Franklin Templeton

Franklin Templeton exited August 2026 with a record $1.827 trillion in managed assets, up 11.1% year to date on $40.4 billion of market gains and $77.3 billion worth of net inflows for the firm's long-term assets under management, or AUM.

Why it matters: Franklin's managed assets (and long-term AUM) of $1.827 trillion ($1.742 trillion) at the end of August exceeded our expectations for $1.771 trillion in AUM ($1.689 trillion in long-term AUM), with most of the difference coming from better market performance than we were anticipating for the period. Franklin noted in its preliminary AUM release for August 2026 that it experienced $8 billion in net inflows during the month, bringing year-to-date inflows to $77.3 billion. We expect market headwinds in September to tamp down flows, with Franklin expected to generate $17.4 billion in net inflows during its fiscal fourth quarter. The firm's equity platform, which has been an inconsistent generator of positive flows, saw the largest increase in its AUM, which rose 2.3% to $775.1 billion at the end of August from $757.6 billion at the end of July. Meanwhile, the firm's money market operations, which are not considered part of long-term AUM, recorded more than $4 billion in inflows, raising segment AUM to $85.0 billion at the end of August.

The Bottom Line: Expecting the equity and credit markets to close out the September quarter on a weaker note, we see Franklin closing out the fourth quarter of fiscal 2026 with $1.747 trillion in managed assets, down 2.5% sequentially but up 5.2% year over year. This helps inform our current $32 per share fair value estimate for Franklin Templeton. Our forecast includes total AUM rising to $1.950 trillion by the end of fiscal 2030, with revenue expanding at a 1.3% CAGR during fiscal 2026-30 and adjusted operating margins in a 28%-32% range. We view the shares as slightly overvalued right now.

For more insight into the trends and other issues affecting the traditional asset managers, which influence our long-term forecasts for firms like Franklin Templeton, please see our latest Industry Pulse, "US Traditional Asset Managers: 2026 Q2," which was published on June 24, 2026. We also have a broader industry primer available for the US-based asset managers in our annually updated Industry Landscape, "US Asset Managers," which was last published on Dec. 18, 2025.

Our fair value estimate for Franklin Templeton is $32 per share, which implies a price/earnings multiple of 11.1, 10.0, and 9.4 times our fiscal 2026, 2027, and 2028 adjusted earnings estimates, respectively. For some perspective, during the past five (10) years, the shares have traded at an average of 9.5 (10.2) times trailing earnings on an adjusted basis, with the highest (lowest) multiple during the past decade being 15.1 (5.1) times. We use a 21% US statutory corporate tax rate and a 10.0% (6.8%) cost of equity (WACC) in our valuation.

Franklin ended its fiscal third quarter with $1.792 trillion in AUM, up 11.2% year over year, with managed assets rising further to $1.827 trillion at the end of August 2026. Net long-term inflows of $77.3 billion during the first eleven months of fiscal 2026 (ended September) have been broad-based, with solid inflows for Franklin's equity ($20.6 billion), balanced ($21.7 billion), and alternatives ($31.6 billion) platforms compensating for weaker fixed-income flows ($3.4 billion). On an annualized basis, organic AUM growth was 5.1% during the first three quarters of fiscal 2026, and 5.3% through the first eleven months of the fiscal year. This was significantly better than the negative 2.8% rate of average annual organic AUM growth the company generated during fiscal 2021-25, and the company's fixed-income platform is just getting back up to steam after the fallout from the Western Asset Management "cherry picking" incident.

With Franklin on a path to generate 0% to 6% organic AUM growth on average during fiscal 2026-30, total and average AUM increasing at a low- to mid-single-digit rate on average annually, and the company likely to face ongoing management fee compression, as well as another equity market correction midway through our forecast period, the net result is a 1.3% CAGR for revenue during fiscal 2026-30. With asset management firms like Franklin expected to pare back fees and spend more to generate better investment results and enhance distribution, we envision adjusted operating margins in a 28%-32% range during fiscal 2026-30, compared with 30.8% on average annually during 2021-25 and 24.5% during fiscal 2025.

We project a bull-case fair value of $50 per share and a bear-case valuation of $19 per share. The key factors affecting our scenario analysis include the firm's ability to generate flows from its equity and fixed-income platforms and the expected change in its overall realization rate due to this growth and changes in product mix.

Our upside case implies a P/E multiple of 13.9, 12.5, and 11.2 times our fiscal 2026, 2027, and 2028 adjusted earnings estimates, respectively. In this scenario, we see a faster return to solid investment performance, a less onerous impact from ongoing disruption in the retail-advised channel, and better organic AUM growth over time. The net result is a 3.2% CAGR for revenue during fiscal 2026-30. This scenario also assumes adjusted operating margin in a 30%-34% range during our five-year forecast period.

Our downside scenario implies a P/E multiple of 8.8, 7.9, and 7.1 times our fiscal 2026, 2027, and 2028 adjusted earnings estimates, respectively. This scenario assumes revenue increases at a 0.2% CAGR during fiscal 2026-30, as organic AUM growth declines more than we are forecasting in our base case, and the firm's realization rate is heavily affected by a need to push fees lower to remain relevant on distribution platforms. This scenario also assumes adjusted GAAP operating margins in a 26%-30% range over the course of our five-year projection period.

We believe the asset management business can be conducive to establishing economic moats, with switching costs and intangible assets being the most durable sources of competitive advantage. Although the switching costs might not be explicitly high, inertia, the uncertainty of achieving better results by moving from one manager to another, and the potential tax consequences of selling a fund with significant gains tend to keep investors in place.

For the industry overall, the average narrow retention rate, which does not include exchange redemptions, has been 75% or greater annually in the past 5-, 10-, 15-, 20-, 25-, and 30-year periods. Including exchange redemptions, the rate has been just over 70%. Firms offering niche products with significantly higher switching costs—like retirement accounts, funds with lockup periods, and tax-managed strategies—have tended to hold on to assets longer. Franklin Templeton's average annual retention rate for its long-term AUM was 76% (75%) during fiscal 2021-25 (2016-25), in line with the industry average.

The company's organic growth rate for its long-term AUM during fiscal 2021-25 (2016-25) was negative 2.8% (negative 4.9%) on average annually with a standard deviation of 1.8% (2.8%), which meant the firm was in most years failing to take full advantage of its retention rate. We expect Franklin to generate organic long-term AUM growth at a positive 2.7% (2.2%) CAGR during fiscal 2026-30 (2026-35), with a standard deviation of 2.9% (2.2%), driven primarily by stronger flows from its alternatives and multi-asset platforms, as well as a recovery in its fixed-income flows following the issues at Wamco.

We believe that the traditional asset managers can improve on the switching cost advantage inherent in their business with organizational attributes (such as product mix, distribution channel, and geographic reach) and intangible assets (such as strong and respected brands and manager reputations from a record of generating above-average investment performance relative to peers).

While the barriers to entry are not significant for the industry, the barriers to success are extremely high, as it takes time and skill to put together a long enough record of investment performance to start gathering assets and build the scale necessary to be competitive. This has meant the larger, more established asset managers in the industry have tended to have an advantage over smaller players, especially when it comes to gaining cost-effective access to distribution platforms.

That said, we do not think the cost advantage moat source applies to the traditional asset managers—except in the case of index fund and ETF providers—as scale does not always confer better-than-average operating profitability, and the industry tends to behave as an oligopoly when it comes to pricing.

Competition for investor capital can be stiff and has traditionally centered on investment performance. Although institutional investors and retail gatekeepers are exerting pressure on pricing, competition based on price has been rare, aside from what we've seen in the US market for exchange-traded funds. While compensation remains the single-largest expense for most traditional asset managers, supplier power has been manageable as many firms have reduced their reliance on star managers and have tied manager and analyst pay to both portfolio and overall firm performance.

Asset managers that have demonstrated an ability to gather and retain investor assets during different market cycles have tended to produce more stable levels of profitability, with returns exceeding their cost of capital for longer periods. While the more broadly diversified asset managers are structurally set up to hold on to assets regardless of market conditions, firms with solid product sets across asset classes (built on repeatable investment processes), reasonable fees, and singular corporate cultures dedicated to a common purpose have done a better job of gathering and retaining assets.

Franklin Templeton, in our view, does not have an economic moat. While the firm has some moatworthy characteristics—like well-known brands, well-forged distribution ties, repeatable investment strategies, and a record of producing excess returns—these attributes and other intangible assets have diminished. We believe the company will continue to see its excess returns diminish, such that Franklin could struggle to consistently outearn our cost of capital estimate over the next decade—one of the key considerations for a narrow moat rating.

The company had $1.827 trillion in AUM at the end of August 2026, providing investment management services to retail (58% of managed assets), institutional (39%), and high-net-worth (3%) clients. The firm has historically maintained strong relationships with financial advisors, which ideally would allow it to capture investor inflows in periods when products and/or asset classes are in favor but also limits outflows when the opposite is true.

Franklin's asset classes distribution is skewed more toward equities (42% of managed assets and 42% of management fees) and fixed-income (24% and 19%), with balanced (12% and 11%), money market (5% and 1%), and alternatives/other strategies (17% and 27%) accounting for the remainder. The company is one of the more global of the US-based asset managers we cover, with 30% of its AUM invested in global/international strategies and 29% sourced from clients domiciled outside the United States.

While the company gets credit for being diversified by geography and product/asset class, its reliance on the retail channel, weaker relative investment performance, and a lack of enough differentiated products to blunt ongoing fee compression keep it from garnering an economic moat, in our view.

Franklin is one of the 20 largest US-based asset managers, with 71% of its AUM sourced from domestic clients. It is the fifth-largest global manager of cross-border funds.

The purchase of Legg Mason lifted Franklin's AUM above the $1.5 trillion threshold, placing it in the second-largest tier of US-based asset managers, which includes firms like Pimco, Capital Group, J.P. Morgan Asset Management, and Invesco.

Franklin maintains thousands of active financial advisor relationships worldwide and has close to 1,000 institutional client relationships.

Franklin's mutual funds continue to be weaker than they should be, with just 50%, 54%, and 53% of AUM above peer median performance on a one-, three-, and five-year basis, respectively, at the end of June 2026.

The firm's strategy composites also need improvement, with just 41%, 57%, and 55% of AUM outperforming their benchmarks on a one-, three-, and five-year basis, respectively, at the end of the firm's fiscal third quarter.

The purchase of Legg Mason was expected to improve Franklin's organic AUM growth, but issues at Wamco have made that difficult the past couple of years.