$1.5 Trillion Money Manager Jenny Johnson Speaks Out | TCAF 208
Summary
Investment Strategy: Jenny Johnson emphasizes Franklin Templeton's focus on trust and collaboration with financial advisers, highlighting their broad platform with $1.7 trillion under management and a significant presence in alternative investments.
Acquisitions and Growth: Franklin Templeton has made 11 acquisitions in the past five years, including LegMason and Lexington Partners, focusing on integrating diverse cultures and enhancing capabilities through client-centric and collaborative approaches.
Technological Advancements: Johnson discusses the transformative impact of technologies like AI and blockchain on the financial industry, emphasizing the need for continuous improvement and adaptation to stay competitive.
Alternative Investments: The firm sees significant growth potential in alternatives, particularly in the wealth channel, and is developing educational resources to help advisers integrate these into client portfolios.
Market Trends: There is a trend towards fewer asset management partners offering comprehensive solutions, driven by the increasing complexity and demand for personalization from clients.
Blockchain and Digital Assets: Johnson is a strong advocate for blockchain technology, predicting that all financial services will eventually be on-chain, reducing costs and increasing efficiency.
Leadership Philosophy: Johnson's leadership is guided by the "four Ps": People, Passion, Purpose, and Persistence, emphasizing the importance of team, love for work, meaningful impact, and resilience.
Future Outlook: The firm is preparing for a future where AI and blockchain play crucial roles, and is actively working on strategies to leverage these technologies for better investment opportunities and client services.
Transcript
[Music] [Applause] This episode is sponsored by GPZ by VANC. When private markets expand, who leads the charge? The asset managers behind the scenes, those investing in private equity, credit, infrastructure, and real estate. Introducing GPZ, the VANC alternative asset manager ETF. For the first time, retail investors can invest alongside Blackstone, Brookfield, KKR, Apollo, and peers sharing in the growth of private markets with minimal effort. GPZ tracks a specialized index of ultra pure alternative asset managers capped at a lowcost 40 basis point expense ratio. Want diversification with a twist? Step beyond traditional funds. GPC gives you access to the firms making private markets move for less. Ask your adviserss today or find it by ticker GPZ. For more information and the perspectus, visit van.com. GPZ Josh. What's up, [Applause] [Music] >> guys? Thank you so much for having us. It's a pleasure. We really appreciate it. Raise your hand if you listen to the compound and friends. Any fans? Yeah. Okay. What about you watch on YouTube? Say, "All right, we got See, people people are into the show. I told you Jenny wasn't sure what this really was." Okay. For those of you who are new to the future proof or not necessarily aware of our show, it's called the Compound and Friends. Last year, uh, the Compound channel, the podcast and YouTube and everywhere our, um, our stuff appears did about 16 million downloads and views, which I'm told is pretty substantial, pretty decent. Uh, give yourselves a round of applause. >> Did you fill the audience? Saw your guys. >> Um, we have an extremely extremely special guest today for the live recording of the Compound and Friends. But before we go there, ladies and gentlemen, Mr. Michael Batnik, [Applause] >> what up? >> All right, guys. Hang on. Bear with me one second. On stage with me today is somebody that we've been dying to have on the show. We managed to get it together for a live edition of The Compound and Friends. Jenny Johnson is president and chief executive officer of Franklin Templeton, a manager with more than $1.5 trillion under management. Jenny has received many recognitions, including Forb's World's 100 most powerful women list in 2023 and 2022, as well as its 50 over 50 list in 2022. Miss Johnson serves on a variety of boards, including the New York Stock Exchange Board Advisory Council, and in 2023, she was appointed to the US Brazil CEO forum. Previously, she has served on several other boards, including Stanford's Lucille Packard Children's Hospital and the San Francisco Giants. Ladies and gentlemen, a huge futurep proof welcome for Jenny Johnson. [Applause] Okay. Um, let's start easy. What's your year-end Bitcoin target and why? >> Save that for the end. Okay. Here's where I want to start. Why do financial adviserss work with Franklin? What is it about your firm's culture that makes you guys special and makes you guys stand out? >> First of all, I have to take my sunglasses off cuz I don't think you trust anybody with your >> We're all taking off the glasses. We're all taking But I've been filming you on my meta glasses. Okay. So, you're all on there. Um, look, you know, I mean, so my grandfather started Franklin Templeton and uh, he started Franklin Templeton at a time because the average person couldn't get access to the stock market. So he started out in the mutual funds and you know that was the creation that gave everybody really the democratization of access. And so I think in our roots we have been um, a firm that is built around the financial adviser and working with financial adviserss. Today uh we're 1.7 trillion. We have 260 billion alternatives. So we have a broad platform of capabilities. Uh we're I think the seventh largest alternatives manager. Um and why do advisers like to work with us? Because I think he can trust us. I mean that that you know people when we look at our brand and have asked about our brand trust comes up as the number one kind of factor with that. Um, and I'd say we've done 11 acquisitions in the last five years. Um, so, uh, LegMason, Lexington Partners, Clarion Partners, Benefit Street Partners, a bunch of brands. Uh, and the a lot of times people will ask, well, how do you deal with the fact that you're bringing in different cultures? And I always say it's the three C's that we look for. It's amazing when you're doing due diligence on a company how quickly the management team starts talking about clients. Because if they don't start talking about clients pretty early, they're actually never going to be focused on >> something that you'll actually listen for. >> Absolutely. Okay. I mean, it is amazing how quickly you can kind of see what people's priorities are. So, one is clients. The second is collaboration, which usually you can see and how well they work with each other and kind of like each other, right? Uh I remember doing a uh we were looking at an investment in a company and we were pretty far along in it and finally I end up meeting the investment team and I turned back to my team after I said you guys realize like these two owners don't actually like each other like you can see it in the room and sure enough we had already done the investment and it ultimately went to zero. So, I don't know whether that was a factor or not, but um it matters and and when you're bringing them into another organization, if they already don't collaborate with each other, they're not going to collaborate more broadly in the firm. And so, we don't want to be a firm with a bunch of managers. We want to be a firm that you actually get benefits by having capabilities. Um I was having a conversation with our private credit guy. He spends a lot of time with our secondary PE Lexington partners talking about building relationships with sponsor firms that helps him in his origination. Um so it's that kind of collaboration and the third C is a mindset of continuous improvement. And look in my 30 plus years in this industry there has been no time that has had the pace of change that we are experiencing now. And and most of the change is technologies that have been existing out there for decades. cloud computing, others. We haven't even scratched the surface on how AI is impacting our industry and how blockchain is going to impact our industry. And so if you don't have a mindset in an organization of trying to find ways to improve, you are going to be left behind. >> Our clients are asking more and more of us every day. I would imagine it's the same thing in your industry that your clients, us, the advisers are asking you to do more. >> 100%. I mean they they rarely say hey what's your latest large cap value fund right they're like what else can you do to help me and so we've built a lot of technologies around that to support the practice management of advisors um obviously you know we we did an acquisition of of canvas which started out kind of direct indexing but it actually um has option overlay it has a lot of ways in which you can customize because your clients are asking you to customize for them uh and so we're providing those kind of tools to help do that >> so It strikes me that um one of the big waves that we're seeing in the RAA space and probably also at the wires and the independent broker dealers is that advisors are increasingly looking for firms to work with that can offer them an entire suite versus just one specific not only strategy but even like uh mutual funds, SMAs, they want somebody to also be in the TAM. I think as advisers try to serve more types of clients and try to standardize what they're doing, having fewer asset management partners is probably the wave. And I'm curious if you if you guys think about that when you're looking at acquisitions or new lines of business that you might start. >> 100%. I mean, you consistently hear that because it's gotten more and more complex, right? I mean, you know, again, your clients are asking for personalization. they're demanding much more of you and so one of the ways to reduce your complexity is to work with fewer managers who can do more for you. So we definitely see that trend. Uh and you know let's face it the due diligence you have to do on a one firm is whether it's a small firm or a big firm it's kind of the same element of of firm >> due diligence. You have to do the same amount no matter what. >> Exactly. So if you can get a firm that can provide you broad breadth of capability and then you can demand more because you have more assets with them. And so, you know, what additional services are you providing? We're getting a lot of um, you know, questions around like alternatives and no adviser needs to be convinced that they should have alternatives in portfolios to their clients. Their questions are around how should I think about it? How should I do portfolio construction? And so, we've built a whole academy that's just focused on helping advisers do um, you know, think about portfolio construction with alternatives. So, it's those types of things that scale enables you to do. And then I am a I absolutely believe that if you are an asset manager and you don't have scale in this world of AI, you are going to be left behind because you will not have the data to train your models. You're just not going to have enough. >> How are you thinking about scaling your business, servicing your advisor clients, uh keeping your shareholders happy, all within the context of two back-to-back 20% years in the S&P? The wind has been in our backs for a long time now and at some point the title will go out. So how do you think about going going investing and growing while managing the risk for your shareholders and your employees? >> Yeah. Well first of all my father always said take care of the client the business takes care of itself. So he's one focus right do what's right with the for the client and I and he lives it. At one point we had a bank and I ran this credit card department. We' done a little acquisition and there was a way to interpret some of the contract that allowed us to kind of go in and get excess I can't even remember some additional fees or something but it was probably not intended at the time. So I remember I was you know in my 20s and I said to my dad what do you think about this and he just looked at me and he goes listen I don't know the details but I can tell you something if you blow your reputation you never get it back. So you do what's right you treat people well and you focus on the client. So I think that that first of all is just a you know when you talk about all those constituencies focus on the client. So that's one and then I say you know the um you you if you are listening to what the client's needs are you're trying to bring those types of capabilities. So from an investment you talked about all those different vehicles. We think that what we bring to the table is our investment management expertise right and riskadjusted turn active managers have to f focus on riskadjusted returns and so in 20 plus% markets sometimes you have to you you will underperform the benchmark because you have to consider concentration risk and when you have a series of stocks that are so heavily concentrated you have to decide do I want to underweight the benchmark or am I okay with that risk right so there's that's that kind of conversation when you're happen with adviserss and communicating with advisors. So expectations are appropriate and then the key is we got to be transparent about the risks of our products because as advisors you've got to make sure you understand your client's risks appetite and so that the products have to be appropriate for those risk appetite. >> So we've seen huge wave of innovation in asset management. I know it's always that way but over the last 5 to 10 years it really does feel like it's been speeding up. It's been accelerating. I wanted to ask you, is there any type of product or suite or approach that you guys chose not to pursue that you now regret? Is there anything you missed? Whether uh more active ETFs or leveraged ETFs, single stock ETFs? Are there any thematic ideas that you guys didn't jump on that maybe now you say maybe we should have? And then are there any categories where um you feel that there's still an opportunity in the marketplace that's not being served and you guys might have the ability to do something uh much bigger there than other players? Like how do you think about all that evolution and where you guys fit in? >> Yeah, I remember I mean I >> and you can bash any of your competitors. They're not listening. They're all in the breakthrough tent right now. So Okay. Um, no. I mean, I have to be honest, like you you you think about you want to have vision where you believe things are going. I mean, honestly, somebody brought one of the big direct indexing platforms to me saying, "Hey, they're looking for some investment in there. I think they were 100 million. They're now multi multi-billions today." And I was like, "No way. That'll never take off." >> I know the I know the feeling. there are still people that that believe >> and and you know we were uh we were early on active ETFs but probably late on passive ETFs and I don't think we had the vision about how the passives would be used in kind of model portfolios early on you know so you never get it fully right and I think the most important thing is to say okay you know let's take a look at that think about what our rationale was on the decision-m at the time and did it make sense and you know you you Where are the areas that you guys currently are most focused because you think they could be the next big thing? >> Well, I think there's no question that alternatives to the wealth channel is going to be the next big wave. And every alternatives manager is focused on the wealth channel, which brings some concerns to me, which I'll talk about in a second. Um, because they have probably saturated much of the institutional market, right? So if they're going to justify multiples and be able to grow, they look at the wealth channel. So you know, and if you if you think today, um, only 13% of companies who have revenue of 100 million or greater are actually public. So there's, you know, just over 4,000 public companies. There's 17,000 plus companies with 100 million or more revenue. So you know, your average investor who's not investing in the in the private markets, right, >> is not getting access to 87% of those opportunities. And so it's a natural but the question is how do you bring it appropriately areas that I am passionate I think there's huge opportunity on I love secondary PE there's been $6 trillion deployed in private equity the realizations are a half of what they were before in other words these institutions who counted on the cash flows coming to make their next allocations in investments private markets are seeing half of what they saw before and so they're having to clear out their balance sheet Uh, and so they sell them to a secondary manager. And you take Lexington Partners, I mean, their their current fund 11, I think, is lights out as far as, uh, the discounts they get, but they buy these portfolios at discounts. And so, here's a real transaction. Uh, uh, State Pension says, "I need a billion dollars out of my portfolio in 30 days." So you go in as a secondary manager and say, you know, I'll take that fund, that fund, and vintage over here. So you get to to literally kind of cherrypick which ones you want. Uh and and then you negotiate a discount which immediately occurs to your investors. And so I love the secondary space because of the amount that's been deployed in private equity. Is >> the right way to think about secondaries that it's private equity investing but potentially derisked? I mean, look, you're getting a diverse portfolio because there's multiple vintages from different firms in there. You have no J curve because the average age of a uh secondary portfolio that you buy is 5 years old. And um the average uh PE fund didn't start paying cash flows out to year 8, which can be really hard for, you know, your average investor. And so now they only have to wait three years and they start getting cash flows. >> Okay. >> Uh so to me, it's the best way for the wealth channel. I actually even personally love it. I think for institutions are now loving it because they love that discount. >> So Franklin has your roots in public markets. Lexin Partners is a company that you just mentioned. You own them. You're also a top 10 provider in private markets. When did you all start making the move into that area? >> So we bought Benefit Street Partners, which is private credit manager and and they're about 82 billion I think today. Uh in 2018. So that's when we first made the move. And then we got Clarion Partners, which is a real estate manager as part of the LegMason acquisition and then uh bought Lexi Lexington Partners a couple years ago. We interestingly the only real organically grown alternative manager um you know private markets alternative manager was our our venture group. And it's because the Franklin Equity team, which is housed in Silicon Valley, they're sitting there looking at attribution and they're like, "We're not getting the IPO kickers that we used to get because these companies are waiting so long to go public. We can have up to 15% allocation." And so they started to do latestage venture. So you can have up to 15% in mutual fund in in private market. So they did late stage venture. And interesting in many ways some of their best deals were deals they didn't do because they're embedded in they're the only VC fund I'm aware of that's embedded in a public market equity fund uh team and so they'd look at it and say well the VC guys are convincing them of this price but if you look at the public market valuation it just doesn't justify the price and so it was the deals they stayed out of um but you know they're they're in Silicon Valley so their kids are going to school with all these uh entrepreneurs and others and so they've done very You are the granddaughter of the founder, but you started your career in the mail room. So, can you tell us your Horatio Alger rags to rich's story? Um, but I look, you could see Jenny, we have a fairly young audience or a lot of young people in the audience. And if they're not um chronologically young, everyone here is young at heart. I think you guys would agree with this. Yes. Okay. So people love to hear people love to hear about the early careers of those they admire because it's inspirational, it's motivational. So tell us a little bit about um your career, how you started and uh what it took to uh gain enough trust to become the CEO of the company. Well, I I did start in the mail room stuffing envelopes for money market funds because in the 80s that was like, you know, this nobody could keep up with that. And so late 70s in the ' 80s. Uh and I remember it was a summer job and I said to my dad, I think I was I think I was like 14, but maybe I was 16. I don't know whether what was legal at the time. Uh, and uh, I said to him, you know, my sister, I'm number six of seven kids and she was number two and she was moving off to Hawaii to go live with her boyfriend. And I was like, you know, you're paying her $5 an hour and I'm doing the same job and you're only paying me $2.50 an hour and I would work harder than she does. So, I think I should get paid $5 an hour. And my dad just looked at me and goes, well, go get a job somewhere else. >> I love it. >> That was what I learned. >> Good lesson. Good lesson. Okay. So um when do you become an executive and uh what was your path to the seauite? So I'll talk about probably the areas I did every part of the company at different times. But when I look at my career today as a CEO and I say what were the most valuable areas that I took over um or I ran and we had an auto finance business um that because we had this bank um and so I ran that and one is I learned uh gosh any business that looks easy you chances are you just don't know what's going on. uh because I always said I made every mistake you could make but only made them once so you learn quickly from it and two as you have private credit becoming more important having that background in credit is really valuable and then the second was technology uh I feel for CEOs today who don't understand technology uh with the kind of pressure that's coming on us with things like AI and blockchain and so um I am so thankful for having had that experience and you know what it took it was digging in rolling up your sleeve, asking a lot of questions, being willing to look stupid, admit that you're stupid, that you didn't understand it, but not being afraid to just dig in and ask the questions. >> I I I like that. I want to ask you about the four Ps, which is, I think, your leadership philosophy. So, people, purpose, um, pickle ball, what? Passion, what was the fourth one? >> Persistence. >> Persistence. Um, where'd you get that from? And what what about that is applicable would you say to all the entrepreneurs and uh people in the audience today? >> Uh I came up with it because I I think it's true. >> Patented patented. >> I have not patented yet. That's good. Trademark uh people, passion, purpose, and persistence. What I say is look, the most important decision you make as a leader is a team you put together. There's no question. It's about the people that you put together. By the way, I'm as of today, I'm no longer president. I have three co-presidents. So that was officially announced today. Okay, congratulations. >> Thank you. Congratulations. >> So, it's about the team, right? And and making sure they work together and they work as a team. But your people's most important decision, passion, love what you do, and it won't feel like work. And I love what we do. I mean, I I I think this is a great business, great industry. And you know, it's hard. You work a you guys do it. You're running your own business. You you work a heck of a lot of nights and weekends, I'm sure. Um, and so you got to love what you do. Uh, purpose. Talk about what you do in a purposeful way and people will follow. So, I always say I I tell the story that I clearly wasn't very good at it because I asked my kids, I have five kids and I said, you know, is anybody going to join me in this business? And my daughter goes, "No, mom. I want to do something that helps people." And I was like, "Are you kidding me? I failed at describing it cuz this business helps people. We help people achieve the most important goals in their lives." I mean, there's it's pretty rare that a goal doesn't have a financial component to it. And so, it's really important what we do. And if you can describe it in a purposeful way, people get excited about following along. And then persistence. Look, you're going to fail. You're going to make mistakes. You're going to miss opportunities. Like the original direct indexing, really cheap. Um, and uh, and you just got to keep at it. Uh, and and not give up. >> Not to make you pick any favorites, but you all have done a lot of acquisitions. Is there any that stand out as particularly meaningful that have shaped the path of Franklin success? >> Well, Templeton back in 1992. Uh, honestly, we were kind of a primarily a fixed income manager with a little bit of equity and Templeton really brought us to the global investment um firm that we are today. You know, we have clients in 160 countries. You go out I I lived in India for a little bit and my with my kids and uh my kids said to me at one point we were the third most recognized brand in in India and LinkedIn and my kids were like, "Mom, why does everybody know Franklin Templeton?" Um, and it was because of the Templeton acquisition. And so I think that one was amazing. And then, you know, more recently, uh, just the alternative managers. I feel for firms who don't have, uh, a real presence in alternatives because they're incredibly expensive now. They weren't as expensive when we did the acquisitions, and it's going to be hard for firms to be able to acquire now. So, as advisers are hearing more about alternatives from the press and legislation about 401ks and their clients asking for it, are there any areas that you think are less suitable for individual investors as opposed to the traditional institutional allocators? >> Look, it definitely depends on the client, right? So suitability is what's appropriate for the client which is why I am passionate that we sell through advisors because advisors are the tip of the sp spear and they understand suitability for their client. Um, so again that you know it it makes that's the most important message. And then I would say the one thing that's been on my mind lately is this. I I I don't think we're have to worry about private credit from the standpoint that banks have retreated so much from lending that there isn't like this just massive additional amount of credit. It's just kind of shifted. But we've gone from an environment where there were these draw down funds and now we're moving into perpetual. I mean, Franklin has a great real estate perpetual. It's a billion dollar perpetual um uh real estate fund. And the reason we did it is because uh the regional banks all pulled out of real estate lending. And so it was actually our real estate guys who said you guys should should move into this area. But if you are in a draw down fund and you have to deploy capital, that's a risk in lending, right? Like the the pressure to draw to have to deploy capital. And so if you are in a fund that doesn't have the ability to move because the key in the fixed income market is you know you can look at high yield right now it is trading like the market does not believe that there's a recession or else there's just not enough demand of high yield bonds like investment grade >> it's trading like investment grade and so you know you're not really getting paid for the risk. You want to be able within a strategy to pivot to say asset back is pretty rich right now. So you want to say oh okay I'm not I'm going to stay away from that. I'm going to move over here. And so if you're locked into a perpetual stat strategy that has to deploy capital and they don't have enough variation in their ability of where they're going to deploy it, that worries me a little bit. Are there is there a multistrat approach to private credit andor private equity where an adviser can say to Franklin, I'm really not interested in having 12 new slices in my allocation and I also am not capable of timing my allocation based on the various valuation concerns that may exist in each slice. Will you guys just do it for me? Is that something you have or that you're working toward? >> So, we're working toward it. So, so it's funny. I just met with >> I would I would guess that will be the most popular version for the RAIA space. Most of us here don't want to become nano experts in all of these different areas of the opportunity >> and and you can't possibly right because your ability to be it's really at the origination that you start to see that where that where there becomes issues. When I when I was doing the auto business, this is why I'm very sensitive to this point. If you had a competitor that I always said a stupid competitor that mispriced risk, so you'd say, "Gosh, in Huntington Beach, ex-co competitor just moved in and they're mispricing it." You had to pull out. And it usually took about two years for that to blow up, right? Like they they just mispriced it. >> You had to stand back, let them make the mistake, and then come back into the market with rational pricing, >> right? So, as long as you're broad enough in your capabilities, you go, "Oh, we're not going to deploy capital over here." But we know that Vegas is a good place to go or, you know, Northern California, whatever. So, that that ability in that um and so right now, I mean, I think the good news is we we have this perpetual fbred, which is a real estate debt fund, which does kind of transition. It is going to take a couple years for enough lenders to come in with experience. So, we feel really good about that. But in my conversations with our um our private credit team, we're talking about all right, let's build some of these strategies that provide that movement and flexibility just because you have more and more competitors jumping into the space. >> You mentioned that um you guys have about 260 billion in assets amongst your alternatives managers roughly. What percentage of that is coming from the wealth channel versus traditional institutions and could you describe the growth rate that you guys are seeing in the amongst the wealth channel? >> Yeah, so of that 260 about 10% of it is in the wealth channel but year to date I I just know this from my last earnings call. So that was end of July about 25% of our flows had come from the wealth channel. Why do you think the gap is so enormous that it's the r uh wire is driving at least or 90% versus 10? I understand the growth is coming from re but why do you think that disparity exists? >> Meaning that the growth is coming from the wires versus or >> Yeah. Yeah. >> I think it's probably um I don't know that I know the answer >> because we're serving the same people, >> right? 100%. And and and in some case Yeah. No, for sure. Um, it's probably that there's because there's so much of an education component, there's probably a view, well, the wires you're hitting it, you know, you can cover more people or something. >> I probably that's a big part of the story. So, to that point, Josh mentioned like the maybe the the model portfolio business, the OCIO business. You mentioned the lack of education. You're right. We don't have benches of people that are experts in private markets. How does that gap get bridged? Is it just time? >> So, here's my view. I I say this to to anybody who listen I'll be like don't just hire don't just look at the product and say oh I'm going to put on the on the platform because what ends up happening is the product just sits on the platform it doesn't move the question is what is the manager doing to help you in education right and that's we have alternatives by Franklin Templeton that is all about educating adviserss on how to think about different alternative asset classes there so it's and then we have a hundred people whose sold whole job it is is to support our market leaders in the field specializing in alternatives, right? And so honestly taking a company like Franklin Templeton whose roots is in the wealth channel, right? We understand we have relationships with these adviserss and so that market leader can sit there and say, "Hey, this adviser is actually really interested in, you know, these particular alternatives. Let me grab a specialist and be able to bring that specialist in." So we cover 100% of an advisor's book. Um somebody who's just in the alternative space is selling to 5% of the advisor's book hoping to grow that maybe even 4%. And so they can't provide the same kind of education resources. >> I also think a lot of it maybe the reticence on advisor's part is due to the recent market activity. So markets have treated us very well for a very long time. Who needs diversification when you have Nvidia? uh a year like 2022 was was difficult and you saw the rise of a lot of the uh income overlay option ETFs explode. You saw private credit explode because of the floating rate nature, right? The duration there was none and like people didn't get hurt there and then you saw the massive flows come into that asset class. I wonder if it's going to take something similar to kickstart a lot of these diversifiers that are going to provide divers diversification when you need it and you just haven't needed it. >> Yeah. No, it's a really great point. I mean, we talk a lot about the retirement business being a great place to bring alternatives. And I was talking to a consultant who basically said, "Look, I got all the asset managers who are asking me about how to get sold in the retirement business, but I haven't had a single plan sponsor ask me about how to get alternatives." And I think you're right. And I think that uh in a real momentum market, and again, it's also where active management is challenged, right? Because you have to think about riskadjusted returns. And so, people get everybody's a brilliant investor in a great momentum market. Why would you want an alternative to the S&P 500? >> Well, Jenny, to that point though, when we read announcements about private credit firms making loans to data centers and then we're investing in private credit firms that are now taking on all this exposure to the AI theme, well, it's great on the way up. Everyone wants to back data centers. Everybody understands why Meta is a great issuer and or not issuer but borrower. And it would make sense to be aligned with that. But if that turns against us, I guess are we really diversified or are we taking NASDAQes risk in the fixed income portion of our clients portfolios by virtue of these data center investments that um are being extended credit? So is that something that you guys think about? >> So there's so there's a lot in there, right? So one is >> I am very bright >> in in 2022, right? everybody learned and and actually 2008 I should even go back 2008 like hey we have credit risk in our equity portfolios right you know so so it's that factor of risk that's that's I think we're much more sophisticated with portfolio construction and the tools around that to understand that so that's one piece of it second piece is you said you know this whole if the S&P 500 is doing so well why in well because 87% of these companies are not included in there and you know if you have all the money pouring in all capital going into the same investor ments eventually they get inflated and that's a risk that we have to take into consideration and then finally look I have to say you know if if your AI bet is Nvidia which is a fabulous company um you know you that that's that's concentration but when I look at the thematics of AI I we are I we are just scratching the surface I mean greatest party trick is get this music app, put in your friend's information, and generate a song. I literally was showing off this to to a CEO, and he's like, "My 60th birthday's coming up. Can you send that to me?" And it generates on the spot. I just created um a little documentary on the for my son on this history thing. I was able to generate videos that I would have to pay for for others in a documentary on Google images. Perplexity was or sorry, video uh perplexity was generating the images. And I wrote the whole script in perplexing like and it's and right now it's so rough. I think the AI thematic is incredibly powerful and we are still only from an investment standpoint in the picks and shovels, right? That's what always happens with new technologies. It's the picks and shovels that you first invest in. What we're going to see is the companies within sectors that actually get it right that are going to take off and leave behind their competitors. And the pace of this is so fast that the competitors are not going to be able to catch up. And we haven't even begun to see that today. >> What do you tell human asset management professionals and financial advice professionals about the import of the AI moment to what they do? Are you optimistic um pessimistic some sort of a mix about how many people will be needed in these professions going forward? And will the people who currently do these jobs um will they be able to uh will they be able to adapt in time? Um what's your what's your I guess um remarks on on that topic for those people? >> So so a couple things. Um and I saw this when I ran technology. The hardest part of technology is not technology, it's change management. Um there was a picture of the Wall Street in uh around 1900, maybe 1910, and it was all horse and buggies and one car. 10 years later it was all same similar location picture all cars one horse and buggy I'm pretty sure the guys who are taking care of the horses didn't become mechanics right it is change but a lot new jobs are created and so the people who are curious who are digging in trying to understand how this will improve their work will be the winners and for all you advisers out there 1997 cover of business week was the death of the broker the internet was going to completely completely disintermediate all adviserss. You provide services today that you never imagined you'd be providing because the technologies enabled you to do that. And so human nature is really good at finding, you know, Google like nobody knew that there'd be 300,000 jobs created by something we didn't even understand that we needed at the time. So human ingenuity to figure out ways to leverage this technology and create new jobs. I'm a big believer that that will be the case. And and I think investment people who fail to force themselves to think about how to leverage this technology to help them be better are going to be left behind too. >> I want to ask you in the time we have remaining I want to do some uh digital asset stuff. One of the things that a lot of people here may not be aware of is that amongst all of the CEOs of major asset management firms, you were part of a small handful that had believed in digital assets very early, still do. You were passionate about them. Um, I find it fascinating uh when I talk to people who because I spoke to you probably closer to the bottom than the top for the price of Bitcoin and you were indehaticable about it. um a lot of the things that you were saying to us at that time would happen um have started to happen. I'm curious when you see um when you see Bitcoin treasuries now Ethereum treasuries today Dan Ives announced something called a worldcoin treasury. Why have none of the major asset management giants gotten into this treasury business, publicly traded treasury business? Why are they seeding this to influencers and research people? It seems like something that could very easily be set up by a firm like Franklin. >> So, I'm not going to answer the treasury. Let me talk about the technology and um and why I think one it's I it absolutely every mutual fund ETF everything they're all going to be on chain. Our entire financial services system is going to be on chain. You could argue well is quantum computing going to be a problem? Well, you're gonna have quantum, you know, security, too. So, I think it solves itself. But here's here's why this matters. And I always say, let's put Bitcoin aside for a second because it's a little bit like religion. You're going to end up in a debate and it misses the point a little bit. There are three things that this technology does really, really well. Number one, it has a source of truth. Okay? So, if if Josh, you're holding a a token and I um uh uh you know am trading with you, I know that you have ownership rights to it. Okay, so that's number one. Number two, there's a smart contract so I can um execute anything in there. So, if I'm doing you and I are doing a foreign exchange contract today, we have it in paper. I got a department of people who look and they say, "Oh, do you owe me money or I owe you money?" Oh, and by the way, if I don't know who's on the other side of that, I hire a bank in between, right? And make sure that they ensure that I get paid. And then the third piece is I have the ability to uh make a payment on the spot. Why does that matter? Because if you look at financial services, the world is all about one reconciling data between systems. Huge amount of our costs are data reconciliation. That is eliminated. Two is why does the New York Stock Exchange close at four o'clock? It closed at 4:00 cuz everybody had to settle their books. Well, if I >> He had to feed the horses. >> He had to feed the horses. Exactly. >> So, if that goes away, think about the friction and the cost in the system that goes away. And so, that's why I look at it and say, and we have um we're the only one I believe that is running a u money market fund on chain. There's others that are shadowed on chain. So, if you our Benji fund you you get paid you one is we calculate the interest every second. So, if you own it for 4 hours and 22 minutes in a day, you're going to get paid. You will see your yield posted at the end of the day. That happens because blockchain allows you to do it. And oh, by the way, our other money market fund, you have a minimum of $500 investment. Our Benji fund, you have $20 investment cuz it's so much cheaper. The SEC had us run the shareholder recordkeeping system in parallel, and it was so much cheaper to run it on chain. So it is going to uh basically take over the infrastructure of financial services. Why is it going to be slow? Because guess what? There's a lot of toll takers who make money today. Their entire business model, banks and others that are based on this and they're going to try to control it and slow it down. >> When you say onchain, this is versus an alternative. The industry standard is things like settlement, DTC, um two different databases trying to communicate with each other. Sometimes it's it's literally a guy on the phone from New Jersey to somewhere else confirming where these bonds are held and what the rates are. So all of that stuff is what the onchain thing can kind of obliterate. Exactly. Which should make the price of investing and the speed of investing faster. >> And and listen, NASDAQ just I think filed today asked the SEC to approve tokenized uh stocks. all these Binance, Kraken, Coinbase, they all intend to have 24 by7 uh stock trading. And so, uh it's just enabled because the settlement can be enabled because you're gonna have atomic settlement. It's going to settle the moment. And so, what that's going to do is it's going to open up new investment opportunities. And I'm using the same example for years because I haven't found a better example even though this one didn't really work that well, but Rihanna came out with 300 NFTts. Each one had the right to 0003. >> Michael bought most of those. >> What's that? Michael bought most of those big guy. >> Yeah. >> Uh big Rihanna fan. So when Spotify pay played Rihanna's song, the smart contract could kick off and say Michael's gets the gets his royalty for it because he's got the token in there. You could never do that without the automation of a smart contract. And it's a fraction of a cent that's getting paid to you for that one time that song's run. But it will open up new investment opportunities. I genuinely believe in the future financial adviserss will talk about their investment portfolio to their clients in three ways. They're going to say, first of all, here's your investment returns towards your goals, right? We've structured your portfolio. It's personalized. Here how you're doing. Number two, here's the impact your portfolio has made. So, we can all say ESG is out the window, but if you talk to the younger generation, they care about the impact. And so, we'll discuss it in its impact and it'll be very specific to the to the client's desire. And the third is there will be loyalty programs that are tied to the ownership today. You know, if you own certain tokenizations for Nike, you get special shoes that only you can get. So, those will start to be tied to uh and and they're just loyalty programs. There's a a a hotel in Aspen that has been tokenized and when you check in, they say, "Michael, I see that you're owner. We've given you a room upgrade." All it is is a loyalty program. >> If you're an Apple shareholder, why can't you get discounts on the products? and you across the board, every company. >> That's right. And so they'll add new things and it'll create engagement with their with their customer base. So, you know, this is all enabled by this cool technology called blockchain. >> How's the ETF doing? We we could skip the Bitcoin Treasury stuff, but how's like the ETF going and how do you see people using it? >> So, look, I think the ETFs are and then a lot of people will say, well, we we won't need blockchain because the ETFs and you won't need tokenization because the ETFs have done so well. Yeah. um as far as with Bitcoin, Ethereum, we have a we have a couple that um blend it. Um but I think that kind of misses the point of what the real opportunities are out there. >> Josh doesn't get it. >> I I own the ETFs. I get it. I'm with it. I'm down with the kids. Jenny, we uh we told people that we were interviewing you today. I have to tell you something. Every single person that I told that's in the industry, hey, we have Jenny Johnson on stage. Every single person says the same thing about you. She's awesome. She's That's your reputation. Um, so I want to just say thank you so much for being part of this. You are awesome. Uh, how about a round of applause for Jenny Johnson. >> Thank you. Thanks for having me. >> Now, want to see how good you are at Frisbee Toss. We've got Compound and Friends hats and we're going to try to get as many of these out to the crowd as we can. Guys, thank you so much for watching. Thank you for listening. We love you. We appreciate you and we'll see you soon. Thank you.
$1.5 Trillion Money Manager Jenny Johnson Speaks Out | TCAF 208
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[Music] [Applause] This episode is sponsored by GPZ by VANC. When private markets expand, who leads the charge? The asset managers behind the scenes, those investing in private equity, credit, infrastructure, and real estate. Introducing GPZ, the VANC alternative asset manager ETF. For the first time, retail investors can invest alongside Blackstone, Brookfield, KKR, Apollo, and peers sharing in the growth of private markets with minimal effort. GPZ tracks a specialized index of ultra pure alternative asset managers capped at a lowcost 40 basis point expense ratio. Want diversification with a twist? Step beyond traditional funds. GPC gives you access to the firms making private markets move for less. Ask your adviserss today or find it by ticker GPZ. For more information and the perspectus, visit van.com. GPZ Josh. What's up, [Applause] [Music] >> guys? Thank you so much for having us. It's a pleasure. We really appreciate it. Raise your hand if you listen to the compound and friends. Any fans? Yeah. Okay. What about you watch on YouTube? Say, "All right, we got See, people people are into the show. I told you Jenny wasn't sure what this really was." Okay. For those of you who are new to the future proof or not necessarily aware of our show, it's called the Compound and Friends. Last year, uh, the Compound channel, the podcast and YouTube and everywhere our, um, our stuff appears did about 16 million downloads and views, which I'm told is pretty substantial, pretty decent. Uh, give yourselves a round of applause. >> Did you fill the audience? Saw your guys. >> Um, we have an extremely extremely special guest today for the live recording of the Compound and Friends. But before we go there, ladies and gentlemen, Mr. Michael Batnik, [Applause] >> what up? >> All right, guys. Hang on. Bear with me one second. On stage with me today is somebody that we've been dying to have on the show. We managed to get it together for a live edition of The Compound and Friends. Jenny Johnson is president and chief executive officer of Franklin Templeton, a manager with more than $1.5 trillion under management. Jenny has received many recognitions, including Forb's World's 100 most powerful women list in 2023 and 2022, as well as its 50 over 50 list in 2022. Miss Johnson serves on a variety of boards, including the New York Stock Exchange Board Advisory Council, and in 2023, she was appointed to the US Brazil CEO forum. Previously, she has served on several other boards, including Stanford's Lucille Packard Children's Hospital and the San Francisco Giants. Ladies and gentlemen, a huge futurep proof welcome for Jenny Johnson. [Applause] Okay. Um, let's start easy. What's your year-end Bitcoin target and why? >> Save that for the end. Okay. Here's where I want to start. Why do financial adviserss work with Franklin? What is it about your firm's culture that makes you guys special and makes you guys stand out? >> First of all, I have to take my sunglasses off cuz I don't think you trust anybody with your >> We're all taking off the glasses. We're all taking But I've been filming you on my meta glasses. Okay. So, you're all on there. Um, look, you know, I mean, so my grandfather started Franklin Templeton and uh, he started Franklin Templeton at a time because the average person couldn't get access to the stock market. So he started out in the mutual funds and you know that was the creation that gave everybody really the democratization of access. And so I think in our roots we have been um, a firm that is built around the financial adviser and working with financial adviserss. Today uh we're 1.7 trillion. We have 260 billion alternatives. So we have a broad platform of capabilities. Uh we're I think the seventh largest alternatives manager. Um and why do advisers like to work with us? Because I think he can trust us. I mean that that you know people when we look at our brand and have asked about our brand trust comes up as the number one kind of factor with that. Um, and I'd say we've done 11 acquisitions in the last five years. Um, so, uh, LegMason, Lexington Partners, Clarion Partners, Benefit Street Partners, a bunch of brands. Uh, and the a lot of times people will ask, well, how do you deal with the fact that you're bringing in different cultures? And I always say it's the three C's that we look for. It's amazing when you're doing due diligence on a company how quickly the management team starts talking about clients. Because if they don't start talking about clients pretty early, they're actually never going to be focused on >> something that you'll actually listen for. >> Absolutely. Okay. I mean, it is amazing how quickly you can kind of see what people's priorities are. So, one is clients. The second is collaboration, which usually you can see and how well they work with each other and kind of like each other, right? Uh I remember doing a uh we were looking at an investment in a company and we were pretty far along in it and finally I end up meeting the investment team and I turned back to my team after I said you guys realize like these two owners don't actually like each other like you can see it in the room and sure enough we had already done the investment and it ultimately went to zero. So, I don't know whether that was a factor or not, but um it matters and and when you're bringing them into another organization, if they already don't collaborate with each other, they're not going to collaborate more broadly in the firm. And so, we don't want to be a firm with a bunch of managers. We want to be a firm that you actually get benefits by having capabilities. Um I was having a conversation with our private credit guy. He spends a lot of time with our secondary PE Lexington partners talking about building relationships with sponsor firms that helps him in his origination. Um so it's that kind of collaboration and the third C is a mindset of continuous improvement. And look in my 30 plus years in this industry there has been no time that has had the pace of change that we are experiencing now. And and most of the change is technologies that have been existing out there for decades. cloud computing, others. We haven't even scratched the surface on how AI is impacting our industry and how blockchain is going to impact our industry. And so if you don't have a mindset in an organization of trying to find ways to improve, you are going to be left behind. >> Our clients are asking more and more of us every day. I would imagine it's the same thing in your industry that your clients, us, the advisers are asking you to do more. >> 100%. I mean they they rarely say hey what's your latest large cap value fund right they're like what else can you do to help me and so we've built a lot of technologies around that to support the practice management of advisors um obviously you know we we did an acquisition of of canvas which started out kind of direct indexing but it actually um has option overlay it has a lot of ways in which you can customize because your clients are asking you to customize for them uh and so we're providing those kind of tools to help do that >> so It strikes me that um one of the big waves that we're seeing in the RAA space and probably also at the wires and the independent broker dealers is that advisors are increasingly looking for firms to work with that can offer them an entire suite versus just one specific not only strategy but even like uh mutual funds, SMAs, they want somebody to also be in the TAM. I think as advisers try to serve more types of clients and try to standardize what they're doing, having fewer asset management partners is probably the wave. And I'm curious if you if you guys think about that when you're looking at acquisitions or new lines of business that you might start. >> 100%. I mean, you consistently hear that because it's gotten more and more complex, right? I mean, you know, again, your clients are asking for personalization. they're demanding much more of you and so one of the ways to reduce your complexity is to work with fewer managers who can do more for you. So we definitely see that trend. Uh and you know let's face it the due diligence you have to do on a one firm is whether it's a small firm or a big firm it's kind of the same element of of firm >> due diligence. You have to do the same amount no matter what. >> Exactly. So if you can get a firm that can provide you broad breadth of capability and then you can demand more because you have more assets with them. And so, you know, what additional services are you providing? We're getting a lot of um, you know, questions around like alternatives and no adviser needs to be convinced that they should have alternatives in portfolios to their clients. Their questions are around how should I think about it? How should I do portfolio construction? And so, we've built a whole academy that's just focused on helping advisers do um, you know, think about portfolio construction with alternatives. So, it's those types of things that scale enables you to do. And then I am a I absolutely believe that if you are an asset manager and you don't have scale in this world of AI, you are going to be left behind because you will not have the data to train your models. You're just not going to have enough. >> How are you thinking about scaling your business, servicing your advisor clients, uh keeping your shareholders happy, all within the context of two back-to-back 20% years in the S&P? The wind has been in our backs for a long time now and at some point the title will go out. So how do you think about going going investing and growing while managing the risk for your shareholders and your employees? >> Yeah. Well first of all my father always said take care of the client the business takes care of itself. So he's one focus right do what's right with the for the client and I and he lives it. At one point we had a bank and I ran this credit card department. We' done a little acquisition and there was a way to interpret some of the contract that allowed us to kind of go in and get excess I can't even remember some additional fees or something but it was probably not intended at the time. So I remember I was you know in my 20s and I said to my dad what do you think about this and he just looked at me and he goes listen I don't know the details but I can tell you something if you blow your reputation you never get it back. So you do what's right you treat people well and you focus on the client. So I think that that first of all is just a you know when you talk about all those constituencies focus on the client. So that's one and then I say you know the um you you if you are listening to what the client's needs are you're trying to bring those types of capabilities. So from an investment you talked about all those different vehicles. We think that what we bring to the table is our investment management expertise right and riskadjusted turn active managers have to f focus on riskadjusted returns and so in 20 plus% markets sometimes you have to you you will underperform the benchmark because you have to consider concentration risk and when you have a series of stocks that are so heavily concentrated you have to decide do I want to underweight the benchmark or am I okay with that risk right so there's that's that kind of conversation when you're happen with adviserss and communicating with advisors. So expectations are appropriate and then the key is we got to be transparent about the risks of our products because as advisors you've got to make sure you understand your client's risks appetite and so that the products have to be appropriate for those risk appetite. >> So we've seen huge wave of innovation in asset management. I know it's always that way but over the last 5 to 10 years it really does feel like it's been speeding up. It's been accelerating. I wanted to ask you, is there any type of product or suite or approach that you guys chose not to pursue that you now regret? Is there anything you missed? Whether uh more active ETFs or leveraged ETFs, single stock ETFs? Are there any thematic ideas that you guys didn't jump on that maybe now you say maybe we should have? And then are there any categories where um you feel that there's still an opportunity in the marketplace that's not being served and you guys might have the ability to do something uh much bigger there than other players? Like how do you think about all that evolution and where you guys fit in? >> Yeah, I remember I mean I >> and you can bash any of your competitors. They're not listening. They're all in the breakthrough tent right now. So Okay. Um, no. I mean, I have to be honest, like you you you think about you want to have vision where you believe things are going. I mean, honestly, somebody brought one of the big direct indexing platforms to me saying, "Hey, they're looking for some investment in there. I think they were 100 million. They're now multi multi-billions today." And I was like, "No way. That'll never take off." >> I know the I know the feeling. there are still people that that believe >> and and you know we were uh we were early on active ETFs but probably late on passive ETFs and I don't think we had the vision about how the passives would be used in kind of model portfolios early on you know so you never get it fully right and I think the most important thing is to say okay you know let's take a look at that think about what our rationale was on the decision-m at the time and did it make sense and you know you you Where are the areas that you guys currently are most focused because you think they could be the next big thing? >> Well, I think there's no question that alternatives to the wealth channel is going to be the next big wave. And every alternatives manager is focused on the wealth channel, which brings some concerns to me, which I'll talk about in a second. Um, because they have probably saturated much of the institutional market, right? So if they're going to justify multiples and be able to grow, they look at the wealth channel. So you know, and if you if you think today, um, only 13% of companies who have revenue of 100 million or greater are actually public. So there's, you know, just over 4,000 public companies. There's 17,000 plus companies with 100 million or more revenue. So you know, your average investor who's not investing in the in the private markets, right, >> is not getting access to 87% of those opportunities. And so it's a natural but the question is how do you bring it appropriately areas that I am passionate I think there's huge opportunity on I love secondary PE there's been $6 trillion deployed in private equity the realizations are a half of what they were before in other words these institutions who counted on the cash flows coming to make their next allocations in investments private markets are seeing half of what they saw before and so they're having to clear out their balance sheet Uh, and so they sell them to a secondary manager. And you take Lexington Partners, I mean, their their current fund 11, I think, is lights out as far as, uh, the discounts they get, but they buy these portfolios at discounts. And so, here's a real transaction. Uh, uh, State Pension says, "I need a billion dollars out of my portfolio in 30 days." So you go in as a secondary manager and say, you know, I'll take that fund, that fund, and vintage over here. So you get to to literally kind of cherrypick which ones you want. Uh and and then you negotiate a discount which immediately occurs to your investors. And so I love the secondary space because of the amount that's been deployed in private equity. Is >> the right way to think about secondaries that it's private equity investing but potentially derisked? I mean, look, you're getting a diverse portfolio because there's multiple vintages from different firms in there. You have no J curve because the average age of a uh secondary portfolio that you buy is 5 years old. And um the average uh PE fund didn't start paying cash flows out to year 8, which can be really hard for, you know, your average investor. And so now they only have to wait three years and they start getting cash flows. >> Okay. >> Uh so to me, it's the best way for the wealth channel. I actually even personally love it. I think for institutions are now loving it because they love that discount. >> So Franklin has your roots in public markets. Lexin Partners is a company that you just mentioned. You own them. You're also a top 10 provider in private markets. When did you all start making the move into that area? >> So we bought Benefit Street Partners, which is private credit manager and and they're about 82 billion I think today. Uh in 2018. So that's when we first made the move. And then we got Clarion Partners, which is a real estate manager as part of the LegMason acquisition and then uh bought Lexi Lexington Partners a couple years ago. We interestingly the only real organically grown alternative manager um you know private markets alternative manager was our our venture group. And it's because the Franklin Equity team, which is housed in Silicon Valley, they're sitting there looking at attribution and they're like, "We're not getting the IPO kickers that we used to get because these companies are waiting so long to go public. We can have up to 15% allocation." And so they started to do latestage venture. So you can have up to 15% in mutual fund in in private market. So they did late stage venture. And interesting in many ways some of their best deals were deals they didn't do because they're embedded in they're the only VC fund I'm aware of that's embedded in a public market equity fund uh team and so they'd look at it and say well the VC guys are convincing them of this price but if you look at the public market valuation it just doesn't justify the price and so it was the deals they stayed out of um but you know they're they're in Silicon Valley so their kids are going to school with all these uh entrepreneurs and others and so they've done very You are the granddaughter of the founder, but you started your career in the mail room. So, can you tell us your Horatio Alger rags to rich's story? Um, but I look, you could see Jenny, we have a fairly young audience or a lot of young people in the audience. And if they're not um chronologically young, everyone here is young at heart. I think you guys would agree with this. Yes. Okay. So people love to hear people love to hear about the early careers of those they admire because it's inspirational, it's motivational. So tell us a little bit about um your career, how you started and uh what it took to uh gain enough trust to become the CEO of the company. Well, I I did start in the mail room stuffing envelopes for money market funds because in the 80s that was like, you know, this nobody could keep up with that. And so late 70s in the ' 80s. Uh and I remember it was a summer job and I said to my dad, I think I was I think I was like 14, but maybe I was 16. I don't know whether what was legal at the time. Uh, and uh, I said to him, you know, my sister, I'm number six of seven kids and she was number two and she was moving off to Hawaii to go live with her boyfriend. And I was like, you know, you're paying her $5 an hour and I'm doing the same job and you're only paying me $2.50 an hour and I would work harder than she does. So, I think I should get paid $5 an hour. And my dad just looked at me and goes, well, go get a job somewhere else. >> I love it. >> That was what I learned. >> Good lesson. Good lesson. Okay. So um when do you become an executive and uh what was your path to the seauite? So I'll talk about probably the areas I did every part of the company at different times. But when I look at my career today as a CEO and I say what were the most valuable areas that I took over um or I ran and we had an auto finance business um that because we had this bank um and so I ran that and one is I learned uh gosh any business that looks easy you chances are you just don't know what's going on. uh because I always said I made every mistake you could make but only made them once so you learn quickly from it and two as you have private credit becoming more important having that background in credit is really valuable and then the second was technology uh I feel for CEOs today who don't understand technology uh with the kind of pressure that's coming on us with things like AI and blockchain and so um I am so thankful for having had that experience and you know what it took it was digging in rolling up your sleeve, asking a lot of questions, being willing to look stupid, admit that you're stupid, that you didn't understand it, but not being afraid to just dig in and ask the questions. >> I I I like that. I want to ask you about the four Ps, which is, I think, your leadership philosophy. So, people, purpose, um, pickle ball, what? Passion, what was the fourth one? >> Persistence. >> Persistence. Um, where'd you get that from? And what what about that is applicable would you say to all the entrepreneurs and uh people in the audience today? >> Uh I came up with it because I I think it's true. >> Patented patented. >> I have not patented yet. That's good. Trademark uh people, passion, purpose, and persistence. What I say is look, the most important decision you make as a leader is a team you put together. There's no question. It's about the people that you put together. By the way, I'm as of today, I'm no longer president. I have three co-presidents. So that was officially announced today. Okay, congratulations. >> Thank you. Congratulations. >> So, it's about the team, right? And and making sure they work together and they work as a team. But your people's most important decision, passion, love what you do, and it won't feel like work. And I love what we do. I mean, I I I think this is a great business, great industry. And you know, it's hard. You work a you guys do it. You're running your own business. You you work a heck of a lot of nights and weekends, I'm sure. Um, and so you got to love what you do. Uh, purpose. Talk about what you do in a purposeful way and people will follow. So, I always say I I tell the story that I clearly wasn't very good at it because I asked my kids, I have five kids and I said, you know, is anybody going to join me in this business? And my daughter goes, "No, mom. I want to do something that helps people." And I was like, "Are you kidding me? I failed at describing it cuz this business helps people. We help people achieve the most important goals in their lives." I mean, there's it's pretty rare that a goal doesn't have a financial component to it. And so, it's really important what we do. And if you can describe it in a purposeful way, people get excited about following along. And then persistence. Look, you're going to fail. You're going to make mistakes. You're going to miss opportunities. Like the original direct indexing, really cheap. Um, and uh, and you just got to keep at it. Uh, and and not give up. >> Not to make you pick any favorites, but you all have done a lot of acquisitions. Is there any that stand out as particularly meaningful that have shaped the path of Franklin success? >> Well, Templeton back in 1992. Uh, honestly, we were kind of a primarily a fixed income manager with a little bit of equity and Templeton really brought us to the global investment um firm that we are today. You know, we have clients in 160 countries. You go out I I lived in India for a little bit and my with my kids and uh my kids said to me at one point we were the third most recognized brand in in India and LinkedIn and my kids were like, "Mom, why does everybody know Franklin Templeton?" Um, and it was because of the Templeton acquisition. And so I think that one was amazing. And then, you know, more recently, uh, just the alternative managers. I feel for firms who don't have, uh, a real presence in alternatives because they're incredibly expensive now. They weren't as expensive when we did the acquisitions, and it's going to be hard for firms to be able to acquire now. So, as advisers are hearing more about alternatives from the press and legislation about 401ks and their clients asking for it, are there any areas that you think are less suitable for individual investors as opposed to the traditional institutional allocators? >> Look, it definitely depends on the client, right? So suitability is what's appropriate for the client which is why I am passionate that we sell through advisors because advisors are the tip of the sp spear and they understand suitability for their client. Um, so again that you know it it makes that's the most important message. And then I would say the one thing that's been on my mind lately is this. I I I don't think we're have to worry about private credit from the standpoint that banks have retreated so much from lending that there isn't like this just massive additional amount of credit. It's just kind of shifted. But we've gone from an environment where there were these draw down funds and now we're moving into perpetual. I mean, Franklin has a great real estate perpetual. It's a billion dollar perpetual um uh real estate fund. And the reason we did it is because uh the regional banks all pulled out of real estate lending. And so it was actually our real estate guys who said you guys should should move into this area. But if you are in a draw down fund and you have to deploy capital, that's a risk in lending, right? Like the the pressure to draw to have to deploy capital. And so if you are in a fund that doesn't have the ability to move because the key in the fixed income market is you know you can look at high yield right now it is trading like the market does not believe that there's a recession or else there's just not enough demand of high yield bonds like investment grade >> it's trading like investment grade and so you know you're not really getting paid for the risk. You want to be able within a strategy to pivot to say asset back is pretty rich right now. So you want to say oh okay I'm not I'm going to stay away from that. I'm going to move over here. And so if you're locked into a perpetual stat strategy that has to deploy capital and they don't have enough variation in their ability of where they're going to deploy it, that worries me a little bit. Are there is there a multistrat approach to private credit andor private equity where an adviser can say to Franklin, I'm really not interested in having 12 new slices in my allocation and I also am not capable of timing my allocation based on the various valuation concerns that may exist in each slice. Will you guys just do it for me? Is that something you have or that you're working toward? >> So, we're working toward it. So, so it's funny. I just met with >> I would I would guess that will be the most popular version for the RAIA space. Most of us here don't want to become nano experts in all of these different areas of the opportunity >> and and you can't possibly right because your ability to be it's really at the origination that you start to see that where that where there becomes issues. When I when I was doing the auto business, this is why I'm very sensitive to this point. If you had a competitor that I always said a stupid competitor that mispriced risk, so you'd say, "Gosh, in Huntington Beach, ex-co competitor just moved in and they're mispricing it." You had to pull out. And it usually took about two years for that to blow up, right? Like they they just mispriced it. >> You had to stand back, let them make the mistake, and then come back into the market with rational pricing, >> right? So, as long as you're broad enough in your capabilities, you go, "Oh, we're not going to deploy capital over here." But we know that Vegas is a good place to go or, you know, Northern California, whatever. So, that that ability in that um and so right now, I mean, I think the good news is we we have this perpetual fbred, which is a real estate debt fund, which does kind of transition. It is going to take a couple years for enough lenders to come in with experience. So, we feel really good about that. But in my conversations with our um our private credit team, we're talking about all right, let's build some of these strategies that provide that movement and flexibility just because you have more and more competitors jumping into the space. >> You mentioned that um you guys have about 260 billion in assets amongst your alternatives managers roughly. What percentage of that is coming from the wealth channel versus traditional institutions and could you describe the growth rate that you guys are seeing in the amongst the wealth channel? >> Yeah, so of that 260 about 10% of it is in the wealth channel but year to date I I just know this from my last earnings call. So that was end of July about 25% of our flows had come from the wealth channel. Why do you think the gap is so enormous that it's the r uh wire is driving at least or 90% versus 10? I understand the growth is coming from re but why do you think that disparity exists? >> Meaning that the growth is coming from the wires versus or >> Yeah. Yeah. >> I think it's probably um I don't know that I know the answer >> because we're serving the same people, >> right? 100%. And and and in some case Yeah. No, for sure. Um, it's probably that there's because there's so much of an education component, there's probably a view, well, the wires you're hitting it, you know, you can cover more people or something. >> I probably that's a big part of the story. So, to that point, Josh mentioned like the maybe the the model portfolio business, the OCIO business. You mentioned the lack of education. You're right. We don't have benches of people that are experts in private markets. How does that gap get bridged? Is it just time? >> So, here's my view. I I say this to to anybody who listen I'll be like don't just hire don't just look at the product and say oh I'm going to put on the on the platform because what ends up happening is the product just sits on the platform it doesn't move the question is what is the manager doing to help you in education right and that's we have alternatives by Franklin Templeton that is all about educating adviserss on how to think about different alternative asset classes there so it's and then we have a hundred people whose sold whole job it is is to support our market leaders in the field specializing in alternatives, right? And so honestly taking a company like Franklin Templeton whose roots is in the wealth channel, right? We understand we have relationships with these adviserss and so that market leader can sit there and say, "Hey, this adviser is actually really interested in, you know, these particular alternatives. Let me grab a specialist and be able to bring that specialist in." So we cover 100% of an advisor's book. Um somebody who's just in the alternative space is selling to 5% of the advisor's book hoping to grow that maybe even 4%. And so they can't provide the same kind of education resources. >> I also think a lot of it maybe the reticence on advisor's part is due to the recent market activity. So markets have treated us very well for a very long time. Who needs diversification when you have Nvidia? uh a year like 2022 was was difficult and you saw the rise of a lot of the uh income overlay option ETFs explode. You saw private credit explode because of the floating rate nature, right? The duration there was none and like people didn't get hurt there and then you saw the massive flows come into that asset class. I wonder if it's going to take something similar to kickstart a lot of these diversifiers that are going to provide divers diversification when you need it and you just haven't needed it. >> Yeah. No, it's a really great point. I mean, we talk a lot about the retirement business being a great place to bring alternatives. And I was talking to a consultant who basically said, "Look, I got all the asset managers who are asking me about how to get sold in the retirement business, but I haven't had a single plan sponsor ask me about how to get alternatives." And I think you're right. And I think that uh in a real momentum market, and again, it's also where active management is challenged, right? Because you have to think about riskadjusted returns. And so, people get everybody's a brilliant investor in a great momentum market. Why would you want an alternative to the S&P 500? >> Well, Jenny, to that point though, when we read announcements about private credit firms making loans to data centers and then we're investing in private credit firms that are now taking on all this exposure to the AI theme, well, it's great on the way up. Everyone wants to back data centers. Everybody understands why Meta is a great issuer and or not issuer but borrower. And it would make sense to be aligned with that. But if that turns against us, I guess are we really diversified or are we taking NASDAQes risk in the fixed income portion of our clients portfolios by virtue of these data center investments that um are being extended credit? So is that something that you guys think about? >> So there's so there's a lot in there, right? So one is >> I am very bright >> in in 2022, right? everybody learned and and actually 2008 I should even go back 2008 like hey we have credit risk in our equity portfolios right you know so so it's that factor of risk that's that's I think we're much more sophisticated with portfolio construction and the tools around that to understand that so that's one piece of it second piece is you said you know this whole if the S&P 500 is doing so well why in well because 87% of these companies are not included in there and you know if you have all the money pouring in all capital going into the same investor ments eventually they get inflated and that's a risk that we have to take into consideration and then finally look I have to say you know if if your AI bet is Nvidia which is a fabulous company um you know you that that's that's concentration but when I look at the thematics of AI I we are I we are just scratching the surface I mean greatest party trick is get this music app, put in your friend's information, and generate a song. I literally was showing off this to to a CEO, and he's like, "My 60th birthday's coming up. Can you send that to me?" And it generates on the spot. I just created um a little documentary on the for my son on this history thing. I was able to generate videos that I would have to pay for for others in a documentary on Google images. Perplexity was or sorry, video uh perplexity was generating the images. And I wrote the whole script in perplexing like and it's and right now it's so rough. I think the AI thematic is incredibly powerful and we are still only from an investment standpoint in the picks and shovels, right? That's what always happens with new technologies. It's the picks and shovels that you first invest in. What we're going to see is the companies within sectors that actually get it right that are going to take off and leave behind their competitors. And the pace of this is so fast that the competitors are not going to be able to catch up. And we haven't even begun to see that today. >> What do you tell human asset management professionals and financial advice professionals about the import of the AI moment to what they do? Are you optimistic um pessimistic some sort of a mix about how many people will be needed in these professions going forward? And will the people who currently do these jobs um will they be able to uh will they be able to adapt in time? Um what's your what's your I guess um remarks on on that topic for those people? >> So so a couple things. Um and I saw this when I ran technology. The hardest part of technology is not technology, it's change management. Um there was a picture of the Wall Street in uh around 1900, maybe 1910, and it was all horse and buggies and one car. 10 years later it was all same similar location picture all cars one horse and buggy I'm pretty sure the guys who are taking care of the horses didn't become mechanics right it is change but a lot new jobs are created and so the people who are curious who are digging in trying to understand how this will improve their work will be the winners and for all you advisers out there 1997 cover of business week was the death of the broker the internet was going to completely completely disintermediate all adviserss. You provide services today that you never imagined you'd be providing because the technologies enabled you to do that. And so human nature is really good at finding, you know, Google like nobody knew that there'd be 300,000 jobs created by something we didn't even understand that we needed at the time. So human ingenuity to figure out ways to leverage this technology and create new jobs. I'm a big believer that that will be the case. And and I think investment people who fail to force themselves to think about how to leverage this technology to help them be better are going to be left behind too. >> I want to ask you in the time we have remaining I want to do some uh digital asset stuff. One of the things that a lot of people here may not be aware of is that amongst all of the CEOs of major asset management firms, you were part of a small handful that had believed in digital assets very early, still do. You were passionate about them. Um, I find it fascinating uh when I talk to people who because I spoke to you probably closer to the bottom than the top for the price of Bitcoin and you were indehaticable about it. um a lot of the things that you were saying to us at that time would happen um have started to happen. I'm curious when you see um when you see Bitcoin treasuries now Ethereum treasuries today Dan Ives announced something called a worldcoin treasury. Why have none of the major asset management giants gotten into this treasury business, publicly traded treasury business? Why are they seeding this to influencers and research people? It seems like something that could very easily be set up by a firm like Franklin. >> So, I'm not going to answer the treasury. Let me talk about the technology and um and why I think one it's I it absolutely every mutual fund ETF everything they're all going to be on chain. Our entire financial services system is going to be on chain. You could argue well is quantum computing going to be a problem? Well, you're gonna have quantum, you know, security, too. So, I think it solves itself. But here's here's why this matters. And I always say, let's put Bitcoin aside for a second because it's a little bit like religion. You're going to end up in a debate and it misses the point a little bit. There are three things that this technology does really, really well. Number one, it has a source of truth. Okay? So, if if Josh, you're holding a a token and I um uh uh you know am trading with you, I know that you have ownership rights to it. Okay, so that's number one. Number two, there's a smart contract so I can um execute anything in there. So, if I'm doing you and I are doing a foreign exchange contract today, we have it in paper. I got a department of people who look and they say, "Oh, do you owe me money or I owe you money?" Oh, and by the way, if I don't know who's on the other side of that, I hire a bank in between, right? And make sure that they ensure that I get paid. And then the third piece is I have the ability to uh make a payment on the spot. Why does that matter? Because if you look at financial services, the world is all about one reconciling data between systems. Huge amount of our costs are data reconciliation. That is eliminated. Two is why does the New York Stock Exchange close at four o'clock? It closed at 4:00 cuz everybody had to settle their books. Well, if I >> He had to feed the horses. >> He had to feed the horses. Exactly. >> So, if that goes away, think about the friction and the cost in the system that goes away. And so, that's why I look at it and say, and we have um we're the only one I believe that is running a u money market fund on chain. There's others that are shadowed on chain. So, if you our Benji fund you you get paid you one is we calculate the interest every second. So, if you own it for 4 hours and 22 minutes in a day, you're going to get paid. You will see your yield posted at the end of the day. That happens because blockchain allows you to do it. And oh, by the way, our other money market fund, you have a minimum of $500 investment. Our Benji fund, you have $20 investment cuz it's so much cheaper. The SEC had us run the shareholder recordkeeping system in parallel, and it was so much cheaper to run it on chain. So it is going to uh basically take over the infrastructure of financial services. Why is it going to be slow? Because guess what? There's a lot of toll takers who make money today. Their entire business model, banks and others that are based on this and they're going to try to control it and slow it down. >> When you say onchain, this is versus an alternative. The industry standard is things like settlement, DTC, um two different databases trying to communicate with each other. Sometimes it's it's literally a guy on the phone from New Jersey to somewhere else confirming where these bonds are held and what the rates are. So all of that stuff is what the onchain thing can kind of obliterate. Exactly. Which should make the price of investing and the speed of investing faster. >> And and listen, NASDAQ just I think filed today asked the SEC to approve tokenized uh stocks. all these Binance, Kraken, Coinbase, they all intend to have 24 by7 uh stock trading. And so, uh it's just enabled because the settlement can be enabled because you're gonna have atomic settlement. It's going to settle the moment. And so, what that's going to do is it's going to open up new investment opportunities. And I'm using the same example for years because I haven't found a better example even though this one didn't really work that well, but Rihanna came out with 300 NFTts. Each one had the right to 0003. >> Michael bought most of those. >> What's that? Michael bought most of those big guy. >> Yeah. >> Uh big Rihanna fan. So when Spotify pay played Rihanna's song, the smart contract could kick off and say Michael's gets the gets his royalty for it because he's got the token in there. You could never do that without the automation of a smart contract. And it's a fraction of a cent that's getting paid to you for that one time that song's run. But it will open up new investment opportunities. I genuinely believe in the future financial adviserss will talk about their investment portfolio to their clients in three ways. They're going to say, first of all, here's your investment returns towards your goals, right? We've structured your portfolio. It's personalized. Here how you're doing. Number two, here's the impact your portfolio has made. So, we can all say ESG is out the window, but if you talk to the younger generation, they care about the impact. And so, we'll discuss it in its impact and it'll be very specific to the to the client's desire. And the third is there will be loyalty programs that are tied to the ownership today. You know, if you own certain tokenizations for Nike, you get special shoes that only you can get. So, those will start to be tied to uh and and they're just loyalty programs. There's a a a hotel in Aspen that has been tokenized and when you check in, they say, "Michael, I see that you're owner. We've given you a room upgrade." All it is is a loyalty program. >> If you're an Apple shareholder, why can't you get discounts on the products? and you across the board, every company. >> That's right. And so they'll add new things and it'll create engagement with their with their customer base. So, you know, this is all enabled by this cool technology called blockchain. >> How's the ETF doing? We we could skip the Bitcoin Treasury stuff, but how's like the ETF going and how do you see people using it? >> So, look, I think the ETFs are and then a lot of people will say, well, we we won't need blockchain because the ETFs and you won't need tokenization because the ETFs have done so well. Yeah. um as far as with Bitcoin, Ethereum, we have a we have a couple that um blend it. Um but I think that kind of misses the point of what the real opportunities are out there. >> Josh doesn't get it. >> I I own the ETFs. I get it. I'm with it. I'm down with the kids. Jenny, we uh we told people that we were interviewing you today. I have to tell you something. Every single person that I told that's in the industry, hey, we have Jenny Johnson on stage. Every single person says the same thing about you. She's awesome. She's That's your reputation. Um, so I want to just say thank you so much for being part of this. You are awesome. Uh, how about a round of applause for Jenny Johnson. >> Thank you. Thanks for having me. >> Now, want to see how good you are at Frisbee Toss. We've got Compound and Friends hats and we're going to try to get as many of these out to the crowd as we can. Guys, thank you so much for watching. Thank you for listening. We love you. We appreciate you and we'll see you soon. Thank you.