Q2 2025 Earnings Summary
- Broad Diversification & Resilient Business Model: The firm’s diversified asset mix—spanning fixed income, alternatives, equities and multi-asset strategies—and its strong international footprint (with $470 billion in non-U.S. AUM) position it to weather market volatility and capture multiple growth opportunities.
- Strong Growth in Alternatives & Private Markets: Robust fundraising and positive net flows in alternatives (with $6.8 billion in fundraising this quarter and substantial activity in private markets via Lexington, Clarion, and BSP) underline a promising growth trajectory, especially as the wealth management channel targets a potential $800 billion allocation over the next 5 years.
- Resilient Fixed Income & Global Sales Flows: Positive performance in fixed income—from areas such as munis, short duration, and high yield—and consistent global sales across all regions demonstrate the firm’s ability to adapt and benefit from client shifts toward non-U.S. strategies and secure stable inflows even amid heightened volatility.
- Western volatility and outflows: Western experienced $10 billion in net outflows in April despite generating $5 billion in gross sales, indicating potential investor concern and redemption pressures that could adversely impact overall AUM and margins.
- Fee pressure from lower-yielding assets: Assets within Western carry an effective fee rate in the high 15 basis point range, which drags down the overall blended fee rate and may limit revenue growth despite strong sales in other segments.
- Challenges in private markets deal sourcing: Difficulties in sourcing quality deals for perpetual funds—evidenced by the need to slow the launch of products like the Lexington Flex fund—pose a risk of cash drag and underperformance, potentially eroding investor confidence in the alternative asset segment.
| Metric | YoY Change | Reason |
|---|---|---|
Total Operating Revenues | –1.9% YoY (from $2,152.8M in Q2 2024 to $2,111.4M in Q2 2025) | Slight revenue headwinds are observed, with BEN reporting a modest decline likely due to lower fee-generation on certain underlying products compared to the previous period despite industry stability. This indicates minor shifts in revenue mix or competitive pressures affecting fee-based income. |
Operating Income | +12.6% YoY (from $129.3M in Q2 2024 to $145.6M in Q2 2025) | Improved operating efficiency drove a 12.6% increase, as the company managed to control expenses and improve margins despite a near-flat revenue base. Enhanced cost discipline and favorable product mix adjustments relative to the prior year contributed to this gain. |
Net Income Attributable to FRI | +21.9% YoY (from $124.2M in Q2 2024 to $151.4M in Q2 2025) | Stronger core earnings and an improvement in key drivers (evidenced by Basic EPS rising from $0.21 to $0.26) buoyed net income by 21.9%, reflecting better profitability even as revenue growth remained subdued. |
Overall Reported Net Income | Sharp decline (from $175.3M in Q2 2024 to $11.6M in Q2 2025) | Significant adjustments related to noncontrolling interests resulted in a drastic drop in overall reported net income. Despite underlying operational improvements, these accounting adjustments considerably reduced the consolidated net income figure. |
Operating Cash Outflows | Improvement Quarter-over-Quarter (from –$145.2M in Q1 2025 to –$50.1M in Q2 2025) | Enhanced liquidity management is evident with operating cash outflows reducing significantly. This improvement is driven by optimized working capital components, such as lower accrued compensation and better management of payable accounts, along with a strong boost from financing activities generating $292.4M. |
Balance Sheet Stability | Balance sheet remained stable (Total Assets at $31,989.8M; Cash $2,754.0M) | Steady asset management is reflected in the maintained total assets and cash levels, underscoring robust liquidity and capital conservation measures compared to previous periods despite the revenue and expense adjustments. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Effective Fee Rate | Q3 2025 | no prior guidance | Expected to remain in the 38 basis point area, with a potential slight increase going into Q4 2025 | no prior guidance |
Compensation and Benefits | Q3 2025 | no prior guidance | Expected to be around $810 million, assuming $50 million of performance fees | no prior guidance |
Information Systems & Technology | Q3 2025 | no prior guidance | Expected to be $155 million, slightly higher due to overlapping IT vendors for two quarters, adding about $3 million | no prior guidance |
Occupancy Costs | Q3 2025 | no prior guidance | Expected to remain flat at approximately $70 million, with $3.4 million to $4 million of double rent left for the next quarter | no prior guidance |
G&A Expenses | Q3 2025 | no prior guidance | Expected to be around $185 million, similar to the current quarter | no prior guidance |
Expenses | FY 2025 | Expected to be flat compared to fiscal year 2024, excluding performance fees and normalizing for a full year of the Putnam acquisition | Roughly flat compared to fiscal year 2024, adjusting for the additional quarter of Putnam and excluding performance fee compensation | no change |
Strategic Investments | FY 2025 | no prior guidance | Continued investments in growth areas such as alternative assets, ETFs, Canvas solutions, and digital assets, funded by cost savings elsewhere in the business | no prior guidance |
Expense Savings | FY 2026 | $200 million to $250 million in expense reductions expected to be realized on a run-rate basis starting fiscal year 2026 (October 1, 2025) | $200 million to $250 million in run-rate cost savings entering fiscal year 2026 | no change |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Compensation & Benefits | Q2 2025 | $815–$820 million | $920.0 million | Missed |
Information Systems & Tech | Q2 2025 | $150 million | $158.7 million | Missed |
Occupancy | Q2 2025 | $70–$75 million | $69.3 million | Beat |
General & Administrative | Q2 2025 | $190 million | $182.8 million | Beat |
Tax Rate | Q2 2025 | 25%–27% | 72.8% (31.1 / 42.7) | Missed |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Business Diversification & Resilient Business Model | Emphasized across Q3 2024 , Q4 2024 and Q1 2025 with focus on global presence, diversified AUM and revenue streams. | Q2 2025 maintained the same focus with detailed commentary on diversified company design, asset class and geographic diversification, plus strategic investments. | Consistent emphasis with evolving detail on resilience and strategic investments. |
Growth in Alternative Investments & Private Markets | Highlighted in Q3 2024 , Q4 2024 and Q1 2025 with robust fundraising and expansion of private market assets. | Q2 2025 showed continued strong fundraising and asset growth while noting challenges in sourcing quality deals for perpetual funds. | Steady growth focus with emerging caution in deal sourcing. |
Western Asset Management Performance & Investigation Impact | Q3 2024 noted solid fixed income performance ; Q4 2024 and Q1 2025 discussed significant outflows and investigation impacts. | Q2 2025 reported good performance with stability and positive flows despite ongoing redemption pressures. | Persistent pressure from net outflows and investigations with signs of stabilization. |
Fee Pressure & Margin Compression Concerns | Addressed in Q3 2024 and Q4 2024 and discussed in Q1 2025 regarding effective fee rates and expense challenges. | Q2 2025 reiterated discipline in expense management and focus on higher-fee growth areas to offset lower-rate businesses. | Ongoing concern with strategic measures yielding modest improvement. |
Acquisition Impact (Putnam) | Consistently mentioned as a positive driver in Q3 2024 , Q4 2024 and Q1 2025 with strong net new flows and operational benefits. | Q2 2025 continued to highlight Putnam’s strong contribution to flows, institutional growth and overall integration. | Consistently positive with robust integration and financial impact. |
Expanding ETF Business | Q3 2024 and Q4 2024 showcased rapid growth, while Q1 2025 reported sustained positive net flows and increasing AUM. | Q2 2025 reported record-high ETF AUM, 14 consecutive quarters of positive flows, and innovative product launches (e.g. crypto ETF). | Robust and accelerating expansion marked by innovation and record performance. |
International Expansion & Local Asset Management | Q3 2024 , Q4 2024 and Q1 2025 emphasized global footprint, local expertise and tailored products. | Q2 2025 reinforced global reach with offices in 30+ countries, 30% AUM outside the U.S. and regional investment trends highlighting local management strengths. | Consistent focus with continued growth and enhanced local strategic positioning. |
Expense Reduction & Cost Management | Addressed through initiatives in Q3 2024 (Aladdin implementation, vendor consolidation) , Q4 2024 (Putnam cost savings, efficiencies) and Q1 2025 (flat expenses with future savings target). | Q2 2025 maintained flat expense guidance while initiating integration of Western Asset functions and targeted cost-saving measures. | Ongoing commitment with measured flat expenses and targeted future savings. |
Technology Investment & Aladdin Platform Implementation | Q3 2024 provided extensive detail on Aladdin’s cost, integration and expected savings ; Q1 2025 mentioned stable IS&T spending amid the implementation ; Q4 2024 discussed broader technology investments (e.g. AI, blockchain). | Q2 2025 did not mention technology investments or the Aladdin platform explicitly. | Reduced emphasis in the current period, possibly integrated into broader tech spending. |
Challenges in Private Markets Deal Sourcing | Not specifically mentioned in Q3 2024, Q4 2024 or Q1 2025. | Q2 2025 introduced discussion on challenges in sourcing quality deals for perpetual funds. | An emerging topic highlighting caution in deal sourcing amidst strong product growth. |
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Expense Outlook
Q: What is the fiscal expense guidance?
A: Management expects fiscal '25 expenses to remain flat—with comp and benefits falling to around $810 million after performance fee adjustments—and targets a run-rate savings of $200–250 million in fiscal '26 through ongoing cost initiatives. -
Fixed Income
Q: How are fixed income flows and Western performing?
A: Despite anticipated Western outflows of $10 billion, the unit generated $5 billion in gross sales, while fixed income strategies like munis and CLOs posted strong flows, underscoring resilient credit demand. -
Organic Growth
Q: What trends emerged excluding Western?
A: Excluding Western, long-term net inflows were robust at approximately $7.4 billion, with positive fixed income performance—particularly $5.4 billion in Franklin fixed income—boosting the overall blended fee rate. -
Private Markets
Q: How is private markets traction progressing?
A: Private markets are gaining steam, having raised about $6.1 billion in flows this quarter, with strong retail engagement in flagship offerings like Lexington, though results remain just below initial targets. -
Private Expansion
Q: How are private market products evolving?
A: The firm is leveraging its distribution and educational strengths to launch multiple evergreen funds—each exceeding $1 billion—to tap into an estimated $800 billion alternative asset opportunity. -
International Rotation
Q: How are non‑U.S. strategies faring amid rotation?
A: With $470 billion in AUM sourced outside the U.S., the firm is well-placed to benefit from investor shifts toward value and non‑dollar assets as allocations move away from U.S. strategies. -
Global Footprint
Q: How is the international business contributing overall?
A: Operating in over 30 countries and showing net positive flows in both EMEA and the Americas, the firm's global presence remains a steady and diversified growth driver. -
Alliance Flows
Q: What does the reported $10B at WAMCO represent?
A: The figure reflects net outflows that include $5 billion in gross sales, with strategic alliances enhancing the integrated product platform. -
Insurance Channel
Q: What is the update on the Great Western relationship?
A: Of the initial $25 billion commitment, roughly $3–4 billion remains unallocated, demonstrating a strong, ongoing partnership with potential for further expansion.
Research analysts covering FRANKLIN RESOURCES.