| 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 voting interest entities and variable interest entities (“VIEs”). The Company had 64 CIPs, including 13 CLOs, as of March 31, 2022 and 60 CIPs, including 10 CLOs, as of September 30, 2021. The balances related to CIPs included in the Company’s consolidated balance sheets were as follows: | | | | | | | | | | | | | | | | (in millions) | | March 31,
2022 | | September 30,
2021 | | Assets | | | | | | Cash and cash equivalents | | $ | 603.1 | | | $ | 289.4 | | | Receivables | | 130.6 | | | 127.8 | | | Investments, at fair value | | 7,134.6 | | | 5,820.1 | | | Total Assets | | $ | 7,868.3 | | | $ | 6,237.3 | | | | | | | | Liabilities | | | | | | Accounts payable and accrued expenses | | $ | 654.3 | | | $ | 558.0 | | | Debt | | 5,100.1 | | | 3,671.0 | | | Other liabilities | | 19.7 | | | 13.8 | | | Total liabilities | | 5,774.1 | | | 4,242.8 | | | Redeemable Noncontrolling Interests | | 625.3 | | | 622.5 | | Stockholders’ Equity | | | | | | Franklin Resources, Inc.’s interests | | 1,017.4 | | | 1,000.7 | | | Nonredeemable noncontrolling interests | | 451.5 | | | 371.3 | | | Total stockholders’ equity | | 1,468.9 | | | 1,372.0 | | Total Liabilities, Redeemable Noncontrolling Interests and Stockholders’ Equity | | $ | 7,868.3 | | | $ | 6,237.3 | |
The CIPs did not have a significant impact on net income attributable to the Company during the three and six months ended March 31, 2022 and 2021. 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 March 31, 2022 | | | | | | | Assets | | | | | | | | | | | | Cash and cash equivalents of CLOs | | $ | 438.3 | | | $ | — | | | $ | — | | | $ | — | | | $ | 438.3 | | | Receivables of CLOs | | — | | | 58.8 | | | — | | | — | | | 58.8 | | | Investments | | | | | | | | | | | | Equity and debt securities | | 164.0 | | | 699.1 | | | 595.4 | | | 246.0 | | | 1,704.5 | | | Loans | | — | | | 5,221.1 | | | 33.6 | | | — | | | 5,254.7 | | | Real estate | | — | | | — | | | 175.4 | | | — | | | 175.4 | | | Total Assets Measured at Fair Value | | $ | 602.3 | | | $ | 5,979.0 | | | $ | 804.4 | | | $ | 246.0 | | | $ | 7,631.7 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (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 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Investments for which fair value was estimated using reported NAV as a practical expedient consist of a redeemable global hedge fund, a redeemable U.S. equity fund and nonredeemable private equity funds. These investments were as follows: | | | | | | | | | | | | | | | | (in millions) | | March 31,
2022 | | September 30,
2021 | Nonredeemable investments1 | | | | | | Investments with known liquidation periods | | $ | 46.0 | | | $ | 141.4 | | | Investments with unknown liquidation periods | | 12.0 | | | — | | | | | | | Redeemable investments2 | | 188.0 | | | 202.1 | | | | | | | Unfunded commitments3 | | 0.5 | | | 0.5 | |
_______________ 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 with known liquidation periods have an expected weighted-average life of 0.8 year at March 31, 2022 and 1.3 years at September 30, 2021. 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 based on its ownership percentage in the CIPs, at March 31, 2022 and September 30, 2021.
Changes in Level 3 assets were as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | (in millions) | | Equity and Debt
Securities | | Real Estate | | Loans | | Total
Level 3
Assets | | for the three months ended March 31, 2022 | | Balance at January 1, 2022 | | $ | 539.0 | | | $ | 98.9 | | | $ | 34.2 | | | $ | 672.1 | | | Realized and unrealized gains (losses) included in investment and other income of consolidated investment products, net | | 78.0 | | | 5.7 | | | (0.3) | | | 83.4 | | | Purchases | | 115.3 | | | 70.8 | | | 0.1 | | | 186.2 | | | Sales and settlements | | (81.9) | | | — | | | (0.4) | | | (82.3) | | | Deconsolidations | | (55.0) | | | — | | | — | | | (55.0) | | | Balance at March 31, 2022 | | $ | 595.4 | | | $ | 175.4 | | | $ | 33.6 | | | $ | 804.4 | | | Change in unrealized gains (losses) included in net income relating to assets held at March 31, 2022 | | $ | 73.6 | | | $ | 5.7 | | | $ | (0.3) | | | $ | 79.0 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | (in millions) | | Equity and Debt
Securities | | Real Estate | | Loans | | Total
Level 3
Assets | | for the six months ended March 31, 2022 | | Balance at October 1, 2021 | | $ | 453.3 | | | $ | 89.4 | | | $ | 20.5 | | | $ | 563.2 | | | Realized and unrealized gains (losses) included in investment and other income of consolidated investment products, net | | 170.3 | | | 14.3 | | | — | | | 184.6 | | | Purchases | | 133.5 | | | 71.7 | | | 14.1 | | | 219.3 | | | Sales and settlements | | (105.8) | | | — | | | (1.0) | | | (106.8) | | | Deconsolidations | | (55.0) | | | — | | | — | | | (55.0) | | | Transfers into Level 3 | | 0.1 | | | — | | | — | | | 0.1 | | | Transfers out of Level 3 | | (1.0) | | | — | | | — | | | (1.0) | | | Balance at March 31, 2022 | | $ | 595.4 | | | $ | 175.4 | | | $ | 33.6 | | | $ | 804.4 | | | Change in unrealized gains included in net income relating to assets held at March 31, 2022 | | $ | 166.1 | | | $ | 14.3 | | | $ | — | | | $ | 180.4 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | (in millions) | | Equity and Debt
Securities | | Real Estate | | Loans | | Total
Level 3
Assets | | for the three months ended March 31, 2021 | | Balance at January 1, 2021 | | $ | 356.0 | | | $ | 407.8 | | | $ | 23.5 | | | $ | 787.3 | | | Realized and unrealized gains included in investment and other income of consolidated investment products, net | | 1.0 | | | 1.2 | | | — | | | 2.2 | | | Purchases | | 7.5 | | | 21.2 | | | — | | | 28.7 | | | Sales and settlements | | (56.0) | | | — | | | (1.1) | | | (57.1) | | | Deconsolidations | | (36.2) | | | — | | | — | | | (36.2) | | | Transfers into Level 3 | | 1.2 | | | — | | | — | | | 1.2 | | | Foreign exchange revaluation | | (2.3) | | | (6.7) | | | — | | | (9.0) | | | Balance at March 31, 2021 | | $ | 271.2 | | | $ | 423.5 | | | $ | 22.4 | | | $ | 717.1 | | | Change in unrealized gains (losses) included in net income relating to assets held at March 31, 2021 | | $ | 1.2 | | | $ | 1.2 | | | $ | (0.1) | | | $ | 2.3 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | (in millions) | | Equity and Debt
Securities | | Real Estate | | Loans | | Total
Level 3
Assets | | for the six months ended March 31, 2021 | | Balance at October 1, 2020 | | $ | 322.3 | | | $ | 339.2 | | | $ | 24.9 | | | $ | 686.4 | | | Realized and unrealized gains included in investment and other income of consolidated investment products, net | | 20.1 | | | 2.7 | | | — | | | 22.8 | | | Purchases | | 20.1 | | | 72.3 | | | — | | | 92.4 | | | Sales and settlements | | (57.0) | | | — | | | (2.5) | | | (59.5) | | | Deconsolidations | | (36.2) | | | — | | | — | | | (36.2) | | | Transfers into Level 3 | | 1.2 | | | — | | | — | | | 1.2 | | | Foreign exchange revaluation | | 0.7 | | | 9.3 | | | — | | | 10.0 | | | Balance at March 31, 2021 | | $ | 271.2 | | | $ | 423.5 | | | $ | 22.4 | | | $ | 717.1 | | | Change in unrealized gains included in net income relating to assets held at March 31, 2021 | | $ | 19.7 | | | $ | 2.7 | | | $ | 0.1 | | | $ | 22.5 | |
Valuation techniques and significant unobservable inputs used in Level 3 fair value measurements were as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | (in millions) | | | | | | | | | | as of March 31, 2022 | | Fair Value | | Valuation Technique | | Significant Unobservable Inputs | | Range (Weighted Average1) | | Equity and debt securities | | $ | 529.3 | | | Market pricing | | Private sale pricing | | $0.39–$1,704.16 ($132.63) per share | | 66.1 | | | Market comparable companies | | Enterprise value/
EBITDA multiple | | 14.7 | | | | Discount for lack of marketability | | 25.0% | | | | Price-to-book value ratio | | 1.2 | | | | | | | | | | | Real estate | | 175.4 | | | Discounted cash flow | | Discount rate | | 5.5%–6.3% (6.0%) | | | | Exit capitalization rate | | 4.5%–5.5% (4.9%) | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | (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%) |
__________________ 1Based on the relative fair value of the instruments. If the relevant significant inputs used in the market-based valuations, other than discount for lack of marketability, were independently higher (lower) as of March 31, 2022, the resulting fair value of the assets would be higher (lower). If the relevant significant inputs used in the discounted cash flow valuations, as well as the discount for lack of marketability used in the market-based valuations, were independently higher (lower) as of March 31, 2022, 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 | | March 31, 2022 | | September 30, 2021 | | | Carrying
Value | | Estimated
Fair Value | | Carrying
Value | | Estimated
Fair Value | | Financial Asset | | | | | | | | | | | | Cash and cash equivalents | | 1 | | $ | 164.8 | | | $ | 164.8 | | | $ | 144.0 | | | $ | 144.0 | | | Financial Liabilities | | | | | | | | | | | Debt of CLOs1 | | 2 or 3 | | $ | 5,029.6 | | | $ | 5,067.3 | | | $ | 3,634.1 | | | $ | 3,610.6 | | | Other debt | | 3 | | 70.5 | | | 66.1 | | | 36.9 | | | 36.6 | |
__________________1Substantially all was Level 2. Debt Debt of CIPs consisted of the following: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | March 31, 2022 | | September 30, 2021 | | (in millions) | | Amount | | Weighted-
Average
Effective
Interest Rate | | Amount | | Weighted-
Average
Effective
Interest Rate | Debt of CLOs | | $ | 5,029.6 | | | 1.86% | | $ | 3,634.1 | | | 2.11% | Other debt | | 70.5 | | | 2.52% | | 36.9 | | | 1.95% | Total | | $ | 5,100.1 | | | | | $ | 3,671.0 | | | |
The debt of CLOs had fixed and floating interest rates ranging from 0.88% to 7.30% at March 31, 2022, and from 1.00% to 8.22% at September 30, 2021. The other debt had fixed and floating interest rates ranging from 1.72% to 6.00% at March 31, 2022, and from 1.63% to 2.42% at September 30, 2021. The floating rates were primarily based on LIBOR. The contractual maturities for the debt of CIPs at March 31, 2022 were as follows: | | | | | | | | | | (in millions) | | | | for the fiscal years ending September 30, | Amount | | 2022 (remainder of year) | | $ | 19.6 | | | 2023 | | — | | | 2024 | | 98.9 | | | 2025 | | — | | | 2026 | | — | | | Thereafter | | 4,981.6 | | | Total | | $ | 5,100.1 | |
Collateralized Loan Obligations The unpaid principal balance and fair value of the investments of CLOs were as follows: | | | | | | | | | | | | | | | | (in millions) | | March 31,
2022 | | September 30,
2021 | | Unpaid principal balance | | $ | 5,235.2 | | | $ | 3,951.1 | | | Difference between unpaid principal balance and fair value | | 9.5 | | | 20.9 | | | Fair Value | | $ | 5,244.7 | | | $ | 3,972.0 | |
Investments 90 days or more past due were immaterial at March 31, 2022. There were no investments 90 days or more past due at September 30, 2021. The Company recognized $7.6 million and $12.9 million of net gains during the three and six months ended March 31, 2022 and $6.5 million and $7.4 million of net gains during the three and six months ended March 31, 2021, related to its own economic interests in the CLOs. The aggregate principal amount due of the debt of CLOs was $5,039.8 million and $3,629.9 million at March 31, 2022 and September 30, 2021.
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