. They’re looking for partners who can help them construct portfolios across public and private markets, deliver personalization at scale, and navigate complexity with discipline and insight.
Franklin Templeton is well positioned for this moment. Over years of deliberate planning combined with the strength of a global brand, we have earned the trust of investors around the world. At Franklin Templeton we bring together specialized investment expertise across public markets, private markets and digital assets supported by a global platform with reach in more than 150 countries. Clients are increasingly engaging with us across multiple asset classes and reflecting a shift toward integrated solutions and long term strategic relationships. This alignment between client needs and our capabilities is driving growth. Our diversified platform, continued innovation and focus on scale and efficiency position us to capture opportunities across market cycles and deliver long term value for our clients and shareholders.
Now turning to our results for the quarter which marked another important step forward with tangible progress across the firm, we continue to deepen client partnerships, broaden our investment and solutions capabilities and strengthen our global platform. Key priorities that remain central to our strategy Our first fiscal quarter continued the momentum we built last year with strong client activity across Franklin Templeton’s diversified global platform with positive net flows in both public and private markets. We had record long term inflows of 1:18.6 billion, up 40% from the prior quarter and 22% from the prior year quarter. Long term net inflows were 28 billion with record AUM and positive net flows across equity, multi asset and alternative strategies as well as ETFs, retail SMAs and canvas.
Excluding Western Asset Management’s long term net inflows totaled 34.6 billion, nearly double the prior year quarter, extending our track record to a ninth consecutive quarter of positive flows. On a comparable basis, assets under management ended the quarter at 1.68 trillion. AUM increased from the prior quarter due to long term net inflows and the acquisition of epira, partially offset by the impact of net market change distributions and other. Excluding Western asset long term net inflows were $34.6 billion compared to $17.9 billion in the prior year quarter with nine consecutive quarters of positive net flows. We continue to see strong momentum across our platform with record AUM in three of our four asset classes.
Public markets remain a key strength and an important source of growth. Equity, multi asset and alternatives generated positive net flows totaling $30.4 billion for the quarter and excluding Western asset. Fixed Income delivered its eighth consecutive quarter of positive net flow Equity net inflows were 19.8 billion for the quarter, including reinvested distributions of 24.6 billion. We saw positive net flows across large cap value and core all cap growth and value sector international equity, equity income and infrastructure strategies. Fixed income net outflows were 2.4 billion excluding Western asset fixed income net inflows were 2.6 billion excluding driven by Franklin Templeton Fixed Income.
Positive momentum continued in multisector municipal, highly customized, stable value government and emerging market strategies. Our institutional pipeline of one but unfunded mandates remains strong at 20.4 billion, underscoring sustained demand for our investment capabilities. The pipeline remains diversified by asset class and across our specific specialist investment teams. Turning to Private Markets Franklin Templeton is a leading manager of alternative assets with 274 billion in alternative AUM alternatives fundraising has been a key contributor to our growth with 10.8 billion raised during the quarter, including 9.5 billion in private market assets. Fundraising was diversified across our alternative specialist investment managers and reflected client demand in secondary private equity, alternative credit, real estate and venture capital from institutions as well as from the wealth channel.
Aggregate realizations and distributions were 4.8 billion. Lexington Co Investment Partners 6, one of the largest dedicated global co investment funds closed in October with 4.6 billion in committed capital. Today, Lexington’s AUM stands at $83 billion, up 46% since its acquisition in 2022. In addition, we continue to expand our private credit platform with the October 1st closing of the Epeira Asset Management acquisition. This strategic acquisition enhances our direct lending capabilities in Europe. Growing Lower Middle Market In January, BSP Real estate opportunistic debt fund 2 closed with 10 billion of investable capital including related vehicles and anticipated leverage across 3 billion of equity commitments.
Franklin Templeton’s US and European alternative credit businesses are now aligned under an updated Benefit street Partners brand with 95 billion in private credit aum at quarter end. Clarion Partners continues to be well positioned with a large diversified portfolio and positive returns despite a challenging capital raising environment. Capital flows remain well below historic averages largely due to clients seeking more liquidity in private equity. Overall, recent MA activity in the industry underscores the importance of alternative assets, reinforcing the strategic rationale behind our acquisitions and and investments and further highlights our ability to grow our alternative asset platform at scale.
Franklin Templeton Private Markets Our Alternatives Wealth Management offering continues to gain traction and generated over 1 billion in sales for the quarter. Underscoring the strength of our global distribution partnerships and client reach. Lexington Partners, Benefit Street Partners and and Clarion Partners each have scaled perpetual funds totaling 6.7 billion in AUM. These are semi liquid perpetual vehicles open to ongoing subscriptions, giving investors efficient access to long term private market exposure. Taken together, these capabilities are driving increased client adoption and strengthening our position as demand for private markets solutions continues to grow globally. As investors continue to seek enhanced diversification and differentiated sources of return, private assets have taken on a more prominent role within traditional mutual fund structures We’ve been incorporating private assets into traditional mutual funds for over a decade.
Today we manage approximately 60 products representing about 160 billion in traditional mutual fund assets that have exposure to private markets. Liquidity is closely and continuously monitored to ensure these products remain aligned with their traditional fund objectives. Multi Asset aum is nearly 200 billion and had net inflows of 4 billion during quarter the 18th consecutive quarter of positive net flows led by Franklin Income Investors, Franklin Templeton, Investment Solutions and Canvas. These flows underscore clients increasing preference for outcome oriented diversified solutions across public and private asset classes, an area that Franklin Templeton continues to focus on and evolve through innovation.
Clients are increasingly turning to Franklin Templeton for a broad and differentiated set of investment vehicles and we’re seeing that demand translate into sustained growth across our platform with record AUM across ETFs, retail SMAs, canvas and investment Solutions Our ETF platform continues to grow at a faster rate than the industry and reached a new high with 58 billion in AUM and generated 7.5 billion in net flows, marking its 17th consecutive positive quarter. The net flows were inclusive of 3.5 billion in mutual fund conversions. Our focus on active ETFs produced strong results this quarter. Active ETF net flows were 5.5 billion or approximately 70% of total net flows.
Today we have 15 ETFs that exceed 1 billion in AUM. The industry conversation continues to shift toward delivering personalization at scale and we see this as a durable long term opportunity. Advancements in technology are allowing features of separately managed accounts such as tax loss harvesting which were historically underutilized to be implemented efficiently and consistently across a broad client base. We are well positioned in retail SMAs with our breadth of capabilities along with our custom indexing technology. Canvas. As a leader in retail SMAs, AUM increased to 171 billion with 2.4 billion in net inflows driven by Putnam, Franklin Fixed Income and canvas.
Canvas generated 1.4 billion in net flows and reached 18 billion in AUM, reflecting strong client interest in personalization and tax efficiency. Canvas has been net flow positive since its acquisition in 2022. We are also seeing increased demand for multi asset model solutions including portfolios that combine both public and private asset classes. This trend is extending into retirement channels where investors are increasingly seeking diversification income and risk management through more holistic portfolio construction. Investment solutions leverage our capabilities across public and private asset classes to pursue strategic partnerships. This quarter Investment Solutions Enterprise AUM surpassed 100 billion.
Digital assets also continue to play an important role in modernizing financial infrastructure and Franklin Templeton remains at the forefront. Earlier this month, the State of Wyoming debuted the nation’s first state issued stable token with Franklin Templeton Managed reserves, further demonstrating our leadership in blockchain enabled investment solutions. Our digital asset AUM is 1.8 billion inclusive of approximately 900 million in tokenized funds and approximately 800 million in crypto ETFs. Turning to artificial Intelligence, we’ve made significant progress in advancing our AI efforts. Yesterday we announced the launch of Intelligence Hub, a modular AI driven distribution platform powered by Microsoft Azure.
Building on the advanced financial AI initiatives announced in April 2024, Intelligence Hub delivers our vision for US distribution by modernizing core activities and improving sales effectiveness and enhancing the client experience. One of Franklin Templeton’s strengths is our global presence and international markets are an integral part of our growth strategy. We currently operate in over 30 countries and our international business continues to expand with positive net flows for the quarter with strength in emea. Now in terms of investment performance, over half of of our mutual fund and ETF AUM is outperforming its peer medium across the 3, 5 and 10 year periods.
Similarly, over half of Strategy Composite AUM is outperforming its benchmarks over the same time periods compared to the prior quarter. Mutual fund investment performance increased in the five and ten year periods and declined modestly in the one and three year periods due to select US Equity strategies. On the Strategy Composite side, investment performance improved in the ten year period, was stable in the three year period and declined in the one and five year periods. The one year decline was primarily driven by liquidity strategies. Overall long term performance remains competitive and continues to support both organic growth and client retention.
Turning briefly to financial results, a adjusted operating income was 437.3 million reflecting lower performance fees in the annual deferred compensation acceleration for retirement eligible employees, partially offset by the impact of higher average AUM and realization of cost savings initiatives. We remain disciplined in managing expenses while continuing to invest strategically in areas of growth and innovation for the benefit of all stakeholders. We are confident that our diversified business model, global scale and client first culture positions us well to capture the long term trends reshaping our industry across public and private markets. Finally, in December, Franklin Templeton was once again recognized by Pensions and Investments as one of the best places to work in money management.
I’m proud to lead such a talented and dedicated team and I want to thank our employees for their continued hard work and commitment to serving our clients. Now let’s open up the call to your questions Operator.
Questions and Answers:
operator
Thank you. If you’d like to ask a question, please press star one on your telephone keypad. The confirmation tone will indicate your line is in the question queue. If anyone should require operator assistance, please press star zero. We request that you limit yourself to one question to allow as many additional participants on the call as possible. Thank you. And the first question is coming from the line of Bill Katz with TD Cowan. Please proceed.
William Katz
Okay, thank you very much for taking the question and all the update. Thank you for the extra disclosure in the supplement around expenses. I think that was quite welcomed for sure. Maybe on that just a two part question. To the extent that the markets were to be bit under pressure as the year goes by, how much flex do you have to sort of bring that number down? And then secondarily I think in there you sort of affirmed you’re going to get to $200 million of cost savings. Could you speak to maybe the residual amount yet to be realized and the timeline against that? Thank you.
Matthew Nicholls
Yes, Hi Bill, good morning, it’s Matt. So as outlined on that page, thanks for highlighting it in the investor deck. At flat markets, as we mentioned, the assumptions excluding performance fee comp, we do expect expenses to be in line with 2025. This is inclusive again as we also outlined on that slide of our key investments that are essentially offset by the expense savings from a modeling perspective. If you take the guidance which I can give on the second quarter quarter and then you add that to the first quarter, take those, take that sort of combined number for expenses and then take the last two quarters and divide it roughly evenly between the last two, that will get you where we believe we’ll be at this point in time.
It may be that the expense saves shift a little bit between the third and the fourth quarters, but that’s how we expect things to play out in terms of our cost savings. And that is of course as I’ve mentioned in the past in conjunction with margin expansion in particular going into the third and fourth quarters. So I think for the second quarter you won’t see much of margin expansion. You’ll see that going into the third and fourth quarters where we expect to be. Again, given current markets, given current AUM levels, we expect our margin to be getting into the high 20s at that point from where we are today.
operator
Thank you. The next question is from the line of Craig Siegenthaler with Bank of America. Please receive with your questions.
Craig Siegenthaler
Thank you. Good morning everyone. My first question is on the recent MA activity. I know you’ve been very active and I wanted to see if you had an update on potential contingent consideration liabilities. Because I see there’s only about 20 million in the new 10Q that you put out today, but I actually thought it was larger than that. So is that really it or could there be more, especially with the deal you just closed last quarter?
Matthew Nicholls
No, that’s the contingent consideration around specific transactions that we’ve done. So it’s really virtually nothing at this ST stage. What that doesn’t include is some compensation related to transactions, but that’s all in the compensation line and all included in our guidance. So in some of that you can see in the GAAP vs non GAAP disclosures for specifics, but for transaction related consideration it’s a very low number that’s left and that’s probability weighted, Craig. So yeah, nothing additional to report there.
Craig Siegenthaler
Okay, thanks, Matthew. And it’s just one question, right?
Matthew Nicholls
Yeah. Well, I think you had. You want to ask something else about M and A, I think, Jenny, do you want to cover the M and A question?
Jennifer M. Johnson
Yeah. Do you want to just. Sorry Craig, are you asking about what kind of our view is on M and A or what’s your question on that?
Craig Siegenthaler
Actually I did in the first part. But you know, if you want to kind of update us in your M and A priorities, product gaps, kind of where you’re looking, where you see kind of strategic benefits, that’d be helpful too.
Jennifer M. Johnson
Yeah, sure. So it hasn’t really changed. I mean, you know, what we’ve always said is we do MA for strategic purposes and they’re usually around whether we need to fill out an obvious product gap. Today, honestly, we are pretty full. I mean the one area that we had said was infrastructure. You need a lot of scale for infrastructure. And we feel like we filled that at least for now with the partnerships that we’ve done with the three infrastructure managers. And you know, we’re focused on the wealth channel there. Any kind of MA we do going forward is going to really be in three areas.
It will be like what we did with epira, which is to fill in a specific bolt on area, either geographically or capabilities to our alternatives manager. So in that case they gave us European Direct Lending, which we were able to combine, you know, with Alcentra’s direct lending group. And I think we’re now at 10 billion in European direct lending there. So that’s kind of a bolt on both geographically and capability. And then the second area would be if it somehow furthers distribution. So we’ve done either investments or actual MA that help us like A Putnam deal where we also brought with it some sort of distribution capability.
And then the third area is really in high net worth. We’ve said we want to grow, we want to double the size of fiduciary in our five year plan. And that can be both, that’ll be both organic as well as inorganic. So those are the kind of three areas that we’re focused on.
Matthew Nicholls
And I’ll just add something to this, Craig, that it’s almost reiterating what we said in the past, but look what we’ve done in M and A as a company has transformed the business. It’s almost 60% of our operating income that’s been added over the last several years through ma. And I think we’re a bit of a modest company at the end of the day, but the timing of our private markets acquisitions was quite good. And as you know, we’ve been growing the multiple down very substantially in terms of those transactions. So we’re very comfortable with M and A.
And as Jenny mentioned, we’ve got some things that we’re reviewing. We’re kind of in the strategic flow would probably be an understatement. But right now the return on MA is very important to us. We have high bars and obviously given where our equity is trading, the bar is even higher for M and A. So first thing we look at is what’s the return on buying back our shares relative to what we could get from ma or providing more seed capital and these other things around capital management.
operator
Thank you. The next question is from the line of Brennan Hawken with BMO Capital Markets. Please receive your question.
Brennan Hawken
Good morning. Thanks for taking my question, Matt. I don’t think I heard it in the prepared remarks, so I figured I’d drill in. Would you have any expectations for EFR either both in the coming quarter and then if you have a view maybe for the balance of the year. I know you’ve got the Lexington flag raise expected to start. I’m guessing that’ll help.
Matthew Nicholls
Yeah, I’d say that for the next quarter we expect EFR to be stable where it is today. And then in the following two quarters there could be some upside to that based on fundraising around alternative assets, as you’ve, as you’ve just highlighted.
Brennan Hawken
Great. Thanks for taking my question.
operator
The next question is from the line of Alex Blofstein with Goldman Sachs. Please receive with your question.
Alexander Blostein
Hey, good morning everyone. Thank you for the question as well. Matt was hoping you could expand the margin discussion a little bit longer term. Franklin’s done a really Nice job integrating a number of assets over the years. Good to see the expense flex come through. But when you think about the operating margins for the firm as a whole, kind of running in the mid twenties to your point, maybe entering high twenties towards the end of the year, where do you see the profitability over time? Many of your peers are well in the 30s, kind of mid-30s percent range. So knowing what you know about the business, knowing what else might be on the call with respect to integration of some of your managers, how should the street think about profitability over kind of a multi year basis? And what’s kind of the goalpost there? And maybe just a clarification.
I know you said high 20s margin exiting 2026. Is that with market or is that also assuming flat markets? Thank you.
Matthew Nicholls
The latter one is flat markets. It’s part of our guidance from where we are today. In terms of the first question. We put out there a five year plan where we’ve got four years, well 3.75 years to go of that plan and we said we’d be in excess of 30% by the time that’s finished. The reality is we are well on our way to 30% margin, all else remaining equal going into 2027, let’s say fiscal 2027. So at some time in 2027, we’ll be there. And then if all else remain equal around the market, as we’ve said, there isn’t any other reason why we couldn’t be somewhere between 30 and 35% if we achieve all the goals that we put into our strategic plan that we’ve highlighted to all of you and as we highlighted where we’re at against that at the end of last year.
So yeah, that’s where we’re at on the margin, as I mentioned, where we should end this year, all else remain equal in the high 29s going into 2027, fiscal at some point would be 30. And then if the market stays where it is today, we should go in excess of that in future years where we thought we’d be more like 30%. So we have some upside there. Remember as well, we do have the highly episodic situation around Western where we’ve been providing support to the Western expense structure since August 2024, which has had an impact on our overall margin as a firm, probably several points.
So we’d already be in the high 20s or 30% now, excluding that. But we’ve done the right thing in our opinion by providing that support and by definition also supports future growth opportunities that we’ve highlighted in our five year plan.
Alexander Blostein
Yeah, all makes sense. Thanks so much.
Matthew Nicholls
Thank you.
operator
Our next question is from the line of Glenn Shore with Evercore. Please proceed with your question.
Glenn Schorr
Thank you very much. Jenny, I felt like you had strong conviction in how you talked about. You said something like no longer people, clients are no longer looking for products in isolation. Curious how much you were leaning toward the institutional versus the wealth side and more importantly how you’re organizing around that. How do you deliberate? Is it your own models, is it getting on other people’s models and is it also bigger, strategic, broader relationships with LPs? I’m just curious to flesh that out a little bit. Thank you.
Jennifer M. Johnson
Yeah, great question. So that comment is both a wealth comment as well as an institutional comment. So you talk to any of the big wealth platforms and what they’re basically saying is we there’s more demand from their clients to offer truly what used to be just available to high net worth people. So it’s financial planning, tax efficiency, education, education of the heirs. And so what their message is, look, we’re going to consolidate to fewer managers. So we’re going to look at the ones that have scale, that have breadth of capabilities and can offer these additional services to us.
And part of that, so I’m talking first on the wealth side and of that on the wealth side is if you have traditional and privates, show me that you can support us on the education of the sale of our privates. That’s why we have 100 people whose sole job is to support our market leaders out there as they meet financial advisor by financial advisor from an education standpoint. And so really focusing on streamlining on the wealth channel, we’re having the same discussions on the institutional side where the conversations are around, okay, show me your broad breadth of capabilities.
I want to be able to second some of my more junior folks, show me how you can build a program around that that goes cross market. So fixed income equity secondaries, private credit, we want that education across and that you will support those types of programs. And again they’re consolidating the number of managers. And you have to remember you have a blow up with one manager, it taints your firm’s reputation. There’s as much due diligence on a multi trillion dollar manager as there is on a single $20 billion manager. And so the amount of time that they have to do and doing due diligence on the manager is making them want to consolidate.
Just use larger managers and expect more from the manager. So that’s that’s both, like I said, institutional retail. We’ve seen it on the insurance side where as they’re looking, you know, you have this trend towards leveraging sub advisors. They want broad breadth of capabilities there. So, you know, we’re seeing it on as you talk to retirement managers, you know, show me the breadth of capabilities that you have and show me how you can help support the business. So I would say this trend has been going on for the last few years. And it continues. It continues.
We feel really well positioned for it.
Glenn Schorr
Thanks so much, Jenny.
Daniel Gamba
I wanted to add a comment into Glenn’s comment on actually our success, especially on the wealth space, which you mentioned. We have over 100 specialists that complement the field and the wealth people on the ground and the success that we’ve seen actually over the past year alone, we’ve increased substantially the amount of AUM that we fundraise in the wealth space. And we expect that that’s going to be between 15 and 20% in 2026. But also importantly, 40% is coming outside the US so it’s also growing outside the US both in Europe and Asia. And we.
The other part that is important is over the past two years alone we built seven perpetual funds that are close to 5 billion in fundraising. And the fundraising is just going up every quarter. So this quarter is 50% higher than the quarter before. And the momentum continues because we continue to sign up new wealth groups. And to your question, Glenn, we’re also starting to build those model portfolios of perpetual funds that will continue to accelerate the growth on the wealth. So that’s an area of focus and I think that’s an area of a lot of success from Franklin.
So I just wanted to add that to the conversation.
Jennifer M. Johnson
And you just reminded me, Daniel Glenn, you asked the question about do we also try to get in other people’s models? Yes, the answer is we do, as other people have OCIO and their open architecture, in that case, in other people’s models. So our goal is to meet the client. However we can meet the client, whether it’s whatever vehicle, we’re vehicle agnostic. You know, I think that you would see that all of our flagship products are being sold in multiple vehicles. So some form of ETF, mutual fund, CIT, SMA. We’re adding, you know, tax efficiency to our active SMAs.
And so having that flexibility is really important as they select you as one of their core providers.
operator
Our next question comes from the line of Dan Fannin with Jeffries. Please proceed with your question.
Dan Fannon
Thanks. Good morning. So Matt, wanted to follow up on. Some of your comments around long term margins and the expenses. So just thinking about expense growth beyond this year, are you. Can you give us a sense of. How you’re thinking about that and do you anticipate in those longer term targets for margins additional cost savings and or cost programs that will help you get there?
Matthew Nicholls
I mean, it’s possible. We’re deep in on AI. We’re deep in on how to maximize our presence that we have in India and Poland, for example, where we’ve got very large operational capabilities and great talent. In these places we’re working on meaningful integration across the firm to maximize and capitalize on what we’ve got here. Every time when we progress down one of those paths, we find other places that can frankly absorb areas that we need to invest at least absorb. What we’re demonstrating this year is a meaningful increase in margin, all else remaining equal and an acceleration of our plan to get to 30% plus.
And we’re doing that through very disciplined expense management whilst continuing to invest in the business at the same time as the market going up. So we’ve got meaningful investments for growth, we’ve got the market that’s meaningfully up. Yet our expenses are staying flat to last year. I think going into 2027. Obviously, look, we’re not, we’re only a quarter through 2026 fiscal, but I feel confident that going into 2027 that a lot of the other initiatives we have going on will help to continue to absorb the additional expenses that are required to grow and invest in our business.
But obviously we can’t comment on reliably on fiscal 2027 when we’re not even through 26. But I hope through these comments, when you look at how we perform from the expense perspective 25 versus 24 and now what we’re guiding in 26 versus 25, that we’ve mostly achieved what we said we’re going to achieve even with upward momentum in the market. So I do think we’ve got some room in the numbers in terms of further cost saves going into fiscal 27 based on everything that we know. But right now we’re focused on delivering on fiscal 26 as we’ve highlighted.
Jennifer M. Johnson
And I’m just going to add, Matt, when we think about where is there upside down opportunity on margin, I’m going to throw it into kind of three categories in the shorter term, but sort of a 27 on one is streamlining the products. We’ve done a lot around, I think almost a third of our products We’ve looked at either repositioned, merged, a few cases closed. And in some, when I think about repositioning, it’s like turning them into ETFs. We did big ETFs, conversion where we think they’ll get more upside potential. So as we determine that there’s opportunity there, the second is it always takes a lot longer.
And you think about all the acquisitions that we’ve done, we kind of say I think 11 acquisitions in the last five or six years. But the reality of like Mason was like an acquisition of five companies or six companies, not one company, because they were all on their own systems. They had their own versions of CRM, different CRM systems. That is still ongoing and those. And some of that’s built into the projections that we have. But some of it, you continue to uncover more opportunities there as you integrate. And it takes a lot. It takes multiple years to do the full integration.
And so that’s still working. And then finally, like AI and technology, we think blockchain is going to be a great efficiency add or as it, as it’s adopted out there. But like AI just. You may have seen that we announced this intelligence hub. It’s one area that we’re working on, AI to make our distribution people more effective. You know, what we saw is the time to finalize call lists dropped 90% when we rolled this out. Now what is that? It’s, you know, went from three to four hours to 15 minutes and the prepping for meetings dropped, you know, from six hours to two hours or something per week.
But those are small, little incremental cost savings or hopefully more importantly, what it’s done is actually added 9 to 10% increase in the number of meetings that our distribution team has. So hopefully that translates into more sales. But think about that as you’re rolling it out. We’ve already talked in the past about AI and the improvement in our RFPs. We’re doing a lot of work on our investment side. It will either translate into growth opportunities or it’ll try to translate into cost savings. But honestly, it’s a bit hard today to build that into direct cost savings opportunities that expanded the margin.
But those are big opportunities, we think going forward and we are very focused and we think on the AI side, we’re actually leaders in that space. So I just want to add that to kind of Matt’s comments.
Matthew Nicholls
And then finally, Jenny, thank you for that. And then finally, most of the stated growth areas that you can see as demonstrated by our pollster flows in them are scaling they’re scaling up and in particular ETFs, canvas and solutions, for example, each of those three areas for us or obviously they’re lower fee and when they’re smaller aum, when you’re growing overall as a business, you have a lower margin as a result of that investing to grow the business to a scaled position. What’s happening now in terms of ETFs, canvas and solutions in particular, notwithstanding the lower fee rate associated with those vehicles, those businesses, let’s call it, they’re getting to the point now where the size of them and certainly going into later into 26, 27, all else remaining equal, we expect the scaling of those businesses to create higher margins overall.
So you have a lower fee rate. I know everybody is very focused on the fee rate, but at a certain point when you get above a certain aum, expenses are very managed because you’ve done all the investments, you’ve got the team you need and then you could be two, three times the size of AUM and therefore have a much higher margin. Similarly, in our alts area, as we continue to grow significantly across all three of our 34 of our primary alternative assets businesses, we’re getting more margin from that. I mean, the $10 billion that Jenny talked about earlier on the $9.5 billion of fundraising doesn’t include, for example, Lexington Fund 11.
Even so, it’s important to note our.
operator
Next question comes from the line of Ken Worthington with JP Morgan. Please receive with your question.
Kenneth Worthington
Hi, good afternoon, good morning and thanks. For taking the question, I guess pressing AI further. Jenny, you’ve been in the press talking about the impact that AI has on asset management, suggesting that it could drive, if not accelerate more consolidation in the asset management industry. So maybe one, how does AI drive consolidation? And then two, from Franklin’s perspective, how would AI sort of alter. Your ability and willingness to do the MA transactions and fill in the gaps that you mentioned sort of earlier in the call?
Jennifer M. Johnson
Yeah, so a couple things. So one of my comments on M and A consolidation has been really what I’ve said is, look, if you haven’t, if you’re a traditional manager and you haven’t already purchased scale in alternative managers, it is going to be really difficult to compete going forward. Especially because one, that comment on distributors trying to consolidate so they’re demanding more from you. Two is, as Matt pointed out, we were fortunate that we were very early in these acquisitions. Traditional alternatives managers have gotten incredib expensive since we did our acquisition of DSP and Clarion and it will be Very, very difficult to be able for a traditional manager to be able to go out and acquire number two.
This convergence, particularly in fixed income, you’re going to see but across the board with products that are, that have, that contain both private and public in them. If you don’t have that under the same roof, we don’t think you’re going to get the same kind of synergies that you get from learning and managing and research. We have over 50 products between Western Clearbridge and Franklin. Franklin’s been doing private markets in their traditional mutual funds for over a decade. So over 50 products actually have privates in them today. So we already have that in our mutual funds.
So one is in the alternative space, the second is AI. AI the amount of data required to truly train a model is really significant. And if you’re a smaller manager, one is you won’t be able to buy, you won’t be able to buy the kind of data. We spent hundreds of millions of dollars on data. And so to be able to scale that data plus the data you generate internally across all of your different capabilities is really important in training models. And it’s just going to be hard to compete on training those models if you don’t a have scale.
So that’s where you know why my comment was. I think that’s going to drive some consolidation because I think over time we’re already seeing it now. Look, anytime you have technology breakthroughs, first thing people do is just make more efficient what they do today. That’s why we give you quotes like hey, we’re more efficient on calls because it’s hard to measure the actual value added output because that doesn’t happen right away. It doesn’t happen until you start to put in the hands of your people so that they can build those ideas. I love to say it’s like, you know, when the iPhone came out we all looked at it as this is a pretty cool camera and you know, and flashlight and whatever it was unleashing the hands of the public that came up with all these creative applications.
As you start to train your workforce on how to leverage agency, which we were very early adopters of broadly rolling out ChatGPT and we do trainings on how to create agency. I we do hackathons with our investment teams and it’s a cross functional hackathons. We put people together that are cross various sins to say go build a genic AI and they’re doing things that are built one on top of the other and then we take them and we test them across others. So to me, the ability to do that and compete is going to be very difficult if you are small.
In particular if you are singly focused on kind of one area of the capital stack.
Kenneth Worthington
Okay, thank you, that’s very helpful.
operator
Our next question comes from the line of Michael Cypress with Morgan Stanley. Please receive your question.
Michael Cyprys
Morning. Thanks for taking the question. Just wanted to come back to some of your commentary Jenny, on blockchain and tokenization. Just curious if you could talk about your strategic objectives for that over the next couple of years. What’s steps are you looking to take here in 26 to enhance your positioning to help improve adoption, for example, of your existing tokenized funds. And then your point on efficiency? I guess how do you see blockchain contributing to improved efficiency at Franklin? How much lower cost is it to operate tokenized funds versus your traditional funds and Rails?
Jennifer M. Johnson
Sure. So I tell you like this is just an incredibly efficient technology and my the best example to give you an idea of how it become how I think it’s from a cost saving standpoint, how significant it is. I’ll start there and then kind of what the opportunities and the hurdles are to more broad adoption. So the first thing is when the SEC approved our money market fund, they had its parallel process. It was something like we did over a six month period between our old transfer agency system and our blockchain system. And we were one of the few firms that were still running the transfer agency systems in house.
So we got to see that comparison and we did about 50,000 transactions. It cost us about $1.50 per transaction, cost us $1.13 to run it total to run those 50,000 transactions on the Stellar blockchain, we picked the right chain. There’s a lot that goes into that, but it showed us the dramatic difference in cost. And today if you open an old money market fund, you need $500 to open up because below that we probably lose money to subsidize you. In the case of blockchain, you can open a Benji. If you downloaded the Benji app and opened a money market fund, you only need $20 and we could probably go less than that.
So it’s cost savings. The second thing is there’s a huge amount of cost in financial services that’s just reconciling data between your own systems and then reconciling with your counterparty. All that goes away when you have a single source of truth that is updated immediately. So that’s where you’re going to have cost savings. Which is why I Believe it will fundamentally replace all of the rails. There’s a lot of toll takers in the system today that will slow that down as much as they can because it threatens their business model. But you know, water runs downhill.
No matter how many obstacles you put in will become very significant. So why the slow adoption? You cannot hold a tokenized product without having what’s called a wallet. Okay, now it’s a blockchain wallet. It’s merely an encryption key that’s your own personal one. But you can’t hold any of those. And in the US in particular, where you didn’t have regulatory clarity until the Genius act came in, there was no point in any of these big wealth advisors on the traditional side to even think about it because it was kind of like the third rail from a regulatory.
I can tell you this year, I feel like is completely changed. You now have the large crypto exchanges interested in trying to offer traditional types of funds, ETFs and others that would be tokenized. And you have the big traditional managers who are saying, can you please educate us on how we access the space, how do we build a wallet, what’s required there? And so I think you’re going to start to see much greater convergence between Tradfi and DeFi. We, you know, our tokenized money market fund. What we see is if anybody’s been involved in securities lending, you know that people will move who they’ll borrow where they can get the highest collateral return.
Even if it’s a basis point, why would you keep there’s $300 billion in stablecoins. Why would you park your money in a stable coin that doesn’t give you yield when you could move into a Benji money market fund, earn that yield and when you want to do a payment transaction, convert into a stable coin. We think by the end of March we will have the ability for somebody who has a stable coin. Benji has been integrated with multiple different stable coins where on these crypto platforms we announced a partnership with Binance, we have with OKX and Kraken and others where you’ll be able to convert from your stable coin into our money market fund and on a Saturday convert out if you want to leverage it for payment and earn that yield.
And again, because it’s on blockchain, we actually pay you that yield in your account every day. If you’re a corporate treasurer and you can get use of those funds every day versus accruing and waiting for that capital being paid to you at the end of the month on a money Market fund that’s going to be a benefit. And so that’s where we think there’s an opportunity. But Benji is just the beginning of where we think this goes.
Michael Cyprys
Great, thanks so much.
operator
Our next question is from the line of Patrick Davitt with Autonomous Research. Please receive your question.
Patrick Davitt
Hi, good morning everyone. Following up on the expense guide. I don’t think you’ve ever talked about the scale of this third party performance related expenses you’re excluding. So could you give how much that runs each year and then I think Matt, you hinted you have a detailed rundown of next quarter expenses you can give. Thank you.
Matthew Nicholls
Thanks, Patrick. That should be the third party piece, should be relatively small. I’ll check with the team quickly just in case. But that was that larger performance fee that we had to run through GNA last quarter was associated with a large performance fee we got from BSP and it was for previous employees. So. But I’ll get what that number could be going forward in terms of. But it’ll definitely be smaller in terms of the third quarter or sorry, second quarter guide. I already mentioned ifr. We expected to be in line with this, with this quarter and as I mentioned the last two quarters, we have some upside potential in EFR related to potential fundraisings in alternative assets comp and benefits.
We expect to be around 860 million. This includes $30 million of calendar year resets, you know, for the 401k payroll, salary increases and so on. It also assumes $50 million of performance fees and a 55% performance fee compensation ratio. On that IS&T we expect to be 155 million consistent with last quarter occupancy, 70 million again consistent with last quarter. And as we’ve guided in the past GNA, 190 to 195 again in line with the previous quarter. This assumes a little bit higher fundraising expenses and a little bit higher professional fees. And then the tax rate we guided last time the year 26 to 28, we’re keeping that guide, but we’re now on the lower end of the guide or low to mid, let’s say in that guide.
So we’re bringing the guide down on taxes for the year from the higher end, which I think I said last quarter, to the lower to mid part of that guide. And then really importantly, I just want to reiterate for 26 because I know you’ll be calculating back what should. How do we. To the flat expense guide all remaining equal and excluding performance fees and the other assumptions we put in the deck how do we get to that guide? I would add the quarter I just gave you to the first quarter and then look at the last two quarters and just spread the expense savings over those two quarters.
We recognize about 20% of the 200 in the first quarter and we expect to spread the rest of it out over the next three. But there’d be larger amounts of it in the last two quarters. And again we expect to end the year in a very similar expense position as we were to 25 and notwithstanding all the investments that we’ve talked about making in the company and at a higher margin. As I mentioned when I answered Alex’s question.
operator
Thank you. Our next question comes from the line of Ben Buttish with Barclays. Please receive your question.
Ben Budish
Hi, good morning and thank you for taking the question. I was wondering if you could maybe talk a little bit about the equity flows in the quarter. I know calendar Q4 is typically seasonally stronger and obviously there’s been a trend of improvement over the last couple of years, but this quarter looked particularly strong. Anything unusual or one time to call out or was it more broad based? And I know it’s still a bit earlier in the fiscal year, but any thoughts on how the rest of the year may shake out would be helpful. Thank you.
Jennifer M. Johnson
I’ll start and then I know Daniel will want to jump in. Obviously it’s a quarter that you have strong reinvested dividends, so that is part of the flows which is important. But I have to tell you, Putnam continues to have excellent performance and continues to have very, very strong flows. And honestly that has even continued into January. I don’t want to steal the thunder here and January hasn’t closed yet, but we actually are looking like we will be positive net flows inclusive of Western which has been a long time since that in January. Now again, I caveat that since it hasn’t actually closed today, but part of that has just been the strength of Putnam.
Daniel, you want to add.
Daniel Gamba
I think you got it. I will say it’s a combination of Putnam clearly on large cap value, on research, also on emerging markets. We got some institutional flows from our Templeton emerging markets capability which is very, very encouraging. And I will also say our ETF franchise had excellent results, especially on the active ETFs, which is also a combination of the results from our Boston affiliate. But also a couple of Clear Bridge funds did also very well on that and the momentum continue to be on ETFs. We had a great quarter. 75% of the quarter was on active ETFs so it’s continued to actually show that that’s where the industry is going.
And we have a very ambitious plan to continue that growth.
Ben Budish
All right, thank you very much.
operator
Thank you. Our next question is from the line of Bill Katz with TD Cowan. Please receive your questions.
William Katz
Great. Thanks for taking the extra question. Just a couple cleanups for me. One, can you just remind us what the variable expense is against net asset value? We’re having about the incremental margin on market action. Number two, maybe just on the WAMCO side. Haven’t asked about this in a while, but it seems like volumes there are stabilizing. How are conversations progressing with the investment community given that some, but not all the overhang with the regulatory investigation is sort of winding down. And then finally, I was wondering if you could talk a little bit about broadly, you mentioned that Lexington was not in this most recent quarter.
How do we think about maybe the pace of opportunity on Lexington and maybe broadly where you see the big opportunities for growth in fiscal 26? Thank you.
Jennifer M. Johnson
Great. So I’ll take the Western alts and then I’ll turn it back to Matt on the on the variable expense. So just one on Western. I mean, it helped a lot. Obviously, you know, the DOJ came out and said that they’re not going to pursue criminal charges and it will be resolved through a disposition and acknowledged. I think this was also important that the additional time needed was not due to Western. So I think that gave clients a little bit of a breather of an uncertainty. And, you know, you have the benefit. The investment team is incredibly stable.
They have very, very good performance. We’ve been integrating the corporate functions. We’ve been integrating institutional sales and the client service. That’s going very well. And so I think that with clients that is that essentially calm them a bit. I mean, we did while they’re still in outflows, they did have, I think it was 6.6 billion in gross sales in the last quarter. So there’s obviously clients that are still allocating to Western with respect to alts. You know, as Matt said, so we had a very strong quarter. You know, our target for the year is 25 to 30.
We’re going to it’s still early, so we’re going to maintain that target. But obviously at 9.5 billion coming into the private markets and that is across all private credit secondaries, real estate and venture. So it’s nice and diverse. A little over half of it is in the private credit area. None of it was Lexington’s flagship fund 11 Lexington did have you know it was a combination of its co Invest Flex middle market. There were over 33 vehicles that had inflows in our private markets this quarter. So it tells you it’s really broadly distributed which for us is exciting.
Lex flagship fund 10 or 11. They’re actively fundraising in the market right now. Their target is to be about where they were on their last fund. They would expect to first close this year, but it’ll depend on secondaries. Continues to be just a great space to be. Last year was a record number in secondary transactions. Lexington is considered one of the trusted, trusted and long term partners with experience and they’re not affiliated to any single PE firm so that also gives them an advantage. So they’re having very good strong conversations. But we’re pleased to see the extent of inflows and growth even without the Lexington flagship fund.
So Matt and I’ll turn it over to you to get to the last part of that.
Matthew Nicholls
Sure, thanks. Thanks Jenny. So Bill, on the variable question, about between 35 and 40% of our expenses are variable and I’m sorry I didn’t address that. I remembered you asked this question at the end of your previous question where you said if the market goes down, do we have flexibility now expense base? The answer is yes, we always have variability in our expense base in the event the market goes down. So that’s the answer to that. And then to answer another expense question that Patrick had. Patrick, just to make sure I fully answer your question as it relates to the geography of performance fee related compensation, first of all we would always guide to apply 50, 55% to the number of performance fee overall.
So 55% is the correct application whether it’s in our compensation line or the GNA line. And we do as I mentioned in the answer to the question initially, we expect that number to be quite low in the GNA segment. The GNA segment is just literally for former employees where we have to where we’re paying a portion of the company compensation out that they owned. But that’s de minimis at this point. It was just larger that one quarter. I think it was $24 million to be specific last quarter and that was because it was a large older fund that had a number of folks that are no longer at the retired from the company that had interest in the performance fees.
operator
Thank you. This concludes today’s Q and A session. I’d now like to hand the call back over to Jenny Johnson, Franklin’s president and CEO for final comments.
Jennifer M. Johnson
Great. Well I’d like to thank everybody for participating in today’s call. And more importantly, once again, we’d like to thank our employees for their hard work and dedication to delivering this strong quarter. And we look forward to speaking with all of you again next quarter. Thanks, everybody.
operator
Thank you. This concludes today’s conference call. You may now disconnect.