Good morning, and thank you for joining us today to discuss our 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 just 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 President and Chief Executive Officer.

Thank you, Selene. Hello, everyone, and thank you for joining us today to discuss Franklin Templeton's results for our third fiscal quarter.

Greg Johnson, our Executive Chairman; Matt Nicholls, our CFO; and Adam Spector, our Head of Global Distribution, are also on the call with me today. We hope that everybody is doing well.

This past Saturday marked 1 year since we closed on our landmark acquisition of Legg Mason and its specialist investment managers. As we stated at the time, this is a growth story for our firm and our focus continues to be on delivering strong investment results for our valued clients.

This commitment has been our North Star throughout the past year. Over the past 12 months, through the hard work and dedication of our employees, we've made significant strides bringing together the 2 firms and executing on our growth strategy.

We have created a diversified business across asset class, vehicle, client type and region and we're well positioned in key growth areas where there is client demand, including alternatives, fixed income, SMAs and ESG investing. Early on, we redesigned a nimbler and more adaptable distribution model with a more region-centric sales approach, pushing our decision-making and resources closer to our clients, and the positive momentum we're seeing around sales flows shows that what we're doing is working.

Our sales initiatives are resulting in deeper relationships and increased diversification in flows across funds, vehicles and asset classes. These factors have led to significant improvement in total net flows since the time of the acquisition.

Our combined sales team has been actively cross-selling. In the U.S.

alone, almost 6,000 financial advisers have deepened their relationships with Franklin Templeton through enhanced access to newly introduced capabilities. Specifically, this progress has led to growth in key areas of the business.

Since the acquisition, we've grown alternatives by 15%, wealth management by 22% and SMAs by 25%. Above all else, we've been incredibly aligned in terms of culture and our focus on delivering strong investment results.

Our efforts this past year have translated into a better, stronger Franklin Templeton. Turning now to our third fiscal quarter where our momentum has been building.

Ending assets under management reached a record high of $1.55 trillion this quarter, and investment performance continues to strengthen across a broad array of investment strategies. Overall, results continue to reflect outperformance in fixed income, including Western Asset and Brandywine Global alternative asset strategies and global and international equity strategies across Franklin Templeton equities.

Mutual funds with 4 or 5 star ratings by Morningstar increased to over 150 funds this quarter. Turning next to distribution highlights.

We saw positive net flows into the majority of our specialist investment managers and Benefit Street Partners, Clarion, ClearBridge, Fiduciary Trust International, and Martin Currie, all reached record highs in assets under management. We were pleased to see a record $3.1 billion in net inflows to alternatives, and also that our fixed income net inflows returned to positive territory at $2.1 billion.

We made progress diversifying our net flows across funds, vehicles and asset classes during the quarter, scaling smaller products and creating broader sources of revenue. For example, 15 of our top 20 funds with positive flows or products outside of our largest 20 funds, and each have an average AUM of less than $2 billion.

In the U.S., our collective sales initiatives are yielding positive results with net flows during the quarter. Specifically, we saw net flows into U.S.

retail, which is our largest distribution opportunity and in global financial institutions, our largest client opportunity. On the product development front, we launched the $1 billion pre-leverage Western Asset Diversified Income Fund.

This was our largest ever fixed income closed-end fund IPO and illustrates the successful partnering of our SIMs investment capabilities with the combined reach of our distribution platform. Additional recent strategic developments include: the close of the acquisition of Diamond Hill's high yield-focused U.S.

corporate credit mutual funds in July, adding $3.4 billion to assets under management; and the announcement of a merger of Benefit Street Partners Realty Trust with Capstead Mortgage Corporation, which will create the fourth largest publicly traded commercial mortgage REIT upon closing. Looking at our financial results.

Our adjusted operating income increased by 3% to $601.2 million from the prior quarter, inclusive of the onetime impact of costs associated with the successful launch of the Western Asset closed-end fund that I just mentioned. And with $6.4 billion in cash and investments, the ongoing strength of our balance sheet enables us to invest with confidence in the business and make sure we're best positioned to be a leader in an ever-evolving industry.

Finally, I want to thank all of our employees for their efforts this past year working under extraordinary circumstances. I'm extremely proud of what we've been able to accomplish on behalf of our clients.

Now to your questions, operator?

My first question is on the $5 billion 529 redemption. Do you know if that will flow through the mutual funds?

Or is it in more of an institutional wrap or -- because the mutual fund flow data we can see suggests a fairly significant outflow in July. I'm just wondering if that's what it's associated with.

Yes. Thanks for that question.

That is in the mutual fund flows. Those were mutual funds that were in that program.

Great. And then on the drivers of the expense guide, you mentioned it being driven by the close-end fund launch costs and the performance fee comp, but that would suggest an 80% comp ratio on the performance fee, which seems quite high.

So is there something else driving the increase? Or was it right to think about the performance fee comp ratio being that high?

No. I think that we also had a little rise in other compensation associated with strong performance in other areas of the firm, but most of it was the performance fee-related compensation.

And maybe we should take offline the 80%. I think it's a lot less than that the -- it's more like -- much less than that.

I guess just to follow up a bit on just performance fees, and I know these are difficult to predict, but this was the largest quarter from you, I think, in history. And so I think the prepared remarks said something about a diverse set of the contribution.

So can you talk about kind of where the performance fees came from? And then looking ahead, how we should generally think about this quarter vis-a-vis what might be in the future, just given the limited disclosures around the funds?

Yes. So a couple of things there.

First of all, I'd say that about 70% of the performance fees are attributed to our largest alternative asset management, specialized investment managers. So that's attributed to Clarion and Benefit Street Partners.

Two, though, the rest of it comes from a fairly diversified group that represents about half of our specialized investment managers. So it's a very diversified group of specialized investment managers that have been outperforming that have produced the performance fees.

While -- and then to the second part of your question, how should we put this into context, this quarter versus future quarters. I think it's important to note that while it reflects the growth of our alternative asset business in particular.

This quarter did include 2 quite large episodic performance fees that occurred at the same time. In one instance, we had several funds cleared the performance hurdles and became eligible for carried interest distributions, which had accumulated over several years.

It's about 4 years actually. In the other, a significant tranche of invested capital became eligible for a long-dated performance fee, and this fund had significant investment performance over the management period, which resulted in a large performance fee.

So for this combination of events and timing along with the performance fees at over half of the other specialized investment managers resulted in this elevation of performance fees or elevated performance fee levels. So I would repeat our guidance on performance fees of $10 million per quarter.

I think you'll agree that sounds quite low, but we think it's best to be conservative around performance fees, but we do acknowledge that's conservative.

Okay. That's helpful.

And then just generally on alternatives, given the strength in flows in the quarter. Can you talk about just kind of the fundraising environment today, kind of the runway you see for growth here and where the potential biggest contributors for that asset class at the manager level could come from?

Yes. There are a few things that are really working for us and alternatives.

One is just the quality of firms that we have. We think it's -- they're strong in their individual asset classes, and we're in a number of different alternative areas from real estate to private debt, private equity to hedge funds.

We also have an advantage of being able to raise money for alternatives in a geographically diverse base. We're seeing growth around the world and our alternatives.

It's not just U.S. flows.

A number of our alternatives have an ESG component to them, especially in real estate. And so that combination of ESG and alternatives is resonating, I think, quite strongly.

And finally, from the alternative side, I'd say we spent a lot of time concentrating on how to democratize access to alternatives to make sure it's not just institutions in the ultra-high net worth segment that can access alternatives. And we're raising money in retail as well.

All of that, to me, speaks to the ability to have continued strong momentum in fundraising there.

And let me just add, Adam, is a lot of discussion about the democratization of alternatives, our experience. And I think we probably have one of the strongest retail franchise is -- it is complicated to sell in a retail franchise, and it is an area of serious focus for us for figuring out how to do it, and we've had some success in it.

And then if you think about our great -- our biggest alternative managers with Clarion and BSP, both are income-generating. And that fits very well in the retail space.

So it's a matter of educating the advisers on it and getting the brand name out there. But having the relationships that we have, we think that, that's just a huge upside opportunity for us there.

It's also good to put alternatives generally into perspective in terms of where we've come and where we are. About 2.5 years ago, we had about $18 billion in alternative assets under management, and we now have $141 billion under management.

Obviously, in that contains 2 large acquisitions, the Benefit Street Partners and Clarion, but it also includes an embedded 15%, at least, organic growth rate over that period. So it's both acquisitions and making opportunities work in terms of organic growth.

And the final thing I would add is that we're continuing to add resources to distribution there. And it was only last quarter that we started a specialized sales group to focus just on alternatives in the U.S., and we're seeing traction from that already.

This is Samantha Trent on for Ken Worthington. So our first question is just on the equity fund on these equity fund redemptions that were called out this quarter.

You highlighted that these assets generate very little in revenue. Could you just kind of give us an indication on how much an equity asset spring from manages that generate little, if any, revenue?

And is this a good business? And what do you see as the outlook for these low-fee assets?

I don't know that we -- if I try to think through it, I mean, you obviously -- you have things like smart beta and passive, obviously, are lower that we have those primarily in our ETFs. If you look at our $13 billion in ETFs, 50% of it's active.

So those aren't low fees. But obviously, the path is lower.

I'm just trying to -- I'm stalling a little bit because I'm trying to think through any obvious, big chunky -- which I don't -- I can't think of any off the top of my head. These were kind of unique relationships that honestly we had acquired years ago with kind of local managers, smaller managers that had lower fees.

Okay. And then just one more.

You mentioned in the commentary that Franklin added a number of new agreements with distribution partners. Maybe just kind of talk about the nature of these agreements, and are you trying to make these more -- making its way to work with third list with the distribution partners?

And then also just talk about how the cost of these compare with your existing distribution agreement.

Sure. I don't think there's a real change in cost of distribution.

What I would highlight is that the added agreements are really a direct result of a concerted effort to cross-sell. So a lot of those additional agreements are onboarding legacy Legg Mason products to Franklin agreements or vice versa.

And we've done both. One of the statistics we've called out is that we've cross-sold to about 6,000 new advisers in the U.S.

that is advisers who used to do business with only legacy Franklin or legacy Legg Mason. We're able to do that because we're taking on more agreements and putting products on -- more products on broad platforms.

We also see a real geographic benefit to taking those new platforms on. If you think about Europe, as an example, in EMEA, where Franklin historically had a stronger distribution footprint, about 15% of our AUM is legacy Legg Mason in terms of retail distribution, but it's about 30% of the flow.

So getting products onto those platforms has had a real immediate benefit to us.

You referenced the enhancements to customization capabilities within your SMA offering. Can you speak to where you are today with that customization and those capabilities and whether or not that presents a possible revenue opportunity within that channel?

And what investments you want to make to enhance that offering and further execute that opportunity?

Let me start, and then Adam can add to it. About 10% of our SMA business today is already very much customized, whether it's tax harvesting or individual tilts that clients want.

And we just believe fundamentally with technology, fintech, fractionalization of shares that this customization of individual accounts is going to become more and more important, whether it's for things like tax harvesting or things like ESG tilt. The clients are demanding that kind of customization or for it to just fit into a portfolio.

Now Fiduciary Trust is a high network manager that's been -- I think we're going to celebrate our 90th year this year. That's what they did.

I mean if you're a high-net worth manager, oftentimes people come with concentration holdings from a single company that maybe they built, and so you customize the rest of the portfolio around that. So -- and of course, they tend to be a high tax bracket people.

So tax management is key to what they do. What we're seeing, and we've talked about this, is the world has got fee-based is the demand on financial advisers is to provide the type of services that traditionally were just done by high net worth managers like Fiduciary Trust, and bring them much more to the masses.

And so we think this trend is here to stay. We have had that capability within our SMA for quite a while.

We're continuing to develop it. And I know, Adam, you're closer to the day to day, so if you want to add anything to that?

Yes. I think Jenny really did hit the high points there.

It is already 10% of our $125 billion in SMAs. It's continuing to grow, and we're continuing to expand that reach to more folks.

What I would say in general about our SMA business is that ClearBridge and Legg Mason historically had an incredibly strong infrastructure in terms of operational and technological platform for the SMA business. We've now been able to use that platform across the business such that about 50% roughly of our net flow into the SMA business is coming from the legacy Franklin investment teams.

So really seeing, again, the advantage of using a legacy part of one firm to benefit the entire organization.

Yes. I've definitely heard about that success.

But is there anything you can add to the revenue opportunity tied to those -- that 10%?

I would say, in general, that when we look at our SMA business, it tends to be very good revenue business because it tends to be stickier in mutual fund business. We have a longer average life, and that has a definite revenue impact.

I would also say that to the extent that you customize for a client, over time, that relationship becomes less about quarter-to-quarter performance and more about really meeting the client's overall goals, whether those are ESG goals or tax efficiency goals, which again leads to longer-lived assets which I think has a positive revenue impact.

It's also, Brennan, from a profitability perspective, it's -- even though it's lower fee, it's higher margin business. It costs less to run.

Because it exists on the -- that you use the existing infrastructure and so incremental...

Yes, correct.

Yes. Okay.

And then, Matthew, understanding your commentary about the chunky nature of the performance fees and the $10 million a quarter is probably conservative, which looks pretty clear, especially after the last quarter. But is there a seasonality -- we're kind of getting used to the new business mix here at Franklin.

Should we think about a seasonality to the performance fees? And you almost got there to the comp ratio before.

But like I usually think about it as more like maybe in the ballpark of like half of that 80% as a reliable ballpark?

Yes. Yes, I think that's a good -- I think that's correct, yes.

I think it's the way to look at it. I mean I was thinking about Patrick's question.

I think the way that we look at it in terms of the increased expenses this quarter versus last quarter is without the performance-related compensation and without the closed-end fund launch costs, we would have been slightly down expenses quarter-over-quarter. So I think that's important.

And that allows you to calculate in the roughly 50% or 60% of performance-related compensation. But it really depends, Brennan, on which performance fee and which specialized investment manager, which mandate it is, it's a little bit difficult to generalize.

But I think in terms of this quarter, that's the right answer. In terms of the broader comp ratio, I'll just take advantage of this to give you a quick update for the year -- for the fourth quarter and comparing it to where we're at now.

Our comp ratio, as you can see, was 44% for the quarter, which was consistent to the last quarter, and I expect that to be 43% to 44% next quarter. That's consistent with comp and benefits being down by about 5%.

So that's the comp and benefits line. And in terms of information systems and technology, we expect that to be up slightly, probably 5% to 7% in the fourth quarter, and that's driven by outsourcing initiatives, which ultimately were helping compensation reductions next year, even somewhat into the fourth quarter.

In terms of occupancy expense, we expect this to remain flat in the fourth quarter, perhaps 1% higher because we're working on some interesting opportunities there that result in slightly higher occupancy expense, but then followed by meaningful reductions in 2022. But for the quarter, about flat to 1% higher.

And in G&A, as you know, this quarter was sharply higher because of the closed-end fund launch costs. Without that, G&A would have been flat.

In terms of our expense guidance for the fourth quarter, we're assuming at least 50% normal -- let's call it, normalized T&E, which lead to about $125 million of G&A for the fourth quarter?

Great. One quick clarification on that question.

Is that sequential growth or year-over-year?

Sorry. Brian, which sequential on what?

On the expense guidance you gave Brennan, is it -- is that sequential growth?

Quarter-over-quarter. So fourth quarter versus third quarter, yes.

Okay. I asked because I wanted to clarify that.

My broader question is on ESG, the $200 billion of AUM that you referenced, that's up from $175 billion in the prior quarter. So if you can talk about what proportion of that was due to net flows into ESG product as compared with any kind of reclassification or funds that have now been recategorized as ESG.

And then importantly, of that $200 billion, what would you say is an exclusionary strategy as opposed to direct investments in sustainable investments?

So let me try to tackle that. I don't have the exact details.

I would say, in general, when you think about that $200 billion, it's not primarily exclusionary based at all. Instead, I would say if you had to try to categorize it, think about it as more assets that are in line with the European Article 8 or Article 9 definition.

That's roughly how we think about what that $200 billion is. Most of the change there really is due to either market performance or flows because we're seeing very strong flows, especially in Europe.

If I take a look at our European assets, I think ESG is going to be key in every single market. Europe is just a little bit ahead right now.

I believe that Article 8 and 9 type assets, that $200 billion number, that represents something like 15% of our AUM in the EMEA region, but 30% of our flow and 50% of our pipeline. So it is becoming more and more important.

So I think you'll see that number rise over time.

And I would add that we kind of break that category. So we think the way Europe has done it with Article 6, 8, 9 is a good framework to think about it.

And we are pleased that we have so many products that qualify against 25 for Article 8, and then 8 strategies for Article 9. But what's really satisfying is that it's diverse across all of our SIMs.

We kind of put it into 4 categories, thematics, tilted, value -- values can be things like Shariah and sukuk funds -- and then impact. And we're talking Clarion and Martin Currie, Franklin, Western.

So really across all of our different SIMs, we have funds that fit into these 8, 9 categories, which is really good, we think, from just positioning.

Okay. That's helpful.

And then just maybe a follow-on on that. The institutional versus retail breakdown.

Is it -- would you classify this more as retail products that are getting designated the Article 8 and 9? And you also mentioned customized SMAs, I think earlier in response to another question about, if you will be -- clients being able to customize ESG considerations into the SMAs.

So maybe if you can just talk about how significant that is.

Yes. I would say in that 200, the customized SMA is not a huge part of that number because a lot of that customization is really tax loss harvesting.

So I don't think that's a huge part of that number. Institutionally, we are seeing significant demand for ESG.

And I think in certain markets in Europe, in Australia, it's hard to win any new institutional mandates unless you have ESG integration. So I see that as a theme across both retail and institutional.

Got it. And then just lastly for the flow number that you mentioned, it was market and performance -- I'm sorry, performance inflows that drove the $175 billion to $200 billion.

Is it fair to say you had more than, say, $10 billion to $12 billion of inflows into what you would consider ESG products if we back out the market for the second quarter?

I think we're going to have to get back to you on that. I don't have that number in front of me.

Maybe first question, coming back to expenses for a moment. What is your market assumption as you think through the fourth quarter?

And then maybe the broader question is, Matt, you mentioned that there's some synergies coming. I don't know if that's just sort of remaining synergies with the deal, if there's anything new.

Any way to sort of at least initially ring-fence how you're thinking about fiscal '22, maybe excluding performance fee contribution on the comp side or the close-end fund vehicle just for comparison perspective?

What was the first question, Bill? The first question.

So I was just asking about on expenses, just the guidance for the fourth quarter, is that assuming flat markets like it's been historically? Or is it...

Yes. Okay.

Yes. It's assuming flat market for the fourth quarter.

So -- and performance fees at the rate that I just talked about versus anything that might be elevated. In terms of 2022, it's, obviously, a little bit early at the moment to rather focus on the fourth quarter and then provide you with 2022 views when we talk about the fourth quarter.

But just as a reminder, that on the expense reductions associated with the merger transaction, we've achieved a notional amount of about $150 million, or expect to achieve that amount by year-end. That means that in 2022, we will achieve the other $150 million.

So that's sort of a stake in the ground in terms of expense reductions in 2022, all else remaining equal.

Okay. And then just a follow-up, just to unpack a couple of different things.

When I look at the data, you had, I caught that U.S. turned positive this quarter, which would imply that the international book was still outflowing.

Maybe you could walk through maybe what's the difference between what's happening non-U.S. versus U.S.?

And then just sort of following up on ESG, could you unpack maybe the equity component? I appreciate that you called out a couple of idiosyncratic outflows, but any sort of color on sort of what's coming in the door versus what is exiting?

Sure. So let me try to think about.

So from a regional perspective, U.S. is really our largest market.

It's somewhere between 70% and 75% of total AUM. And we are net flow positive, both for the quarter and year-to-date.

Things are working really well there. We're continuing to do well with our biggest partners.

We're cross-selling really well. And then the other thing I think we've done incredibly well in the U.S.

is to start to bring more specialists to bear from across our investment teams, alternatives, ETFs, et cetera, to client relationships. So that's been really strong.

Americas and our European business are roughly flat, and the outflows really have been in Asia. The Asian outflows are -- you know what's going on in India.

That's a significant portion of it. Some of those one-off equity outflows were in Asia as well.

That hurt Asia. And then we've also talked a little bit about some of the issues we've had in Japan.

The good news is that we're seeing a turnaround now in Asia. Our Japanese pipeline is really building.

It's more diversified and we're adding new clients there. Our Australian retail business is incredibly strong.

I think we're something like 15 months in a row in net positive flow in Australian retail. So really starting to see Asia turn around, and that's been the region that's been the slowest for us.

In terms of your other question about what do we see in the future. I really think of distribution as having that one part that's really the machine, Bill, that's working.

And that's the kind of continual grind, day in and day out to make sales to defend assets. And that's just going well for us really across the board.

So the machine is working. We're working really well in terms of the central distribution teams with our SIMs distribution teams.

We're executing on our plan. It's the big chunky stuff that just hasn't been breaking our way lately, and that's what's been really impacting some of the negative numbers.

We've got a lot, though, in the pipeline, a lot of deals we're working on, and I think those bigger things will start to break for us shortly.

So I want to finish up on that thought. I like -- I could see the increased diversification of your flows.

I like the anecdote you gave us on 15 of the top 20 net flow funds outside your largest 20. I am curious about the large 20 though also, mainly because they're large.

And I noticed gross sales are still down on the quarter-on-quarter, you said seasonality. But how should we think about what to expect on both gross sales and net flows, given that the biggest funds aren't contributing.

I want to take away from all the efforts that you talked about on the diversification part there, great. But the big fund is still not.

So two things. One, there really is a seasonal effect.

We've gone back for as far as we have data for the combined companies, and this quarter was always the slowest for gross sales. So there is a seasonal effect that's historic.

In terms of the largest funds, right, if you think about things like Western core or DynaTech or the income fund, those are still among our top-selling funds and are in positive flow. So a number of the largest funds still are growing.

So we do think that we have the right balance between the absolute largest funds growing, but it's not only the largest funds that are growing. We've got a number of funds that are under, say, $2 billion where we see a lot of momentum.

And I think that speaks really lend to the longer-term stability of the business. And one of the things we're trying to focus on is to really build a stable base for years to come.

And I think when you're too focused in one geography and one vehicle type and one investment team, that creates a little instability in the business. So we're glad that a few of those huge funds are still growing are net flow positive, but we want to add diversification to the mix as well.

I wanted to start with your outlook for the closed-end fund market. We obviously saw you in the market last quarter with the product.

Some of your peers have been fairly active there as well. Is the market environment conducive to do more of those kind of things?

And then if so, maybe talk a little bit about the strategies where that would make most sense.

Yes. I think what we've seen is now that there's an ability to kind of structure closed-end funds in a way that's a little different than they were done years ago.

There's really significantly more receptivity to the vehicle. I think it works well for investors, for the investment manager as well as for the distributors.

So I think we're going to see more of them. Certainly, when you have $1 billion plus raise, you want to do more.

We're currently in discussion with a number of distributors for a range of different products. And I think you'll see us come to market again.

Great. And then a lot of discussion on the call, obviously, around the diversification of the business and kind of really building out and scaling some things that you guys have built or acquired over the last couple of years.

As I think about the capital return profile on a forward basis from an M&A perspective, maybe give us your kind of updated thoughts there as well. How big overall organic opportunity be as part of Franklin?

I think -- go ahead, Jenny.

Well, I was going to say -- let me just start, Matt, and then maybe you can go.

Sure.

So we've kept -- and we've always said this, but we've kept a strong balance sheet because we want to be opportunistic and have the ability. It is -- we believe we have the broadest product lineup in the industry.

And so from an acquisition -- to go out and do a large-scale acquisition, we would only be adding assets as opposed to capabilities. And often, there's a strategic buyer that will spend more than we will when you're just adding some assets.

So it's probably unlikely, but we never say never if the right opportunity came up, we'd be open to it. Having said that, we've been, I think, pretty clear on the areas that we're focused on expanding.

We want to grow our alternatives business. It is a major priority for us.

We view that when we think about kind of growth opportunities, it's growing our alt. While we're $141 billion and I think bigger than most people realize as far as our alt business, it's still less than 10% of our AUM, and we think that there's more opportunity to grow there.

We've already stated that we like the high net worth business. It's Fiduciary Trust, again, is one of the premier players in that space.

We, again, celebrating their 90 years, a very fragmented market. and we'd like to do more acquisitions there.

And what we're finding is there's more pressure on small RIAs that they want to join bigger firms who has all the capabilities that a fiduciary has with their trust and tax planning, generation education. All those things are now being demanded.

And so you'll see us, we said, I think when we were a $20 billion that we would -- we'd see ourself growing to $50 million. We're already at $33 billion, and we continue to look to expand there.

And then I would just say that if there are opportunities, we'd like to have more scale in places like ETFs, it's -- we love our ETF franchise. We think we have a phenomenal team -- if something came up in a particular region that could be interesting to us.

But today at 50% active, we actually think we've got really good products in that space. And then I would just say that we've talked about in the past on the fintech side, these will be more smaller investments or acquisitions.

There'll be things that are specifically designed to help our distribution capabilities, things like our investment in Embark that was designed specifically for greater penetration on distribution. It turned out to be a good investment, too, but those types of things are -- you'll continue to see us focus there.

Matt, do you have anything to add?

Yes. And you covered it perfectly.

I think just a little bit more on the alt side, I mean, I think, Alex, the way we sort of think about the alternatives business is that's probably about 15% of our adjusted revenue at the moment. And we would like that to be significantly more than that.

As you know, it's a large and growing area of asset management, and we have a really small market share overall. We think it's great what we have, and we're very pleased with the growth rate both organically and the ability to bolt things on, such as the REIT transaction.

We just have Benefit Street Partners. But there's -- we've got real missing components of the overall alternative asset strategy group that we've sort of formed, which is a grouping of companies in the alternative asset space.

And for example, we have nothing in the equity alternative asset arena. So we're very focused on that, and we think we're a very good home and we think we've got the right structure to put in place to make it very attractive for those companies out there.

And another -- Jenny already mentioned wealth and distribution. The other thing I would think about around this is, in a way, in many ways, it's a capital allocation question.

And with our income profile now, if you take the very important dividend into account a couple of hundred million dollars of share repurchases to make sure that we at least offset compensation grants, it leaves us with $1 billion to invest approximately in the firm, and that's unlevered and that will be fully invested in the firm in terms of acquisitions, in terms of investing in the business across all the SIMs. I think we mentioned in our prepared remarks, for example, that we've allocated $440 million new seed and co-invest capital since we announced the acquisition, that's already turned into over $4 billion of AUM.

So it's almost like a tenfold return in that regard in terms of turning it from an AUM returns perspective. So we see a lot of opportunities there.

And We're being very disciplined about how we think about that. The size of our balance sheet gives us more confidence to spend that money each year and frankly, we're very active across these areas strategically.

I was just hoping to dig in a little bit more on the alternative opportunity set, the alts products within the retail channel. If you could just talk a little bit about how you guys are thinking about the opportunity set there?

It would seem that there could be opportunities for Clarion, with a private REIT, with Benefit Street, with a private -- I know you have some public entities there. Can you just elaborate on the opportunity set, which products can make the most sense?

And how big could this be for Franklin?

Yes. It sounds like you work in our alternatives marketing group because I think you've really hit on 2 of the most important opportunities for us where we're spending significant attention.

I think the other thing that we really need to do is to work with our distribution partners to understand what they're looking for. The other thing we've seen some growth in is our hedge fund business in the retail channel.

I think that could be really strong. But BSP, Clarion, obviously, two of the biggest offerings.

I would also say that in some more of the traditional asset classes like fixed income, there are ways to structure things so that it has more of an alternative feel to it as well as the characteristics that one would expect from alternative investments in a more traditional asset class, and we're seeing that in the retail channel as well.

And Adam, I would just say that you take a Clarion, I mean one of the feedback we're getting from some of our large distribution partners is a concern that they have a low concentration in managers, and they want diversification. And here, you got Clarion at $60-plus billion, and with unbelievable performance coming out of this COVID period, and really has only been institutional distribution.

And so we just think there's just tremendous upside there because there's a desire on the distribution side to diversify their managers. And we've got the distribution team to support the alternatives business and really the products there.

And the final thing I would add is that the fundraising in that channel tends to be kind of a multipronged thing. You bring a fund period 1, and then you can come back to market a year later, x number of quarters.

And so I do see the real potential to have sequential growth in our raises there as those advisers become more comfortable with the brand and the process of allocating to alternatives.

And then the other sort of additional point is that there are some very attractive alternative asset strategies that we don't yet own because we don't have the capability that we think is very logical connection with a large distribution business like ours.

And we don't talk about it, but I think we showed a little bit -- we have a very strong venture group. And while they're small in the individual private funds, they actually came out of our growth franchise at Franklin because of the ability to put some illiquid assets in mutual funds.

And so they're probably -- I don't know, Matt, I think it's about $2 billion in venture investments, albeit a large part of it within our traditional kind of mutual funds. But they're now starting to be selected as a lead against very competitive other VCs on offering.

So we're really excited because we think there's a lot of opportunity there.

Yes. I just want to thank everybody for their time today.

And we appreciate you guys taking the time to the call, and I want to wish everybody through this next phase of the Delta variant and everything to stay healthy through these times. So thanks, everybody.