Franklin Resources Navigates Mixed Q2 Results with ETF and Private Markets Momentum
15min read Franklin Resources (BEN) reported its second-quarter 2025 results, meeting Wall Street’s adjusted EPS estimate of $0.47 while navigating a mix of headwinds and strategic wins. The firm’s $2.11 billion in operating revenue and $151.4 million net income highlighted resilience in its core investment businesses, even as challenges like outflows at its Western Asset Management unit and a $41 million loss in a renewable energy fund tested its performance.
Key Takeaways from Franklin’s Q2:
- Adjusted EPS Matched Estimates: Franklin’s adjusted diluted EPS of $0.47 aligned with FactSet’s consensus, though the figure dipped from Q1’s $0.73, reflecting one-time losses and higher expenses.
- ETF Growth Continues: The firm’s ETF segment recorded $4.1 billion in net inflows—the 14th consecutive quarter of growth—driving ETF AUM to a record $37.0 billion.
- Mixed AUM Performance: Total AUM fell to $1.54 trillion, down from $1.5757 trillion in Q1, primarily due to $26.2 billion in net outflows at Western Asset Management. Excluding Western, Franklin Templeton saw $7.4 billion in net inflows, with multi-asset and alternatives products leading the charge.
Western Asset Management’s Drag and Franklin’s Diversification Play
Western’s struggles were the standout issue. Its outflows contributed to a $35.6 million decline in adjusted operating income (to $377.2 million from Q1’s $412.8 million) and pressured Franklin’s fee-based revenue. The unit’s challenges, however, were offset by strength elsewhere:
- Private Markets Momentum: The newly launched Franklin Lexington Private Markets Fund raised $2.0 billion globally, with $1.1 billion from U.S. investors.
- Digital Advisory Growth: Canvas®, Franklin’s digital advisory platform, achieved record $1.2 billion in net flows and $11.4 billion in AUM.
- International Expansion: Non-U.S. AUM in EMEA and the Americas rose, with $470 billion in assets now held outside the U.S.
Fee Rate Rises, But Costs and One-Time Losses Linger
Franklin’s adjusted effective fee rate rose to 38.3 basis points (bps) from 37.2 bps in Q1, a positive sign as competition in asset management often pressures fees downward. However, compensation expenses rose, and the $41 million loss in its renewable energy fund—likely tied to market volatility—highlighted risks in alternative investments.
The Bottom Line: A Firm in Transition
Franklin Resources’ Q2 results underscore its dual identity: a legacy manager grappling with outflows in traditional fixed income (via Western) but thriving in newer segments like ETFs, private markets, and digital advice. While the $151.4 million net income and $254.4 million adjusted net income fell short of Q1’s figures, the firm’s focus on diversification is paying off in key areas.
Crucially, Franklin’s strategy appears to be aligning with investor demand. Over half of its mutual fund AUM outperformed peer medians across time horizons, and $9.7 billion in inflows to multi-asset and alternatives products suggest clients value its active management expertise. Meanwhile, the ETF business’s record growth and the $2 billion private markets raise demonstrate the firm’s ability to capitalize on structural trends like passive investing and institutional demand for alternatives.
Risks and Outlook
Franklin faces hurdles, including Western’s uncertain trajectory and macroeconomic pressures that could further strain fixed-income flows. However, its $37 billion ETF AUM and $144.2 billion in retail SMA assets—up $1.5 billion in the quarter—signal a strong retail and institutional client base. With an adjusted effective fee rate climbing and gross sales rising across all asset classes, Franklin seems positioned to weather volatility.
In conclusion, Franklin Resources’ Q2 results reflect a company in transition: one that’s leaning into growth areas while managing legacy challenges. With $1.54 trillion in AUM and a diversified revenue stream, Franklin remains a key player in active management. Investors should watch for Western’s stabilization and the continued momentum of its ETF and private markets businesses as critical indicators of future resilience.
