Consolidated Investment Products

12 Months Ended

Sep. 30, 2021

Consolidated Investment Products [Abstract]

Consolidated Investment Products

Consolidated Investment Products

CIPs consist of mutual and other investment funds, limited partnerships and similar structures, and CLOs, all of which are sponsored by the Company, and include both VOEs and VIEs. The Company had 60 CIPs, including ten CLOs, as of September 30, 2021 and 75 CIPs, including eight CLOs, as of September 30, 2020.

The balances related to CIPs included in the Company’s consolidated balance sheets were as follows:

(in millions)
as of September 30,	2021		2020
Assets
Cash and cash equivalents	$	289.4	$	963.0
Receivables	127.8		118.3
Investments, at fair value	5,820.1		4,074.0
Total Assets	$	6,237.3	$	5,155.3
Liabilities
Accounts payable and accrued expenses	$	558.0	$	611.2
Debt	3,671.0		2,800.6
Other liabilities	13.8		12.1
Total liabilities	4,242.8		3,423.9
Redeemable Noncontrolling Interests	622.5		397.3
Stockholders’ Equity
Franklin Resources, Inc.’s interests	1,000.7		754.4
Nonredeemable noncontrolling interests	371.3		579.7
Total stockholders’ equity	1,372.0		1,334.1
Total Liabilities, Redeemable Noncontrolling Interests and Stockholders’ Equity	$	6,237.3	$	5,155.3

The CIPs did not have a significant impact on net income attributable to the Company in fiscal years 2021, 2020 and 2019.

The Company has no right to the CIPs’ assets, other than its direct equity investments in them and investment management and other fees earned from them. The debt holders of the CIPs have no recourse to the Company’s assets beyond the level of its direct investment, therefore the Company bears no other risks associated with the CIPs’ liabilities.

Fair Value Measurements

Assets of CIPs measured at fair value on a recurring basis were as follows: 

(in millions)	Level 1		Level 2		Level 3		NAV as a Practical Expedient		Total
as of September 30, 2021
Assets
Cash and cash equivalents of CLOs	$	145.4	$	—	$	—	$	—	$	145.4
Receivables of CLOs	—		84.0		—		—		84.0
Investments
Equity and debt securities	310.8		647.3		453.3		343.5		1,754.9
Loans	—		3,955.3		20.5		—		3,975.8
Real Estate	—		—		89.4		—		89.4
Total Assets Measured at Fair Value	$	456.2	$	4,686.6	$	563.2	$	343.5	$	6,049.5

(in millions)	Level 1		Level 2		Level 3		NAV as a Practical Expedient		Total
as of September 30, 2020
Assets
Cash and cash equivalents of CLOs	$	527.3	$	—	$	—	$	—	$	527.3
Receivables of CLOs	—		57.8		—		—		57.8
Investments
Equity and debt securities	177.6		285.7		322.3		261.1		1,046.7
Loans	—		2,663.2		24.9		—		2,688.1
Real estate	—		—		339.2		—		339.2
Total Assets Measured at Fair Value	$	704.9	$	3,006.7	$	686.4	$	261.1	$	4,659.1

Investments for which fair value was estimated using reported NAV as a practical expedient consist of redeemable global hedge fund, nonredeemable private equity funds and redeemable U.S. equity fund. These investments were as follows:

(in millions)
as of September 30,	2021		2020
Nonredeemable investments1
Investments with known liquidation periods	$	141.4	$	261.1
Redeemable investments2	202.1		—
Unfunded commitments3	0.5		94.0

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1The investments are expected to be returned through distributions over the life of the funds as a result of liquidations of the funds’ underlying assets. Investments have an expected weighted-average life of 1.3 years and 4.2 years at September 30, 2021 and 2020.

2Investments are redeemable on a monthly basis and liquidation periods are unknown.

3Of the total unfunded commitments, the Company was contractually obligated to fund $0.2 million and $11.4 million based on its ownership percentage in the CIPs, at September 30, 2021 and 2020.

Changes in Level 3 assets were as follows: 

(in millions)	Equity and Debt Securities		Real Estate		Loans		Total Level 3 Assets
for the fiscal year ended September 30, 2021
Balance at beginning of year	$	322.3	$	339.2	$	24.9	$	686.4
Realized and unrealized gains included in investment and other income of consolidated investment products, net	122.8		8.3		0.3		131.4
Purchases	105.7		161.7		—		267.4
Sales and settlements	(62.8)		—		(4.7)		(67.5)
Deconsolidations	(36.2)		(448.8)		—		(485.0)
Transfers into Level 3	2.7		18.5		—		21.2
Transfers out of Level 3	(1.9)		—		—		(1.9)
Foreign exchange revaluation	0.7		10.5		—		11.2
Balance at End of Year	$	453.3	$	89.4	$	20.5	$	563.2
Change in unrealized gains included in net income relating to assets held at end of year	$	123.9	$	5.4	$	0.5	$	129.8

(in millions)	Equity and Debt Securities		Real Estate		Loans		Total Level 3 Assets
for the fiscal year ended September 30, 2020
Balance at beginning of year	$	333.8	$	152.7	$	16.6	$	503.1
Acquisition	—		20.3		17.6		37.9
Realized and unrealized losses included in investment and other income of consolidated investment products, net	(47.2)		(5.2)		(1.8)		(54.2)
Purchases	84.0		154.9		—		238.9
Sales and settlements	(5.0)		—		(7.5)		(12.5)
Deconsolidations	(47.8)		—		—		(47.8)
Transfers into Level 3	2.2		—		—		2.2
Transfers out of Level 3	(1.1)		—		—		(1.1)
Foreign exchange revaluation	3.4		16.5		—		19.9
Balance at End of Year	$	322.3	$	339.2	$	24.9	$	686.4
Change in unrealized losses included in net income relating to assets held at end of year	$	(47.2)	$	(5.2)	$	(1.8)	$	(54.2)

Valuation techniques and significant unobservable inputs used in Level 3 fair value measurements were as follows:

(in millions)
as of September 30, 2021	Fair Value		Valuation Technique	Significant Unobservable Inputs	Range (Weighted Average1)
Equity and debt securities	$	301.1	Market pricing	Private sale pricing	$0.39–$100.00 ($19.34) per share
	102.3		Market comparable companies	Enterprise value/ EBITDA multiple	6.0–20.6 (13.7)
				Discount for lack of marketability	6.0%–25.5% (17.6%)
				Enterprise value/ Revenue multiple	0.6–7.2 (5.1)
				Price-to-book value ratio	0.7–1.8 (1.4)
				Control premium	20%
				Price-to-earnings ratio	28.8
	49.9		Discounted cash flow	Discount rate	3.3%–6.3% (4.3%)
Real estate	89.4		Discounted cash flow	Discount rate	5.8%–6.0% (5.9%)
				Exit capitalization rate	5.0%–5.3% (5.1%)

(in millions)
as of September 30, 2020	Fair Value		Valuation Technique	Significant Unobservable Inputs	Range (Weighted Average1)
Equity and debt securities	$	119.8	Discounted cash flow	Discount rate	4.0%–23.0% (11.4%)
				Discount for lack of marketability	17.0%
				Risk premium	9.7%–19.3% (16.7%)
	108.5		Market comparable companies	Enterprise value/ EBITDA multiple	7.0–19.1 (10.8)
				Discount for lack of marketability	20.0%–25.2% (21.9%)
				Price-to-earnings ratio	9.4–10.0 (9.7)
				Risk premium	55.0%
				Enterprise value/ Revenue multiple	7.5
	94.0		Market pricing	Private sale pricing	$0.02–$100.00 ($13.01) per share
Real estate	231.8		Discounted cash flow	Discount rate	4.5%–6.5% (5.2%)
				Exit capitalization rate	6.0%
	107.4		Yield capitalization	Equivalent yield	4.3%–6.1% (5.2%)

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1Based on the relative fair value of the instruments.

If the relevant significant inputs used in the market-based valuations, other than the discount for lack of marketability and risk premium, were independently higher (lower), the resulting fair value of the assets would be higher (lower). If the relevant significant inputs used in the discounted cash flow or yield capitalization valuations, as well as the discount for lack of marketability and risk premium in the market-based valuations, were independently higher (lower) as of September 30, 2021, the resulting fair value of the assets would be lower (higher).

Financial instruments of CIPs that were not measured at fair value were as follows:

(in millions)	Fair Value Level	2021				2020
		Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
as of September 30,
Financial Asset
Cash and cash equivalents	1	$	144.0	$	144.0	$	435.7	$	435.7
Financial Liabilities
Debt of CLOs1	2 or 3	3,634.1		3,610.6		2,646.9		2,683.2
Other debt	3	36.9		36.6		153.7		155.2

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1Substantially all was Level 2.

Debt

Debt of CIPs consisted of the following:

(in millions) as of September 30,	2021			2020
	Amount		Weighted- Average Effective Interest Rate	Amount		Weighted- Average Effective Interest Rate
Debt of CLOs	$	3,634.1	2.11%	$	2,646.9	2.99%
Other debt	36.9		1.95%	153.7		2.97%
Total	$	3,671.0		$	2,800.6

The debt of CLOs had fixed and floating interest rates ranging from 1.00% to 8.22% at September 30, 2021 and from 1.43% to 8.34% at September 30, 2020. The other debt had floating interest rates ranging from 1.63% to 2.42% at September 30, 2021, and fixed and floating rates from 1.00% to 5.81% at September 30, 2020. The floating rates were primarily based on LIBOR.

The contractual maturities for debt of CIPs at September 30, 2021 were as follows: 

(in millions)
for the fiscal years ending September 30,	Amount
2022	$	72.9
2023	—
2024	—
2025	9.8
2026	—
Thereafter	3,588.3
Total	$	3,671.0

Collateralized Loan Obligations

The unpaid principal balance and fair value of the investments of CLOs were as follows:

(in millions)
as of September 30,	2021		2020
Unpaid principal balance	$	3,951.1	$	2,809.8
Difference between unpaid principal balance and fair value	20.9		(146.6)
Fair Value	$	3,972.0	$	2,663.2

There were no investments 90 days or more past due at September 30, 2021 and 2020.

During fiscal years 2021 and 2020, the Company recognized $15.4 million of net gains and $1.3 million of net losses related to its own economic interests in the CLOs. The aggregate principal amount due of the debt of CLOs was $3,629.9 million and $2,803.1 million at September 30, 2021 and 2020.