Welcome to Franklin Resources Earnings Conference Call for the Quarter Ended 12/31/2025. My name is Rob, and I'll be your call operator today. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Selene Oh of Investor Relations for Franklin Resources. You may begin. Good morning, and thank you for joining us today to discuss your quarterly results.

Statements made on this conference call regarding Franklin Resources, Inc., which are not historical facts, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve a number of known and unknown risks, uncertainties, and other important factors that could cause actual results to differ materially from any future results expressed or implied by such forward-looking statements. These and other risks, uncertainties, and other important factors are described in more detail in Franklin's recent filings with the Securities and Exchange Commission, including in the risk factors and the MD&A sections of Franklin's most recent Form 10-K and 10-Q filings. Now I'd like to turn the call over to Jenny Johnson, our Chief Executive Officer.

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 Gambach, 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. 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, reflecting a shift toward integrated solutions and long-term strategic relationships. This alignment between client needs and capabilities is driving growth. Our diversified platform, continued innovation, and…

Thank you. If you'd like to ask a question, please press 1 on your telephone keypad. The confirmation tone will indicate your line is in the question queue. If anyone should require operator assistance, please press 0. 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 Cowen. Please proceed.

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 market were to be a 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.

Yeah. 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 and 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, about 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 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'll 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 quarter. 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.

Thank you.

The next question is from the line of Craig Siegenthaler with Bank of America. Please proceed with your question.

Thank you. Good morning, everyone. My first question is on the M&A 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 10-Q that you put out today. But I actually thought it was larger than that. So is that really it? And or could there be more, especially with the deal you just closed last quarter?

No. That's the contingent consideration around specific transactions that we've done. So it's really virtually nothing at this stage. What that doesn't include is some compensation related to transactions, but that's all that compensation line and all included in our guidance. So and some of that, you can see in the GAAP versus 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. Got it. Nothing additional to report there.

Okay. Thanks, Matthew. And it's just one question. Right?

Yes. Well, I think you had you want to ask something else about M&A. I think Jenny, do you want to cover the M&A question?

Yeah. Yeah. I'll be that. Great.

Yeah. Do you want to just

Sorry, Craig. Are you asking about what kind of our view is on M&A? Or what's your question on that?

Actually, I did in the first part, but, you know, if you want to kind of update us in your M&A priorities, product gaps, kind of where you're looking, where you kind of strategic benefits, that'd be helpful too.

Yeah. Sure. So it hasn't really changed. I mean, you know, what we've always said is we do M&A 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've filled that, at least for now, with the partnerships that we've done with the three infrastructure managers. And we're focused on the wealth channel there. Any kind of M&A we do going forward is going to really be in three areas. It will be like what we did with the Apira, 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 are able to combine 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 M&A that help us like the 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 will be both organic as well as inorganic. So those are the kind of three areas that we're focused on.

And I'll just add something to this, Craig, that you know, it's almost reiterating what we said in the past, but what we've done in 60% of our operating income that's been added over the last several years through M&A. And I think the know, 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&A. And as Jenny mentioned, we've got some things that we're reviewing. We're kind of in the strategic flow. It would probably be an understatement. But right now, the return on M&A is very important to us. We have high bars and obviously given where our equity is trading. You know, the bar is even higher for M&A. So first thing we look at is, you know, the return on buying back our shares relative to what we could get from M&A or providing more seed capital and these other things around capital management.

Thank you. The next question is the line of Brennan Hawken with BMO Capital Markets. Please proceed with your question.

Good morning. Thanks for taking my question. Matt, I didn't 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 Lexington the Lexington Flagler is expected to start. I'm guessing that'll help.

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, you know, upside to that based on fundraising around alternative assets as you've, as you've just highlighted.

Great. Thanks for taking my question.

Next question is from the line of Alex Blostein with Goldman Sachs. Please proceed with your question.

Hey, good morning, everyone. Thank you for the questions. Well, Matt, I 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 thirties, kind of mid-thirties, percent range. So, no one would you know about the business. Knowing what else might be on the come with respect to integration. Of some of your managers. How should TheStreet think about profitability over kind of a multiyear basis, and what's kind of the goalpost there? And maybe just a clarification. I know you said high twenties margin exiting 2026. Is that with market, or is that also assuming flat markets?

The latter one is flat markets. So it's part of our guidance from where we are today. In terms of the first question, you know, we put out there a five-year plan where and we've got four years well, three point seven five 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 '27, let's say, fiscal twenty twenty seven. So sometime in 2027, we'll be there. And then if all else remain equal around the market, as we've said, you know, there isn't any other reason why we couldn't be somewhere between 30-35% 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. 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 20 nines going into 2027 fiscal at some point would be 38. 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 margins of probably several points. So we'd already be in the high twenties, or 30% now. Excluding that, but we've done the right thing in our opinion by providing that support. And it definition, also supports future growth opportunities that we've highlighted in our five-year plan.

Yep. All makes sense. Thanks so much.

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

Thank you very much. Jenny, it felt like you had strong conviction in how you talked about you said something like no longer people are no longer looking for products in isolation. Curious how much you were leaning towards the institutional versus the wealth side and more importantly, how you're organizing around that? Have 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 flush that out a little bit. Thank you.

Yeah. No. 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, 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 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 and so I'm talking first on the wealth side. And part of that on the wealth side is if you have traditional and private show me that you can support us on the education of the sale of our private. That's why we have 100 people whose sole job is to support our market leaders out there as they meet financial adviser by financial adviser 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 secondary private credit. Like, 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 multitrillion dollar manager as there is on a single $20 billion manager. And so the amount of time that they have to do and do due diligence on the managers making them want to consolidate, just use larger managers and expect more from the managers. So that's both, like I said, institutional retail. We've seen it on the insurance side. Where as they're looking, you have this trend towards leveraging sub-advisors. They want broad breadth of capabilities there. So we're seeing it on as you talk to retirement managers, 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. We feel really well positioned for it.

Thanks so much, Jenny.

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 our 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, you know, between 15-20% 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 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 frankly. So I just wanted to add that to the conversation.

Well 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. If other people have OCIO and they're open architecture, and we are, in that case, in other people's models. So our goal is to meet the client and however the however we can meet the client, whether it's whatever vehicle or vehicle agnostic, 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 tax efficiency to our active SMAs. And so having that flexibility is really important as they select you as one of their core providers.

Our next question comes from the line of Dan Fannon with Jefferies. Please proceed with your question.

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.

I mean, it's possible that we're deep in on AI. We're deep in on how to maximize our presence that we have. In India or in 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 and what we've, 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 or else remaining equal and an acceleration of our plan to get to 30% plus. And, you know, we're doing that through very disciplined expense management whilst continuing to invest 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, 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, you know, reliably on fiscal twenty twenty seven when we're not even through '26. But I hope through these comments when you look at how we've performed from the expense perspective, '25 versus '24 and now what we're guiding in '26 versus '25 that, you know, we've mostly achieved what we said we're gonna 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 twenty seven based on everything that we know. But right now, we're focused on delivering on fiscal twenty six as we've highlighted.

And I'm just going to add, Matt. Like, when we think about where is there upside opportunity and 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 product we've looked at and 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, kind of say, I think, 11 acquisitions in the last five or six years, but the reality of Legg Mason was like an acquisition of five companies or six companies, not one company, because they were all on their own systems. They had 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 multiple years to do the full integration. And so that's still working. And then finally, like AI and technology, I think we think blockchain is going to be a great efficiency adder 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. 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, it went from three to four hours to fifteen minutes. And the prepping for meetings dropped you know, from six hours to two hours or something per week. Those are small little incremental cost savings or hope 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 will translate into cost savings. But honestly, it's a bit hard today to build that into direct cost savings opportunities that expand into margin. But those are big opportunities, we think, going forward. And we are very focused, we think, on the AI side. We're actually the leaders in that space. So I just want to add that to kind of Matt's comments.

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 positive flows in them scaling. They're scaling up. And in particular, ETFs, Canvas, and Solutions, for example, each of those three areas for us obviously, they're lower fee. And when they're smaller AUM and when you're growing, overall is a business, you have a lower margin. As a result of that 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 that 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 2627, all else remaining equal, we expect the scale of scaling of those businesses to create higher margins overall. So you have a lower fee rate. I know everybody's very focused on the fee rate. But at a certain point, when you get above a certain AUM, expenses are very managed and you've done all the investments. You've got the team you need, and then you could be two, three times as size of AUM and therefore have a much higher margin. Similarly, in our alts areas, we continue to grow significantly across all three of our three, four 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. So it's important to note that.

Our next question comes from the line of Ken Worthington with JPMorgan. Please proceed with your 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 M&A transactions and fill in the gaps that you mentioned sort of earlier in the call?

Yeah. So a couple things. So one of my comments on M&A consolidation has been really what I said is look. If you haven't if you're a traditional manager and you haven't already purchased scale in alternative managers, it's 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 incredibly expensive since we did our acquisition of BSP and Clarion. And it will be very, very difficult to be able for a traditional manager to be able to go and acquire. Number two, this convergence particularly in fixed income, you're going to see, but across the board with products that are that contain both private and public in them, you don't have that under the same roof, we don't think you're going to get the same kind of just synergies that you get from learning and managing and research. We have over 50 products between Western ClearBridge and Western and, frankly, 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…

Got it. Okay. Thank you. That's very helpful.

Our next question comes from the line of Michael Cyprys with Morgan Stanley. Please proceed with your question.

Morning. Thanks for taking the question. Just wanted to come back to your commentary Jenny on blockchain and tokenization. Just curious if you could talk about your objectives for that over the next couple of years. What 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 to your point on efficiency, I guess, how do you see blockchain contributing to improve efficiency at Franklin? How much lower cost is it to operate tokenized funds versus your traditional funds in rails?

Sure. So I'll 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 savings 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 this parallel process. It was something like we did over a six-month period between our old agency system and our blockchain system. And we were one of the few firms that were still running that the transferring C systems in-house. So we got to see that comparison. And we did about 50,000 transactions that cost us about a dollar 50 per transaction. Cost us a dollar 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 open up because below that, we probably lose money and the other shareholders subsidize you. In the case of blockchain, you could open a Benji. You downloaded the Benji app and open a money market fund, you would you would you only need $20. So 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 those that's you're going to have cost savings, which is why I believe…

Great. Thanks so much.

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

Hi. Good morning, everyone. Following up on the expense guide, I don't think you've ever talked about the scale of the 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.

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 larger performance fee that we had to run through G&A 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 EFR we expect it to be in line with this quarter. And as I mentioned, the last two quarters, we had 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 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 and 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. G&A, $190 million to $195 million 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 for year 26-28%. 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 want to reiterate the '26 because I know you'll be calculating back what should how do we to the flat expense guide or 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 twenty five. 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.

Thank you. Our next question comes from the line Ben Budish with Barclays.

I was wondering if you could maybe talk a little bit about the equity flows in the quarter. I know calendar Q3 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 you'd call out or was it more, you know, broad-based and, you know, I know it's still a bit earlier in the fiscal year, but you know, any thoughts on how the rest of the year may shake out, would be helpful. Thank you.

I'll start, and then I know Daniel will want to jump in. I mean, obviously, it's a quarter that you have a strong reinvested dividends. So that is part of the flows, which is important. But I have to tell you, I mean, 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 strike in Putnam. Daniel, do you want to add?

I think you got it. I will say it's a combination of platinum, clearly, large-cap value, on research. Also, on emerging markets, we got some institutional flows from our temples and 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 ClearBridge funds did also very well on that. And the momentum continues to be we own ETFs. We had a great quarter. 75% of the quarter was on active ETFs. So it continues to actually show that that's where the industry is going, and we have a very ambitious plan to continue that growth.

Alright. Thank you very much.

Next question is from the line of Bill Katz with TD Cowen. Please proceed with your questions.

Great. Thanks for taking the extra question. Just a couple of cleanups for me. One, can you just remind us what the variable expenses against net asset value were happening by the incremental margin on market action. Number two, maybe just on the WAMCO side, I 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, 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 twenty six? Thank you.

Great. So I'll take the Western and Alts, and then I'll turn it back to Matt on the variable expense there. So just one on Western. I mean it helped a lot, obviously, The DOJ came out and said that they're not going to pursue criminal charges and it'll be resolved through 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 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 the 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 there's still an outflows, it did have, I think, 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, as Matt said, so we had a very strong quarter. 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 $95 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 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 tells you it's really broadly distributed, which for us is exciting. Lex flagship Fund 10 are active 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. Secondary continues to be just a great space to be. Last year was a record number in secondaries transactions. Lexington is considered one of the trustiest 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 again for the last part of that.

Sure. Thanks, Jenny. So Bill, on the variable question, about 30 between 35-40% of our expenses are variable. And I'm sorry I didn't address the I remembered you asked that 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 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 55% to the number of performance fee overall. So 55% is the correct application whether it's in our computation line or the G&A 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 G&A segment is just literally for former employees that where we have to where we're paying a, you know, a portion of the company out that they owed. 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 was because it was a large older fund that had a number of folks that are no longer they're retired from the company that had interest in the performance piece.

Thank you. This concludes today's Q&A session.

I'd now like to hand the call back over to Jenny Johnson, Franklin's President and CEO for final comments.

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 delivering this strong quarter. And 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.