BEN Q3 Deep Dive: Alternatives, Tech, and Platform Shifts Shape Outlook Amid Negative Market Reaction

Global investment management firm Franklin Resources (NYSE:BEN) reported revenue ahead of Wall Streets expectations in Q3 CY2025, with sales up 36.5% year on year to $2.34 billion. Its non-GAAP profit of $0.67 per share was 14% above analysts’ consensus estimates.

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StockStory’s Take

Franklin Resources’ third quarter results surpassed Wall Street’s expectations, driven by strong momentum in alternative assets, continued ETF inflows, and expansion in digital and customized investment solutions. Despite this outperformance, the market reaction was negative, with management acknowledging ongoing challenges in legacy business lines and higher expenses tied to new initiatives. CEO Jennifer Johnson noted that improvements in investment performance, product lineup optimization, and targeted acquisitions underpinned the quarter, while the integration of new capabilities and platforms required substantial upfront investment.

Looking ahead, management is focused on accelerating private markets fundraising, scaling tokenization and digital asset initiatives, and deepening penetration into the wealth and retirement channels. Johnson emphasized that the company is positioning itself for growth through expanded partnerships, infrastructure fund launches, and continued investment in AI. However, CFO Matthew Nicholls cautioned that expense discipline and the pace of cost efficiencies will be critical, stating, "We expect to end the year at or below adjusted expenses versus last year and at a higher operating margin, assuming market conditions remain stable."

Key Insights from Management’s Remarks

Management attributed the quarter’s performance to rapid growth in alternatives, digital asset innovation, and operational streamlining, while also highlighting shifts in product demand and expense management challenges.

• Alternatives fundraising momentum: Franklin Resources reported $22.9 billion raised in private markets this year, staying ahead of its five-year $100 billion goal. Management cited ongoing demand for differentiated alternative strategies, with the Apera acquisition extending direct lending capabilities in Europe and broadening the firm’s reach in the lower middle market.
• ETF and SMA platform growth: The ETF business grew at a 75% compound annual rate since 2023, with 16 straight quarters of net inflows and active ETFs representing more than 50% of flows. Retail separately managed accounts (SMAs) also saw robust demand, as clients seek personalized, tax-efficient investment solutions, driving 21% compound annual growth since 2023.
• Advances in digital assets and tokenization: The company’s digital asset AUM reached $1.7 billion, up 75% year-on-year. Franklin Resources is the only global asset manager offering digitally native on-chain mutual fund tokenization, enabling features such as intraday yield calculation and daily yield payouts. Partnerships with major crypto exchanges like Binance are opening new distribution channels for tokenized funds.
• Operational restructuring and expense discipline: Cost savings initiatives and the unification of investment management technology platforms are underway. However, higher incentive compensation, fundraising costs, and integration expenses offset some of the realized efficiencies, requiring continued attention to cost management going forward.
• Leadership changes and strategic hires: The transition of Adam Spector to CEO of Fiduciary Trust International and the addition of Daniel Gamba as Chief Commercial Officer reflect a focus on strengthening leadership in private wealth and global distribution. These moves are intended to support targeted growth and deepen expertise across key business lines.

Drivers of Future Performance

Franklin Resources’ outlook hinges on executing its alternatives fundraising strategy, scaling digital innovation, and maintaining cost discipline amid evolving product demand and fee pressures.

• Private markets and infrastructure expansion: Management expects private market fundraising to increase to $25–30 billion next year, with growth contributions from flagship funds, real estate, venture, and new infrastructure partnerships. The launch of perpetual infrastructure solutions is seen as a key differentiator for future revenue streams.
• Technology-led efficiency and distribution: The company is investing in agentic AI and blockchain-based solutions to drive operational efficiencies and unlock new distribution channels. Management believes these initiatives will lower costs, enhance client experience, and create scalable opportunities for both traditional and digital investment products.
• Expense management and margin trajectory: While significant savings are targeted through operational integration and technology consolidation, higher fundraising and acquisition-related costs may pressure margins in the near term. CFO Matthew Nicholls highlighted that achieving a higher operating margin will depend on successful execution of cost initiatives and stable market conditions.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will be watching (1) the pace of private market fundraising and the size and timing of major flagship fund launches, (2) the scalability and adoption of tokenized and digital products, especially in new distribution channels, and (3) the effectiveness of cost control measures and operational integrations. The ongoing evolution of active ETFs and progress in infrastructure solutions will also be important indicators of Franklin Resources’ ability to sustain growth and improve margins.

Franklin Resources currently trades at $22.46, down from $23.28 just before the earnings. Is there an opportunity in the stock?Find out in our full research report (it’s free for active Edge members).

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