Speaker 1: This is Master's in Business with Barry rid Holds on
Speaker 1: Bloomberg Radio. This week on the podcast, once again, I
Speaker 1: have an extra extra special guest. Jenny Johnson is CEO
Speaker 1: of investment giant Franklin Templeton. They run about a trillion
Speaker 1: and a half dollars. She's been CEO since February twenty twenty.
Speaker 1: She's been with the firm for decades. Just an incredible
Speaker 1: insightful conversation about how to build a company, how to
Speaker 1: grow through acquisitions, how to make sure everybody on your
Speaker 1: team understands their role is appreciated and is acting and
Speaker 1: performing at the highest levels. I found this conversation to
Speaker 1: be absolutely not only insightful and informative, but also delightful,
Speaker 1: and I think you will also with no further ado,
Speaker 1: my conversation with Franklin Templeton's CEO, Jenny Jen Jenny Johnson,
Speaker 1: Welcome to Bloomberg.
Speaker 2: Thank you, Berry. It's great to be here.
Speaker 1: It's great to have you. I've been looking forward to
Speaker 1: this for a long time. I've been back and forth
Speaker 1: for a while, and then we had the pandemic hit.
Speaker 1: Let's talk a little bit about your background. You joined
Speaker 1: Franklin Templeton in nineteen eighty eight. Family members helped found
Speaker 1: the farm, have run it for a long time. And
Speaker 1: back then it was frank was a Franklin temple it.
Speaker 2: Was, and it just we acquired tuble To nineteen ninety two. Right,
Speaker 2: So I spent a year. My father said to me, look,
Speaker 2: if you're going to be in the financial services business,
Speaker 2: you should probably work in New York. And so I
Speaker 2: spent a year working for Drexlburnham.
Speaker 1: And that, by the way, that's tough when you're a
Speaker 1: West coast coast gal used the sunshine and nice weather.
Speaker 2: Right, Although I was born in New Jersey, Jersey, I
Speaker 2: was born in Montclair, Okay. So, and I lived in
Speaker 2: New Jersey till I was about nine. So I came
Speaker 2: back and lived in Jersey City.
Speaker 1: And said, now I remember why we moved to California, Right.
Speaker 2: Hey, there's some beautiful parts of Jersey.
Speaker 1: There are it's the weather. It's really the big Yes, Yeah,
Speaker 1: it's hard to beat that, you know, sunshine three hundred
Speaker 1: days a year, to say the least. So, since we're
Speaker 1: talking about weather. Aside from the weather, what are the
Speaker 1: cultural differences like, especially in finance, because California finance very
Speaker 1: different than New York finance culturally.
Speaker 2: Sure, I mean I think so Franklin's headquartered in Silicon Valley.
Speaker 2: I actually think that what influences it more than anything
Speaker 2: now is the tech culture that's going on on the
Speaker 2: West Coast. And you know, it's kind of funny if
Speaker 2: you and now you see it in New York City,
Speaker 2: but you know, if you showed up in a meeting
Speaker 2: in a coat and tie, you know, post the dot
Speaker 2: com era and kind of you know, coming into the
Speaker 2: more recent stuff, you're viewed as sort of the old economy, right,
Speaker 2: And you know, now we see everybody walk around New
Speaker 2: York City, hardly anybody where's a tie. Uh, you know,
Speaker 2: the vest.
Speaker 3: Is the new already they may post right, it's kind
Speaker 3: of moved to Lululemon, Pansen and you know, button down
Speaker 3: shorts is about as dressed up.
Speaker 2: So I don't think anybody expected the West Coast to
Speaker 2: lead the East Coast on uh, you know, culture and attire.
Speaker 2: But I think that's happened a little bit on the
Speaker 2: tech otherwise, you know, it the West Coast. You know,
Speaker 2: if you were in the financial services business, it was
Speaker 2: rough life you were you were in the office by
Speaker 2: a lot of people get up at nine am lunch.
Speaker 1: Yeah, right, I used to let But the good news
Speaker 1: is you finish it one you could go out surfing.
Speaker 2: Yeah, there you go.
Speaker 1: Always a thing. So you're at Drexel for a year
Speaker 1: in New York, you come back to Franklin Templeton. What
Speaker 1: was your first role at ft O god or Franklin.
Speaker 2: I was an executive administrative coordinator, right, so I was
Speaker 2: working for the COO kind of on special projects, right.
Speaker 2: And then I moved into we had a bank at
Speaker 2: the time, and I moved into running part of the bank.
Speaker 2: And I got to tell you we then spun out
Speaker 2: in auto financing business, and as a CEO today, I
Speaker 2: have to say that period of my career running the
Speaker 2: auto finance business was probably the most significant. I also
Speaker 2: ran our credit card business at the time.
Speaker 1: Both both difficult businesses.
Speaker 2: And learning how to do things as a CEO. One is,
Speaker 2: we were securitizing the assets and the auto loan and
Speaker 2: selling them off to other asset managers. We weren't able
Speaker 2: to buy them ourselves. And I remember being on the
Speaker 2: phone thinking, you know, as the as the pms were
Speaker 2: asking questions about cash flows and things. So I was thinking,
Speaker 2: you're asking all the wrong questions about whether this portfolio
Speaker 2: will perform because it's things like down payment, you know,
Speaker 2: there's there's you know, the credit score, average credit card,
Speaker 2: what they risk exactly, And so it was really good
Speaker 2: to kind of learn that side of the business. And then,
Speaker 2: of course as a CEO, it doesn't matter the size
Speaker 2: of the company. You're always talking about word allocate capital,
Speaker 2: you know, should you add more to marketing or in
Speaker 2: you know, collections, right, and those are the same problems
Speaker 2: for big companies as little companies, And so I always
Speaker 2: felt like it was great learning experience. And then the
Speaker 2: biggest thing in the credit card business in the late
Speaker 2: nineties or early nineties, those who were great at data
Speaker 2: and data analytics, uh huh dominated the industry and essentially
Speaker 2: put others out of it. And so I became a
Speaker 2: big fan of data and how predictive it can be.
Speaker 1: For all the obvious reasons. Right, if you have an
Speaker 1: edge in data, you have an edge across the whole
Speaker 1: business line, for sure. So Franklin obviously divests out of
Speaker 1: the banking business, the credit card business, the ODO financing business.
Speaker 1: What led to that decision? Did you guys just say
Speaker 1: we really want to be pure investment management.
Speaker 2: Well, wet. Part of it was, I think regulatory the
Speaker 2: requirements for asset managers to have a bank were such
Speaker 2: that it was it would it would inhibit us a.
Speaker 1: Bit post SNL crisis, Yeah, came up exactly.
Speaker 2: Yeah, And honestly, I think we divested post financial crisis.
Speaker 2: So once the rules, yeah, so we kept it for
Speaker 2: a long time. But once the rule, search became difficult
Speaker 2: around things like seeding new funds. You had to within
Speaker 2: a year. You couldn't be more than ten percent of
Speaker 2: the fund. Well, that's hard to do in our business
Speaker 2: because people look for a track record, so you seed
Speaker 2: and get a track record. And we just looked at
Speaker 2: it and said, you know, it's not material enough to
Speaker 2: have it, cause it the complications that it causes on
Speaker 2: our asset management.
Speaker 1: It sounds like it was an easy decision to cut
Speaker 1: it loose.
Speaker 2: Yeah, except that we do have fiduciary trust, which is
Speaker 2: a high net worth business.
Speaker 1: Huh.
Speaker 2: And it's always nice to have a lending arm when
Speaker 2: you have a high net worth business.
Speaker 1: All right, So we're going to get into the acquisitions
Speaker 1: a little later. But from when you first started as
Speaker 1: an administrative organizational assistant. Whatever, right, right, fetch me some
Speaker 1: coffee please, that sort of And although I would imagine
Speaker 1: that you still you know, you warn't the bottom bottom
Speaker 1: of the tone and poll because people knew obviously knew
Speaker 1: who you were and knew who the family was. But
Speaker 1: from when you first started at was a let me
Speaker 1: get my feet wet sort of roll. How has Franklin
Speaker 1: changed over the ensuing decades.
Speaker 2: Well, I have to say, when you say you know,
Speaker 2: you're right, you know, in a business where founders are
Speaker 2: still involved in your family member, you're gonna be treated
Speaker 2: a little differently. But my father always was adamant you
Speaker 2: have to work harder than everybody else because people would
Speaker 2: look at how hard you work and work just a
Speaker 2: little less, like they won't feel like they have to
Speaker 2: do more. And I remember my first job was a
Speaker 2: summer job and I took over from my older sister
Speaker 2: who was twenty one at the time, and I was,
Speaker 2: I don't know, fifteen or sixteen, and he was paying
Speaker 2: her five dollars an hour and he was paying me
Speaker 2: two dollars and fifty cents an hour. And I said
Speaker 2: to him, look, I think I'm I think I'm a
Speaker 2: harder worker, and I think I should get five dollars
Speaker 2: an hour, and he said, well, you can always get
Speaker 2: a job somewhere else. So that's what I learned. Okay,
Speaker 2: there's certain Dad.
Speaker 1: Was no nonsense, no noice. Serious here hit the bricks exactly.
Speaker 1: That's really interesting. But by the way, that's really astute observation.
Speaker 1: People are gonna look at how hard you're gonna you're working,
Speaker 1: and they think I could work a little less hard. See,
Speaker 1: I would think they would want to work a little
Speaker 1: harder than you, just so no one accuses them of slacking.
Speaker 1: But maybe it's a generational thing. Who who knows, And
Speaker 1: we're not that far. I think we're about the same age.
Speaker 1: I was always taught, hey, find the hardest, fastest guy
Speaker 1: out there and just do a little more than him.
Speaker 1: So you don't want to be on the underside. You
Speaker 1: are be passing that. So uh so, so were you
Speaker 1: In the early days, it was mutual funds, It was SMAs.
Speaker 2: What what were you guys? Really just mutual funds? I
Speaker 2: mean that's that was the That was the vehicle of choice.
Speaker 2: And you know it evolved over time, uh to things
Speaker 2: like SMAs and ETFs and collective investment trust. Now now
Speaker 2: you have to be able to provide all of those
Speaker 2: vehicles as outlets for your investment capabilities. And I think
Speaker 2: a lot of that change happened. It was starting to happen,
Speaker 2: but accelerated after the Global Financial crisis, where regulators pushed
Speaker 2: for more transparency in distribution fees, and so you saw
Speaker 2: this shift from kind of fees embedded in say the
Speaker 2: mutual fund vehicle, to being external on the client statement.
Speaker 2: And so then advisors wanted things like ETFs and SMAs
Speaker 2: and other things because a client was seeing that they
Speaker 2: were paying their advisor every month, and so that's changed.
Speaker 2: I think that's been a dramatic change in the industry
Speaker 2: on the type of vehicle we use.
Speaker 1: I always thought that the marketplace would fix that on
Speaker 1: its own, and I've been wrong about this for decades.
Speaker 1: I always assumed people would see, oh, five percent front
Speaker 1: load on a C share or a two and a
Speaker 1: half percent annual. I assume people would see that and
Speaker 1: steer away. But it doesn't appear that that really happened
Speaker 1: until the Financial crisis. That seems to be where indexing
Speaker 1: really took off and where people became a lot more
Speaker 1: price sensing.
Speaker 2: Well, I think you were seeing a big shift to
Speaker 2: C shares where you know, you had a bigger back
Speaker 2: end trail and a smaller upfront, So that was happening
Speaker 2: a bit. And you know, look, I'm a big believer
Speaker 2: that some of those type commission products are still important.
Speaker 2: We look in the UK where they have something called RDR,
Speaker 2: so they don't permit any kind of commission based selling,
Speaker 2: and so it's all gone to fee based and you
Speaker 2: have a huge percentage of population or orphan from advice
Speaker 2: because essentially an advisor says, ah, that's too small of account,
Speaker 2: it's not worth my time, whereas if they got that
Speaker 2: upfront commission, they'd spend the time doing it. And the
Speaker 2: key is the difference for people investing early. So if
Speaker 2: you invest for ten years from age twenty five to
Speaker 2: thirty five, say five thousand dollars a year, or you
Speaker 2: wait till thirty five and invest for thirty years at
Speaker 2: five thousand dollars a year, you will have more money
Speaker 2: if you start for those investments over those ten year
Speaker 2: period because of the compounding. And so getting people to
Speaker 2: invest early is really really important and you don't want
Speaker 2: to have mechanisms regulatory environments that kind of prohibit them
Speaker 2: getting advice early.
Speaker 1: Huh. That's interesting. Although in today's digital world, as you
Speaker 1: guys know, there's so many ways to invest with no
Speaker 1: minimum fees, and a lot of people, especially of the
Speaker 1: younger generation, are very comfortable as di wires not do
Speaker 1: it yourselfers. Not that robinhood is how they should be
Speaker 1: necessarily investing, but hey, it gets some interested in finance.
Speaker 1: It gets them thinking about money. That's not a terrible thing.
Speaker 2: No, it's not a terrible it's actually great. And especially
Speaker 2: because you can do some basic kind of asset allocation
Speaker 2: models that the roboadvisor can be terrific for somebody who
Speaker 2: doesn't have a complicated financial situation. What you tend to
Speaker 2: see is people earn more and have more and more savings.
Speaker 2: Somebody said to me anecdotally, if you have you know,
Speaker 2: sort of three years worth of savings if your income,
Speaker 2: that's when you start to look for advice because you realize,
Speaker 2: you know what, this is more complicated. I'd rather have
Speaker 2: somebody who's full time focused on this than me as
Speaker 2: a part time person managing my money.
Speaker 1: I just have to share a funny story. We just
Speaker 1: got back from vacation, not like terribly long, but eight
Speaker 1: or nine days, and you come back to all this
Speaker 1: mail and it's, oh, here's the irs state the pass through.
Speaker 1: I got to forward that to the accountant. Oh and
Speaker 1: here's a disclosure about this fun we have. And then
Speaker 1: here's the quarterly thing coming up. And all of a sudden,
Speaker 1: like in a rush, I figured out, Oh, this is
Speaker 1: why people pay a fee for someone to give them advice.
Speaker 1: I don't want to deal with. I'm like relaxed, I'm
Speaker 1: back from vacation. The last thing I want to do
Speaker 1: is start thinking about New York State, pe Tech passed through.
Speaker 1: Just take this off. What is it going to cost? Great?
Speaker 1: Get this off my plate. I don't want to deal
Speaker 1: with that.
Speaker 2: Well, and I think a lot of people when like
Speaker 2: TurboTax came out, they said, oh, it's going to be
Speaker 2: the end of the CPA. Who are the number one
Speaker 2: users of turbotaxes CPAPA? Yeah, Because in the end people
Speaker 2: sit there and say, wait a second, Actually, the more
Speaker 2: money people have, the more they have options to do
Speaker 2: other things, and they think the opportunity cost of spending
Speaker 2: their time trying to manage those things is not worth it.
Speaker 1: It's the time. It's it's the time is crucial. Plus
Speaker 1: the rules change every year and wants to have to
Speaker 1: stay current with that. I find it's just like, you
Speaker 1: know what, and it's funny. This is like a later
Speaker 1: in life realization when you're young and have all the
Speaker 1: time in the world and not a lot of money,
Speaker 1: I could figure this out. I have to do my
Speaker 1: own taxes. And then when you're old, it's like, whatever
Speaker 1: it costs, just do it. Get this, get this junk
Speaker 1: away from me. So so let's talk a little bit
Speaker 1: about the history of acquisitions at Franklin Templeton. Just about
Speaker 1: thirty years ago, Franklin acquired Templeton, Galbrith and Hansburger. That
Speaker 1: new name of the company became Franklin Templeton. So it
Speaker 1: was Franklin along with mutual fund pioneer Sir John Templeton.
Speaker 1: You were kind of young in the farm in ninety
Speaker 1: two when this took place. What do you recall from
Speaker 1: that fairly substantial back then, a billion dollar acquisition was
Speaker 1: not nothing.
Speaker 2: Yeah, no, it was huge, and uh it was interesting
Speaker 2: because a lot of people, uh we we sort of
Speaker 2: came into that late as far as one of the
Speaker 2: potential acquirers. So, you know, we basically viewed it as
Speaker 2: Franklin had was very strong and fixed income, domestic equity,
Speaker 2: and what Templeton did was open up this international investing,
Speaker 2: which was really pretty new. So yeah, they were they
Speaker 2: were you know, you you there were pioneers in emerging
Speaker 2: markets and and uh and really kind of global equity.
Speaker 2: And when we acquired it, a lot of people were
Speaker 2: skeptical because asset management acquisitions don't always work right and
Speaker 2: expected big cultural difference, and it was expensive. And I
Speaker 2: have to say that my dad understood and we It's
Speaker 2: been our philosophy, you know, throughout all our acquisitions in
Speaker 2: the asset management business, what are you buying. You're buying
Speaker 2: people their investment capability and their investment process, So don't
Speaker 2: destroy value by going in and messing with it. So
Speaker 2: we really left it standalone on the investment side and
Speaker 2: then integrated the rest of the firm and that worked
Speaker 2: out really well.
Speaker 1: That's so different of an approach than we typically hear,
Speaker 1: which is, we want to buy a company for the assets,
Speaker 1: the revenue stream, maybe some technology or intellectual property, and
Speaker 1: we're going to just mash you into our culture whether
Speaker 1: you like it or not, that seems like a little
Speaker 1: more nuanced approach that your dad took. I don't see
Speaker 1: a lot of other mergers in the finance space that
Speaker 1: are that hands off. Maybe the big acquisition of Pimco
Speaker 1: twenty years ago was maybe a little too much hands off,
Speaker 1: But for the most part, it seems like everybody just
Speaker 1: mashes everybody together.
Speaker 2: Yeah, I mean, I you know, in our case, I
Speaker 2: wouldn't say it's totally hands off. It's hands off on
Speaker 2: the investment process, uh huh, right, and really trying to
Speaker 2: integate and integrate the rest of it, and then trying
Speaker 2: to figure out ways that you can add value because
Speaker 2: you have scale so that these firms you know, don't have.
Speaker 2: That was less of an issue in the Templeton deal,
Speaker 2: but with our more recent acquisitions that's been really important.
Speaker 2: What can we do because we're bigger, that can enhance
Speaker 2: the various investment teams.
Speaker 1: So let's talk about some of those more recent acquisitions.
Speaker 1: Twenty twenty, you buy leg Mason. I think it was
Speaker 1: an old cash deal four and a half billion dollars
Speaker 1: is that around, right, And then we took on some debt. Yeah,
Speaker 1: what was the thinking that what did leg Mason bring
Speaker 1: that you guys needed or didn't have.
Speaker 2: Yeah, So in the case of LEG, they had Western
Speaker 2: Asset Management, which is you know, core coreplus fixed income,
Speaker 2: which is the largest category. We just didn't have scale there,
Speaker 2: and you have to have scale to be in the
Speaker 2: institutional space. And the other big one that was exciting
Speaker 2: for us was Clarion Partners, which now is an eighty
Speaker 2: two billion dollar I think they were probably forty five
Speaker 2: at the time, forty five billion real estate manager. And
Speaker 2: we knew that we wanted to get into alternative space
Speaker 2: and so getting that as part of the LEG deal
Speaker 2: was really exciting. And then you know unbelievable managers and
Speaker 2: Clearbridge and Martin Curry and brandy Wine, and so we
Speaker 2: just got great expertise there. They were seventy five percent institutional,
Speaker 2: we were seventy five percent retail. So bringing the two
Speaker 2: firms together, you really made us fifty to fifty retail
Speaker 2: and institutional, and that's been very important.
Speaker 1: Huh. And then this year you acquire Putnam for almost
Speaker 1: a billion dollars. Puttenham almost the purchaser of Templeton, which
Speaker 1: is kind of kind of amusing that everybody ended up
Speaker 1: in the same place. That seems to be a very
Speaker 1: strategic purchase. Tell us the thing behind acquiring Putnam, So
Speaker 1: let me step back and just say sort of what
Speaker 1: our strategy is in acquisition.
Speaker 2: So we've done I think ten in the last Putnam
Speaker 2: will be R tenth in the last three years, and
Speaker 2: they've all been focused on. If you think about the
Speaker 2: big macro trends going on in the industry, one is
Speaker 2: private markets are here to stay, and they're here to stay.
Speaker 2: One take private credit. Right the banking crisis of the
Speaker 2: Global financial crisis, had regulators changed capital requirements for banks.
Speaker 2: Banks preserve their capital for the best clients, and it
Speaker 2: created this opportunity for you know, basically private credit outside
Speaker 2: the banking system. And honestly, with the discussion around which
Speaker 2: I have strong opinions on discussion around more capital requirements
Speaker 2: post the regional banking crisis, I think that's only gonna
Speaker 2: get worse and then you'll, well, that's going to.
Speaker 1: Create opportunities for firms that are filling that void exactly.
Speaker 1: And by the way, this really began in the late
Speaker 1: nineties early two thousands as the big banks moved upscale.
Speaker 1: They like to void underneath and private markets stepped right in.
Speaker 2: That's exactly right. And then the other piece of that,
Speaker 2: and you know this was definitely fueled by low interest rates,
Speaker 2: but private equity. The fact is companies can stay private longer.
Speaker 2: And you see that in the numbers. Right, two thousand,
Speaker 2: average company went public after three years. That was probably
Speaker 2: an anomaly in the dot com right. By twenty nineteen
Speaker 2: it was I think nine to ten years, and by
Speaker 2: twenty twenty two was fourteen to fifteen years before they
Speaker 2: were going public. Right, you have half the number of
Speaker 2: public companies that you had in two thousand and so
Speaker 2: you look at it, well, why go public?
Speaker 3: Right?
Speaker 2: A public company has quarterly earning pressure. You know, there's
Speaker 2: a lot of scrutiny around compensation of the staff, there's
Speaker 2: a lot of uh, there's an expectation on political you know,
Speaker 2: you're going to opine on certain political issues. If you're
Speaker 2: private company, you don't have any of those pressures. Right,
Speaker 2: And in a time of great technological advances, you need
Speaker 2: to invest for things. I mean, some of the stuff
Speaker 2: we're doing in the block change space won't be material
Speaker 2: to the firm for seven to ten years, but we
Speaker 2: think is really important that we're doing it now.
Speaker 1: But if you're a private comp if you're a public company,
Speaker 1: shareholders are going to give you grief about that sort.
Speaker 2: Of if it's impacting your quarterly earnings. We're fortunate in
Speaker 2: that we still have founders and employees and management that
Speaker 2: have a significant amount of the stocks, so we can
Speaker 2: sort of withstand some of that pressure. But if your
Speaker 2: stock's under performing, you can always get an activist in
Speaker 2: who's looking short term to capture the benefit and say
Speaker 2: we'll be worth more if we break all this up.
Speaker 2: That doesn't build a long term sustainable company. But that's
Speaker 2: the type of pressure that public companies have, and so
Speaker 2: we believe that trend is here to stay, and we
Speaker 2: knew that we needed to add those capabilities. Soe I say,
Speaker 2: there's three areas that we look for an acquisition. So
Speaker 2: one is filling product gaps, particularly in the case of
Speaker 2: private markets. The second is the second big trend was
Speaker 2: when the financial crisis happened and you had we mentioned,
Speaker 2: you know, the regulators made put pressure onto have transparency
Speaker 2: around distribution fees and advisors became fee based that honestly
Speaker 2: pushed much of the power to the distributor, and honestly
Speaker 2: actually to the person who deals directly with a client,
Speaker 2: to the financial advisor themselves and so, and the manufacturer
Speaker 2: had less power, and so we look for ways that
Speaker 2: we can build greater strength in distribution as being a
Speaker 2: better strategic partner. Some of that's fintech. In the case
Speaker 2: of the Putnam it's building a closer relationship with Power Corp.
Speaker 2: Who has you know, who owns both Great West Life
Speaker 2: Insurance or significant control of it, as well as Empower
Speaker 2: the second fast the second largest retirement platform, fastest growing one.
Speaker 2: And that's really important because the retirement channel is where
Speaker 2: mutual funds still have growth, right.
Speaker 1: Because there's no reason to put an ETF there Exactly
Speaker 1: the negative on a mutual funds phantom taxes. Hey, if
Speaker 1: it's a qualified account, it doesn't matter. It's it's irrelevant.
Speaker 1: And there are advantages to mutual funds in terms of
Speaker 1: trading and management that give it a leg up over
Speaker 1: over ETFs, especially in that sort of environment.
Speaker 2: Absolutely, so, I want.
Speaker 1: To talk about the forty percent and a little bit
Speaker 1: of insulation from public markets, but I'm going to circle
Speaker 1: back to that. I got to ask you about one
Speaker 1: last acquisition last year. You purchased O'Shaughnessey Investments, including their
Speaker 1: direct indexing product called Canvas Full Disclosure, where one of
Speaker 1: the early users of Canvas. I think my firm, Adults
Speaker 1: Wealth Management is the largest, or at least was when
Speaker 1: you acquired it, the largest client of Canvas. We love
Speaker 1: the product and our clients have found it to be
Speaker 1: tremendously useful in terms of managing and offsetting capital gain taxes.
Speaker 1: What was the thinking behind the O'Shaughnessy acquisition and what
Speaker 1: are the plans for Canvas fantastic?
Speaker 2: I mean you probably could having being a user of it,
Speaker 2: you probably could even speak this more than I can,
Speaker 2: but I can tell you we think again, a big
Speaker 2: trend is this direct indexing. But the reason we love Canvas,
Speaker 2: and I know you know this is Canvas grew out
Speaker 2: of a quant shop that built the technology to manage
Speaker 2: their quant portfolio. And so when initially you just have
Speaker 2: direct indexing with tax optimization, but we look at it
Speaker 2: as a tool where we think you can take just
Speaker 2: like the trend towards SMA separately managed accounts, you can
Speaker 2: use the technology of Canvas express our active management strategies
Speaker 2: in there. So take a mutual fund strategy, deliver it
Speaker 2: through the Canvas platform overlay with tax optimization, and even
Speaker 2: include some ESG overlay. So if you have a client
Speaker 2: who says, you know, I really want to you know,
Speaker 2: my daughter will say, I really want things that are
Speaker 2: pushing towards net neutral, on net zero and carbon, so
Speaker 2: she wants her portfolio manager. That way, you can put
Speaker 2: those tags in there but still take a professionally managed
Speaker 2: strategy and express it through that technology. So we looked
Speaker 2: at that and said, this is going to be really
Speaker 2: significant in the future. We have to be in the
Speaker 2: direct index space, but more importantly, we have to have
Speaker 2: great technology because we think this is just the beginning
Speaker 2: of a trend. Right.
Speaker 1: Not only is the software really good, but the O'Shaughnessy
Speaker 1: database so that they've been polishing up for decades. Very
Speaker 1: few things, I mean, Crisper is probably the only other
Speaker 1: one that is that focus, that dedicated that clean. Most
Speaker 1: databases are just problematic to do the solo work. And
Speaker 1: Jim is now retired, but and a son, Patrick took over.
Speaker 1: But it's a great product. They're a great team. I'm
Speaker 1: sure you guys are gonna have a lot of success
Speaker 1: with them. Let me go over a couple of more
Speaker 1: acquisitions that really kind of surprise me. Managed options capabilities
Speaker 1: tell us, tell us about that.
Speaker 2: Well, we think that's going to be important to add
Speaker 2: to the Canvas platform. Well really so, yeah, so managed
Speaker 2: options are important part as part of the tax optimization strategy. Uh.
Speaker 2: And so the feeling is that you needed that to
Speaker 2: be included to where this where the technology WI ultimately
Speaker 2: go for this where the uh the strategies ultimately.
Speaker 1: So when I hear managed options and capital gains, I
Speaker 1: think zero cost collars and things like that, is that
Speaker 1: what's along the lines?
Speaker 2: Heah, yeah, so they can include that now in in
Speaker 2: like a separately managed account.
Speaker 1: Oh, that's really really interesting. And then Alcentra you acquired
Speaker 1: from bny Mellon Lexington Partners, who's another private equity and
Speaker 1: secondary entity. And then I didn't realize you guys bought
Speaker 1: Advisor Engine that was like a big sort of semi
Speaker 1: robo advisor, uh for for advisors. I mean this is
Speaker 1: a long line. And then Alternative Credit Manager, Benefit Street Partners,
Speaker 1: and then Athena Capital. I mean, you guys have been
Speaker 1: on a tear. All of these things are different products
Speaker 1: filling in holes, different services, and you want to be
Speaker 1: able to offer a full rounded set of products to
Speaker 1: institutional and retail clients.
Speaker 2: We want to be the first phone call. We want
Speaker 2: to be the strategic partner where you know, somebody's thinking,
Speaker 2: I've got this problem, let me think about how to
Speaker 2: solve it. I want to talk to Franklin Templeton and
Speaker 2: talk to them about how to approach it. And so
Speaker 2: you take Advisor Engine. It has a CRM system that
Speaker 2: was built by a financial advisor. So you know, a
Speaker 2: lot of you know, a lot of smaller rias don't
Speaker 2: have a tech team to sit there and say how
Speaker 2: do I use Salesforce? How do I use Microsoft Dynamic?
Speaker 2: And so they want something simple. So this is a
Speaker 2: simple CRM system that's just for the business of being
Speaker 2: a financial advisor. And if we can build that relationship
Speaker 2: with that advisor, then we feel like we can be
Speaker 2: a stickier partner.
Speaker 1: How important is the registered investment advisor the ri A
Speaker 1: space to Franklin Templeton, I always thought of you guys
Speaker 1: back in the day as mutual fund managers, perhaps selling
Speaker 1: into that vertical I sound like a marketing guy, But
Speaker 1: how important is the ri A space to Franklin Templeton Today, well.
Speaker 2: The ra as have been growing again as the fee
Speaker 2: based environment and the fact that people honestly could take
Speaker 2: their book and walk in and set up their own
Speaker 2: shingle and be on a platform provider, and so it's
Speaker 2: a really important channel for us. It's it's a we
Speaker 2: are much bigger in the wirehouse and the UH in
Speaker 2: the independent channels because that's kind of been our DNA historically.
Speaker 2: UH and and those who who were big in the
Speaker 2: ETF tended ra as have tended to lean more towards ETFs,
Speaker 2: although that's a little bit of a stereotype, and so
Speaker 2: it's been an important area of focus for us to
Speaker 2: grow that channel.
Speaker 1: And to be fair, the wirehouses have kind of been
Speaker 1: slowly morphing into advisors. They're all hybrids these days. It's
Speaker 1: less transactional, more fee based to the benefit of the clients.
Speaker 2: Absolutely couldn't agree more.
Speaker 1: Huh really really quite fascinating. Let's talk a little bit
Speaker 1: about your experience as a woman running a corporation. You've
Speaker 1: held leadership roles across just about every line of business
Speaker 1: in the company. What was that experience like, what did
Speaker 1: you learn from running things as diverse as investment management
Speaker 1: and technology. It seems like totally opposite business.
Speaker 2: It's funny, So you know, on the first question, people
Speaker 2: ask me, what's it like to be a woman in finance? Well,
Speaker 2: the problem is I don't know what it's like not
Speaker 2: to be one, So I don't know that I have
Speaker 2: a good answer to that, but I can say I
Speaker 2: am so thankful today as a CEO to have having
Speaker 2: run technology because so much I think of decisions that
Speaker 2: we have to make in innovation that's happening requires a
Speaker 2: basic understand of technology. And so I look at you know,
Speaker 2: parts of your career you've sort of moved your way around,
Speaker 2: and you wonder whether it's going to be relevant at
Speaker 2: some point or not. And some of the things that
Speaker 2: I think we would naturally people think wouldn't be relevant
Speaker 2: to being CEO have been the most relevant. I mentioned
Speaker 2: running the auto finance business and honestly, running the technology department.
Speaker 1: You don't have a background in tech. How hard was
Speaker 1: it to ramp up running a tech division when you're
Speaker 1: not a natural geek And it's almost a different language sometimes.
Speaker 2: So it's funny. I am divorced now, but I was
Speaker 2: married to a guy who was a tech person, and
Speaker 2: I'd always ask them all these questions. I was really
Speaker 2: curious around it, and so I always felt like he
Speaker 2: gave me a really good background in understanding technology. And
Speaker 2: then I learned to be fearless in asking the question right.
Speaker 2: Tech people are used to everybody's being so afraid of
Speaker 2: tech that they give you They can sometimes give you
Speaker 2: a a little bit of a blurred answer steam yeah,
Speaker 2: and you're afraid to look stupid, so you don't ask. Well,
Speaker 2: I learned, you know what, if you think about what
Speaker 2: technology is, it's moving this piece of data from here
Speaker 2: to here and maybe adding some new data. Dumb down
Speaker 2: what you're talking about, and let me just try to
Speaker 2: understand it right, and and things like cloud servicing right.
Speaker 2: These are concepts that have existed in tech for a
Speaker 2: long time. The technology gets better and we usually change
Speaker 2: the name about every decade. But once you understand what
Speaker 2: it's trying to achieve, you don't have to be a programmer.
Speaker 2: You just you know. And I honestly, I think one
Speaker 2: of the biggest things that people don't appreciate is the
Speaker 2: quality of data, truly, garbage in, garbage out, and so
Speaker 2: having discipline around your data management is really really important
Speaker 2: in a tech department.
Speaker 1: It's really hard. Also, we were talking earlier about the
Speaker 1: O'Shaughnessy database. I know that they painstakingly triple check and
Speaker 1: quadruple check stuff because you don't want an errant thing
Speaker 1: in there that will change the outcome of a backtest
Speaker 1: or a model.
Speaker 2: For sure. And I think actually we all talk about
Speaker 2: AI and AI understanding and the models that you use,
Speaker 2: and the combination of models is going to be really important.
Speaker 2: But honestly, I think the real competitive advantage is going
Speaker 2: to be and this is why I think scale in
Speaker 2: asset management is so important, is the breadth and depth
Speaker 2: of the database. So we have an investment data like
Speaker 2: that is shared by our eighteen individual investment teams and
Speaker 2: so you know as they contribute. So maybe a team
Speaker 2: like our Global Macro team has fourteen different feeds for
Speaker 2: its ESG framework. They come in it's scrubs centrally. Now
Speaker 2: that data is available to the other teams, right, and
Speaker 2: we think over time it's going to be more about
Speaker 2: what unique data do you have that you can apply
Speaker 2: your models. It's going to be more and more important.
Speaker 1: So let's talk a little bit about your leadership experience.
Speaker 1: Your timing was impeccable. You step into the CEO role
Speaker 1: February twenty twenty, Thank goodness, nothing was about to happen
Speaker 1: over the next three years. What was it like, a
Speaker 1: month into the new gig and suddenly the world shuts down.
Speaker 2: Yeah, well, so I stepped in I think February eleventh,
Speaker 2: I think February twentieth, we announced the acquisition of leg Mason,
Speaker 2: which of course had been in the works right for
Speaker 2: quite a while. So we had good plans in place,
Speaker 2: and then about three weeks later, remember we were going
Speaker 2: to flatten the curve with two weeks off.
Speaker 1: Yeah, that's it turned into two years. It's yeah, that
Speaker 1: was transitory.
Speaker 2: Yeah, that was transitory. You know, you just deal with
Speaker 2: the cards that are in front of you. And the
Speaker 2: good news was when I was running technology, I became
Speaker 2: very passionate because we had you know, developers in India,
Speaker 2: uh and kind of around the world, Poland, in various places,
Speaker 2: and I felt like it was really important that you
Speaker 2: could see people when English was a second language, and
Speaker 2: so we push, I pushed the tech team to get
Speaker 2: a desktop video and so we had these devices. They
Speaker 2: were called a Tanberg device and it's sat separately on
Speaker 2: your desktop, and we would do video calls and so
Speaker 2: the company had you been doing this for twenty years
Speaker 2: Zoom before Zoom, Yeah, exactly, and so we were comfortable.
Speaker 2: It was already part of our DNA to have meetings
Speaker 2: where inevitably somebody was on video. So it was already
Speaker 2: kind of how we operated. Now you had everybody on video,
Speaker 2: and I think the thing that I appreciated was actually
Speaker 2: people's finally believed you can run businesses that way. And so,
Speaker 2: you know, in many ways, we closed the leg Mason
Speaker 2: deal two months early, and I think it was because
Speaker 2: we were in some ways more efficient by doing it
Speaker 2: via video, not everybody getting on an airplane and going
Speaker 2: and trying to work your calendars to go meet you know.
Speaker 1: The crazy unexpected benefit of the new post nine to
Speaker 1: eleven rules was that everybody had to have backup systems.
Speaker 1: You couldn't just have everything in one location. I think
Speaker 1: the SEC promulgated those, and when people were suddenly forced
Speaker 1: to work from home, it was very easy to get
Speaker 1: or relatively easy to get up and running. Just an
Speaker 1: unexpected side effect of the new regulations that came in
Speaker 1: after you know, we lost the twin towers. It's who
Speaker 1: knew that the SEC can actually be so forward looking
Speaker 1: And hey, you know, it all worked out. We were
Speaker 1: all able to know for sure to get up and running.
Speaker 1: So were there any complications from all this remote work
Speaker 1: in your CEO transition or you were in place when
Speaker 1: everything hit the fan and you know, it was just
Speaker 1: a matter of tacking into the wind when the world changed.
Speaker 2: I mean, I wouldn't attribute anything in particular to that.
Speaker 2: I mean, you're you know, when you do an acquisition,
Speaker 2: one of the most important things you do is assess talent,
Speaker 2: and there's a bias towards your own talent, and it's
Speaker 2: a missed opportunity if you don't infuse your organization with
Speaker 2: talent from the company you acquired. And so we were
Speaker 2: very focused on that. And sure, you'd love to meet
Speaker 2: people in person versus doing zoom in or views, but
Speaker 2: you know, we had to do it that way. We
Speaker 2: ended up with I think two thirds of leg Mason's
Speaker 2: kind of corporate services groups came into Franklin Templeton and
Speaker 2: a big part of the distribution team became part of
Speaker 2: Franklin Tumbleton. So you know, you're trying to kind of
Speaker 2: build a best athlete, and it's not just the best athlete,
Speaker 2: it's the best team. So sometimes you're just trying to
Speaker 2: make sure the team will you know, coalesce. And I
Speaker 2: think we did a pretty good job of that.
Speaker 1: Really interesting you mentioned your dad. Let's talk about some
Speaker 1: leadership lessons. What did your father teach you about managing people,
Speaker 1: running a company and getting all of the horses pulling
Speaker 1: the cart in the same direction.
Speaker 2: I mean, one of the things my father has always said,
Speaker 2: take care of the client and the business takes care
Speaker 2: of itself. And so anytime there'd be and I still
Speaker 2: talk to them about things. You know, how old now
Speaker 2: he just turned ninety in January.
Speaker 1: And sharp as attack. Absolutely, that's really you got some
Speaker 1: good genes.
Speaker 2: Yeah, you amazing And so you know, if you think
Speaker 2: about that and you overlay that in any decision, is
Speaker 2: this good for the client? Then I think that gives
Speaker 2: you a lot of clarity. It's kind of a north
Speaker 2: star there. And then I'd say, my dad is you know,
Speaker 2: he's always incredibly fair to people, and you recognize that
Speaker 2: every person contributes to who we are as a company.
Speaker 2: When your call center employee picks up the phone and
Speaker 2: is talking to a client. They're shouldering the entire reputation
Speaker 2: of the firm on them with that client. And my
Speaker 2: dad always understood that, And so there's just a genuine
Speaker 2: respect for everybody's contribution to the company, and I think
Speaker 2: that's part of our culture.
Speaker 1: That's really interesting. You mentioned you took a slot from
Speaker 1: your sister when you first started at an entry level.
Speaker 1: I know one of your brothers was very involved with
Speaker 1: with the firm. What's it like dealing with people that
Speaker 1: you have this familial personal relationship. How do you manage
Speaker 1: around that? I would think that's I'm just thinking about
Speaker 1: my own siblings, and we would have killed each other
Speaker 1: and gone bankrupt long ago.
Speaker 2: Everybody asked me, is this succession not our family?
Speaker 1: I wasn't even thinking about that. I'm just thinking about
Speaker 1: my own family, and I know there would have been bloodshed,
Speaker 1: But how do you navigate that challenging.
Speaker 2: They were definitely tires where I'd say to my brother, listen, stop,
Speaker 2: you can't treat me like your little sister in I
Speaker 2: meeting but no people, right, But you know what, as
Speaker 2: a family, we get along great, and my brother and
Speaker 2: I get along great, and you know he's still executive
Speaker 2: chairman today, and you know we talk about parts of
Speaker 2: the business, things that I'm struggling with. I'll talk to him,
Speaker 2: I'll talk to my dad.
Speaker 1: Uh.
Speaker 2: And I got to tell you what a great privilege
Speaker 2: it is to be a CEO and have people who
Speaker 2: care so much like you do, to be able to
Speaker 2: talk to about things that you're thinking about.
Speaker 1: You go to them for advice all the time.
Speaker 2: We'll talk about, you know, before any acquisition is done.
Speaker 2: That's clearly you know, part of the conversation as well
Speaker 2: as my uncle. My uncle is still active in the firm,
Speaker 2: and so you know, we'll have conversations about what we think,
Speaker 2: does it make sense? And you know, it's just my father,
Speaker 2: my uncle, my brother will never say you have to
Speaker 2: do this. They'll say, here the thinking on it. And
Speaker 2: my brother would say the same thing when he was
Speaker 2: CEO for fifteen years. My father was a great resource,
Speaker 2: but never would tell you what to do. And so
Speaker 2: it's nice to have those voices in the room. But
Speaker 2: in the end, the decisions mine as a CEO with
Speaker 2: my board and my management team, and they're just great advisors.
Speaker 1: That's great. I love the stock symbol Ben right, I
Speaker 1: mean so great. You talked earlier about long termism versus
Speaker 1: short termism. The family still owns like forty percent of
Speaker 1: the outstanding shares. Yes, does that insulate you from the
Speaker 1: sort of short term activist? What about this quarter's returns
Speaker 1: when you're making those long term investments in technology, how
Speaker 1: does that affect how you navigate?
Speaker 2: Yeah? No, I mean for sure you're The risk in
Speaker 2: asset management is that an activist comes in and says,
Speaker 2: you know what, why don't we spin off all these
Speaker 2: groups because we can get a bigger multiple for the
Speaker 2: alts business and you know, various things, and that that
Speaker 2: is a short term gain, right, and doesn't build a
Speaker 2: long sustainable business. So it's better to have that, you know,
Speaker 2: for and I genuinely believe scale is going to be
Speaker 2: more and more important as I mentioned, for things like
Speaker 2: data for asset managers, and so building a long term
Speaker 2: business really important. An activist doesn't take on a company
Speaker 2: that's got a forty percent you know, control, because you
Speaker 2: can't get enough stock to be able to ultimately you know, right, it's.
Speaker 1: Ninety percent of the remaining sixty it's a it's so
Speaker 1: that it does create a little bit of a buffer,
Speaker 1: so you guys can think very long term, make acquisitions
Speaker 1: and make investments which other publicly traded companies might not
Speaker 1: have that luxury.
Speaker 2: And we're totally aligned with the shareholders because we're looking
Speaker 2: for the best outcome for the stock. And again, sometimes
Speaker 2: that's making some investments today that you know will pay
Speaker 2: off in a few years.
Speaker 1: So this is a ridiculous question, but tell us about
Speaker 1: your next acquisition, meaning I don't expect you to say
Speaker 1: we're gonna pay X for this, Like what areas do
Speaker 1: you think are interesting? Where are you looking to say, hey,
Speaker 1: we can acquire some talent and some technology in this space.
Speaker 2: So with respect to kind of product gaps, the only
Speaker 2: one that we really feel is out there as a
Speaker 2: gap is infrastructure. So if interesting because we think there's
Speaker 2: gonna be a lot of growth on the.
Speaker 1: Bond side or on the equity side.
Speaker 2: Probably equity, but because we can do on the private
Speaker 2: credit teams, they can do it on the on the
Speaker 2: bond side, but it would be that would be an
Speaker 2: area that would be interesting to us. We like local
Speaker 2: asset management, so you know we have clients one hundred
Speaker 2: and fifty five countries. People tend to like home, they
Speaker 2: have a home country bias. So you know eighty percent
Speaker 2: flows in India tend to go to domestic products. We
Speaker 2: were the first foreign manager in India and so we
Speaker 2: have local equity, local fixed income, but we look for
Speaker 2: markets that made sense to us. We'd be a buyer
Speaker 2: of a local asset management. We have them spattered throughout
Speaker 2: the world. And then, as I mentioned on the distribution side,
Speaker 2: anything that builds that deeper relationship that can help us
Speaker 2: with distribution.
Speaker 1: So I don't want to talk about politics. I want
Speaker 1: to talk about culture and environment. We're recording this. We
Speaker 1: have President Modi here in the US. India seems to
Speaker 1: be like a perennial next economic powerhouse after China, and
Speaker 1: it just always seems to be not catching that next
Speaker 1: bid when you look at a region like that, And
Speaker 1: I don't want to just talk about India, but if
Speaker 1: you're looking at India, or you're looking at China, or
Speaker 1: you're looking at Taiwan or Singapore or Korea or Vietnam,
Speaker 1: how do you think about building a presence in a
Speaker 1: place like that and developing a relationship, either building or
Speaker 1: acquiring a local entity, Because how do you pick let's
Speaker 1: focus on this region over that region. It seems like
Speaker 1: it changes from week to week, month to month.
Speaker 2: It's going to matter the demographics of a country, the growth,
Speaker 2: the policies, the regulation, all those going to the factors.
Speaker 2: I mean, we were in India in nineteen ninety five,
Speaker 2: We're in Taiwan in nineteen eighty five, China first investments
Speaker 2: in nineteen eighty eight. So you know, we look at
Speaker 2: those Asia is going to be. They say there's gonna
Speaker 2: be a billion people who enter the middle class in
Speaker 2: the next decade, and eighty seven percent of them we're
Speaker 2: going to be in Asia. I lived in India for
Speaker 2: a little while when I was running the Technology and
Speaker 2: the Operations group, and I can tell you fifty six
Speaker 2: percent of the population is under the age of twenty five.
Speaker 2: It's got a British legal system, a British education system.
Speaker 2: You know, while there's twenty three different languages that are spoken,
Speaker 2: and more dialogical English. You know that certainly you aspire
Speaker 2: to speak English, and so the people that you hire
Speaker 2: from colleges are all English speaking. So that's those are
Speaker 2: all great tailwinds for the economy. Many people say, you know,
Speaker 2: India grows at night when the government sleeps. I think
Speaker 2: Mony's been doing a really terrific job at you know,
Speaker 2: trying to to you know, reduce the amount of kind
Speaker 2: of bureaucracy that's there. I have to say that my
Speaker 2: observation when I would be excited by all those statistics
Speaker 2: was Indians were the most skeptical about India. On my
Speaker 2: last trip, it was a clear difference in view that
Speaker 2: that in India, India and Indian Americans are really excited
Speaker 2: about what's going on. And for the first time I
Speaker 2: found an optimism there that I hadn't really sensed before.
Speaker 1: That's so interesting because that's what I meant by they're
Speaker 1: perennially about to happen, Like they could very easily be
Speaker 1: on par with China in terms of their economic prowess.
Speaker 1: More along the lines on technology and software and other
Speaker 1: areas where clearly there's a huge, huge infrastructure there and
Speaker 1: it just seems to like always be about to happen.
Speaker 1: It never happens.
Speaker 2: Well, you know, they say there's six times the number
Speaker 2: of engineers that graduate in India every year than the US.
Speaker 2: And I can tell you, you know, an Indian would prefer
Speaker 2: to go to an I than Harvard. They look at
Speaker 2: Harvard as a safety school. I mean really and some
Speaker 2: I t though is really still very difficult, right, but
Speaker 2: the its are pretty phenomenal, and.
Speaker 1: We end up, you know, importing a decent number of
Speaker 1: engineers from the best Indian schools. Is that still going
Speaker 1: on the way it used to?
Speaker 2: Well, I think a lot of them are deciding that
Speaker 2: there's more opportunity even at home. It used to be
Speaker 2: they had to come to the US or Europe because
Speaker 2: that was going to be where the opportunity is. But
Speaker 2: now the domestic economy is growing so well that there's
Speaker 2: a lot of excitement, so there's lesson choosing to leave.
Speaker 2: And then I think, you know, China, A lot a
Speaker 2: lot of discussion around China. You know, China's what's the
Speaker 2: US twenty three percent of world's GDP in China's eighteen percent,
Speaker 2: the next the third is like Japan at four point nine.
Speaker 2: I mean, it's a big, big market and it's going
Speaker 2: to be important, and so you know, we have a
Speaker 2: joint venture there and we continue to you know, invest
Speaker 2: in China. But then there's other markets you know that
Speaker 2: you look at There're three hundred million people in Indonesia.
Speaker 2: They get their policies, right, it's going to be amazing growth. Vietnam,
Speaker 2: you know another one. Capital markets are really tough there,
Speaker 2: but you know it should be a great opportunity and growth.
Speaker 2: And you see some of the supply chains. People are diversifying.
Speaker 2: India as one of the beneficiaries of that. Vietnam's another
Speaker 2: beneficiary of that. Japan even in the case of semiconductors.
Speaker 2: So I think there's just a lot going on there
Speaker 2: that is pretty interesting. And then the Middle East is
Speaker 2: another amazing U.
Speaker 1: Yeah, they seem to be purposefully trying to morph their
Speaker 1: reliance away from crude oil and energy towards more modern technologies.
Speaker 1: How can you even think about making an investment in
Speaker 1: the Middle East on anything other than oil. That's no
Speaker 1: longer the case.
Speaker 2: Right, I mean, I think what's interesting is they think
Speaker 2: like a generational family thinks, right, and so in their mind,
Speaker 2: oil runs out, I don't get three generations for it.
Speaker 2: Whatever it is. They want to reinvest in their economies
Speaker 2: to diversify it, to ensure that they're not out of
Speaker 2: money when that happens, right, And I actually genuinely believe
Speaker 2: some of the greatest innovation on renewable energy is going
Speaker 2: to come out of places like Abu Dhabi and Saudi
Speaker 2: Arabia because they are investing in it and they have
Speaker 2: the balance sheet to be able to make those investments.
Speaker 1: And keep in mind, oil isn't going to go away.
Speaker 1: It's just gonna go away as an energy source. As
Speaker 1: a material science source, it's enormous. The old joke used
Speaker 1: to be the Arab cheeks says to the American businessman,
Speaker 1: we're selling you all this oil. We can't believe you guys.
Speaker 1: Burn this. You know what it's really good for. You
Speaker 1: can make it into a million different things. And that's
Speaker 1: the future of oil, not not energy, but materials. So
Speaker 1: you have confidence in in what's going to take place
Speaker 1: in the Middle East. How does one invest into that region?
Speaker 1: If you're a retail investor, Hey, I like the idea
Speaker 1: of India, I could go buy an ETF. I like
Speaker 1: the idea of Middle East. How do I invest in that?
Speaker 2: Well? I think you got to spend a little time
Speaker 2: there and go see because I took my executive committee
Speaker 2: to the Middle East and we have visited several countries there,
Speaker 2: and honestly, I think that many of them felt that
Speaker 2: we were going there to you know, think about raising
Speaker 2: money from that region and came away thinking they're going
Speaker 2: to be investment opportunities there. We actually acquired in two
Speaker 2: thousand and seven a local asset management I mentioned local
Speaker 2: asset management being important, So a local asset management team
Speaker 2: that's based We've been in Dubai about twenty years and
Speaker 2: we're the largest I think, you know, multinational Sharia manager
Speaker 2: for Islamic finance.
Speaker 1: Huh.
Speaker 2: They came out of that local team and so they
Speaker 2: do local GCC bonds and equity investments. So there's a
Speaker 2: lot opportunity I think to invest there.
Speaker 1: Huh. Really quite fascinating. So let's talk a little bit
Speaker 1: about what's going on in the world today. We've seen
Speaker 1: this massive change in rate regimes. How does that affect
Speaker 1: your ability to run the firm and how does it
Speaker 1: affect fund managers dealing with this sun in five hundred
Speaker 1: bases point increase in rates.
Speaker 2: Well, I think the good news is that fixed income
Speaker 2: is now actually an asset class you want to be in.
Speaker 2: And you yelled exactly, and so you know, I think
Speaker 2: that's that's terrific, right, And then you know the other
Speaker 2: thing is volatility is good for active managers, right, It
Speaker 2: shows whether you have skill. And we've we've come off
Speaker 2: a decade where basically government's been pumping money into the system.
Speaker 2: If you didn't have access to private markets, you couldn't
Speaker 2: make any money in fixed income. So where'd you go?
Speaker 2: You went into equities. It just exploded equities up and.
Speaker 1: Was twenty fourteen fifteen percent years exactly. That's that's double normal.
Speaker 2: But it was hard if you're if you are an
Speaker 2: active manager, your job is to have a diversified portfolio
Speaker 2: and think about risk adjusted returns. And when you have
Speaker 2: a momentum market like that and you have five companies
Speaker 2: that take you know, twenty five percent of the index
Speaker 2: or whatever it ended up, being a professional manager gets
Speaker 2: nervous by that type of concentration, and say the S
Speaker 2: and P five hundred, and there's not enough discussion about
Speaker 2: how the indexes. The market risk of the index changes
Speaker 2: depending on one you know, the day Tesla was added
Speaker 2: to the S and P five hundred, it became a
Speaker 2: much riskier investment by investing in the S and P
Speaker 2: five hundred based on volatility and concentration. And so in
Speaker 2: those types of market it's hard for an active manager
Speaker 2: to actually beat that but when you have volatility, that's
Speaker 2: when you start to see outperformance.
Speaker 1: Huh. So let's talk about money market funds. Not only
Speaker 1: are you seeing some yield on fixed income products, money
Speaker 1: market funds used to yield nothing. Now you're actually seeing
Speaker 1: some returns. Even though there's been some concerns about some
Speaker 1: of the regulation around money market funds and the problem
Speaker 1: we had in the financial crisis. What is Franklin Templeton
Speaker 1: doing in this space?
Speaker 2: Well, first of all, I don't think money market funds
Speaker 2: look anything like they did when you had problems and
Speaker 2: you just had a couple of huge difference and so
Speaker 2: you know, there's if you have a certain amount of
Speaker 2: risk and you're a prime floating fund. Otherwise you're you're
Speaker 2: you know, tied to the dollar and it's it's short duration,
Speaker 2: and uh, you know, I think very secure. And you
Speaker 2: know today you can get five and a half percent
Speaker 2: in a money market fund. I mean that's pretty aggressive,
Speaker 2: right really, And I think that we've seen a lot
Speaker 2: of money flow into money market funds because people saw
Speaker 2: that they could get that and they weren't ready to
Speaker 2: get back into the market. Now, having said that, we're
Speaker 2: close to the end of the cycle. Uh, you know
Speaker 2: the rate hike se right, Okay, you know, I think
Speaker 2: the FED is saying they're going to still raise more,
Speaker 2: and I think you could see one to two more
Speaker 2: times that they raise this year. I think I think
Speaker 2: people are finally over the they're going to cut this year.
Speaker 2: I definitely don't think they're going to cut this year.
Speaker 1: Those were the same people, by the way, who have
Speaker 1: been forecasting recession for the past eighteen months. Yeah, so
Speaker 1: of course they think the FED is going to cut.
Speaker 1: What I find fascinating about the whole FED investor community
Speaker 1: thing is that Jay Pal keeps saying this is what
Speaker 1: I'm going to do, and nobody pretty right. I mean,
Speaker 1: go back twenty years, you had no idea what the
Speaker 1: FED was doing. He's telling you. Nobody wants to believe.
Speaker 2: You know why. A huge percentage of fixed income managers
Speaker 2: have only lived through the time that the FED bailed
Speaker 2: us out every time, right right, And so they've been
Speaker 2: in that and so they believe that that's going to
Speaker 2: be the response. Whereas people that have a little more
Speaker 2: experience like me, you right, we know that you can't always,
Speaker 2: you know, count on the FED to bail you out
Speaker 2: as as a matter of fact, Jay Pal's trying to
Speaker 2: be very clear with it, and the market keeps fighting
Speaker 2: the FED and thinking, you know, they're going to call
Speaker 2: his bluff or something. I think that the FED is
Speaker 2: being very data driven at this point and uh, and
Speaker 2: he's trying to make it clear that if they're the
Speaker 2: economy still remains pretty hot, he's going to raise rates.
Speaker 1: Here's a crazy stat that someone shared with me. If
Speaker 1: you were born after nineteen eighty and you work in finance,
Speaker 1: you don't know what it was like when we had
Speaker 1: no idea what the FED. I remember we used to
Speaker 1: look at the Flow of Funds report to try and
Speaker 1: tease out what might happen. Now the FED says we're
Speaker 1: going to do this, and then they go out and
Speaker 1: do it. I'm born before nineteen eighty, so this is
Speaker 1: all new to me. But imagine spending your whole career where,
Speaker 1: of course we're gonna get bailed out by the FED.
Speaker 1: If that happens, how do you recover from that as
Speaker 1: a professional. If you've never experienced wild market I guess
Speaker 1: that isn't true, because you have experienced wildmarket volatility. Just
Speaker 1: the cavalry has always come to the rescue.
Speaker 2: That's right. I think that's right. And I don't think that,
Speaker 2: you know, I don't think that the FED is going
Speaker 2: to oh I as I said, I think the FED
Speaker 2: is going to be very data driven. And right now,
Speaker 2: you know, unemployment is still what is it three point seven.
Speaker 1: Very low, right, historically low level.
Speaker 2: You're starting to see some labor participation coming back in
Speaker 2: a little bit. You know, look at a lot of
Speaker 2: people say is there gonna be a recession or not?
Speaker 2: There probably is. I mean they have to write, I
Speaker 2: mean that they have to cool it down. The question
Speaker 2: is is it a deep recession that causes a lot
Speaker 2: of We don't think, or at least I don't think.
Speaker 2: And by the way, we have five different fixed income
Speaker 2: teams at Franklin Templeton, so there are some different views
Speaker 2: on this. But that we'll have a deep recession. Uh
Speaker 2: and uh. You know, but the FED is definitely jammed
Speaker 2: on the brakes and it's still been hard.
Speaker 3: You know.
Speaker 2: The easy part was getting inflation from nine to five
Speaker 2: four and a half. Now is the real challenge.
Speaker 1: So less PPI that came out had a three handle
Speaker 1: on it. CPI usually follows PPI. J PAL can put
Speaker 1: a flag in the ground to clare victory. Take a
Speaker 1: long vacation. He's already won, right, Is am I oversimplifying
Speaker 1: that too much? Or can can he just say all right,
Speaker 1: I'm taking the summer off.
Speaker 3: Well.
Speaker 2: I think the challenge for him is that they've been
Speaker 2: very vocal about the two percent target, and which.
Speaker 1: Is a little weird because two percent target was post
Speaker 1: nine to eleven, post financial crisis, post pandemic, where rates
Speaker 1: were at zero and two percent was the upside target.
Speaker 1: Maybe that target should be rethought. Maybe three percent makes sense.
Speaker 2: So until we start to hear the FED start talking
Speaker 2: about maybe they're going to change that target or lighten
Speaker 2: up on that target, I think it's tough for him
Speaker 2: to just take too long of a break. Sure he
Speaker 2: can take the break through the summer.
Speaker 1: Yeah, take this summer off, go fishing. They had a
Speaker 1: Jackson hole his great fly fishing there you go, right,
Speaker 1: I mean he could just chill out for a while,
Speaker 1: all right. So I want to throw one curve ball
Speaker 1: at you. And as a West Coast girl, I got
Speaker 1: to ask you. You're on the board for the San
Speaker 1: Francisco Giants. What was that experience like?
Speaker 2: So I was Now my brother Greg is the control
Speaker 2: person of the Giants. It was a blast. I have
Speaker 2: to say, Uh, the thing that I learned, I think
Speaker 2: I know a little bit about baseball. I don't know
Speaker 2: anything about baseball. People talk about statisticians, they know everything.
Speaker 2: This guy's gonna move three feet with this picture, who
Speaker 2: goes up? And so pretty quickly I realized I don't
Speaker 2: actually know that much about baseball. But I loved it.
Speaker 2: It was It was a lot of fun. And of
Speaker 2: course I was there as I tease my brother about,
Speaker 2: you know, when I was on the board, we won
Speaker 2: three World Series? Have you done?
Speaker 1: What have you done? Right? Exactly?
Speaker 2: He actually knows a lot about baseball, and.
Speaker 1: That's very funny. Just goes to show you that breath
Speaker 1: of and depth knowledge doesn't necessarily help you win win.
Speaker 2: I think the key was Jenny wasn't really involved in
Speaker 2: making too many decisions.
Speaker 1: You are telling when to bring in the left, we
Speaker 1: need to switch pictures. That wasn't part of your responsibilities,
Speaker 1: all right, So I know I only have you for
Speaker 1: a little while. Let me jump to my favorite question
Speaker 1: that we ask all our guests, starting with tell us
Speaker 1: what you've been keeping yourself entertained with? What are you
Speaker 1: watching or listening to these days.
Speaker 2: I just finished. I'm always way behind on these things,
Speaker 2: So I just finished. I think it's called Dead to Me,
Speaker 2: which is a hufflick seriously, which I thought was it's
Speaker 2: a it's like a dark comedy book.
Speaker 1: Very darny.
Speaker 2: Yeah, very good, but very good. It was funny.
Speaker 3: Uh.
Speaker 2: And I've been watching a little bit of Manifest, so
Speaker 2: that was one that.
Speaker 1: I've heard about Manifest. I haven't seen it yet.
Speaker 2: Yeah. So anyway, and then you know, I uh, I
Speaker 2: love to watch there's a there's a streaming service called
Speaker 2: Curiosity Stream. Uh huh oh sure, and you know it's
Speaker 2: got great documentaries on science and history and stuff like that.
Speaker 2: So I tend to watch some things. I was trying
Speaker 2: to understand quantum computing and what it does and quantum
Speaker 2: entanglement and because from.
Speaker 1: A entanglement, spooky action out of and so you know,
Speaker 1: Curiosity Stream is one of my favorite has one of
Speaker 1: my favorite astronomy. It's really they do like deep crazy
Speaker 1: stuff and it's you just get.
Speaker 2: Lost the Yeah, no exactly, So I love watching that.
Speaker 1: Kind of thing. Huh really really interesting. Uh. I know
Speaker 1: the answer, but I got to ask anyway, tell us
Speaker 1: about your early mentors who helped shape your career.
Speaker 2: Well, my father is, uh, my early mentor and continues
Speaker 2: to be my greatest mentor.
Speaker 3: Uh.
Speaker 2: I feel incredibly blessed to have them and and I'm grateful.
Speaker 1: Uh.
Speaker 2: And like I said, he's uh, he never tells you
Speaker 2: what to do, but he's always a great if you ask,
Speaker 2: he's he's always great at giving you, you know, his opinion.
Speaker 2: Uh and really incredibly thoughtful.
Speaker 1: Huh. Really interesting. Let's talk about books.
Speaker 2: I have to say something about my mom for a second. Okay,
Speaker 2: so you got to undership my mom had seven kids
Speaker 2: and then went back to Stanford medical school. So really
Speaker 2: my dad was building Franklin. She was she was doing
Speaker 2: that and they you know, she's eighty seven. They're amazing.
Speaker 2: And you know, how long was the leadership?
Speaker 1: How long did she practice for? Oh?
Speaker 2: I think she practiced probably you know, twenty five years.
Speaker 1: Wow, after seven kids went to medical school, that's a hell.
Speaker 2: I think she probably decided she needed a reason to
Speaker 2: be out of the house.
Speaker 1: That's very funny. Let's talk about books. What are some
Speaker 1: of your favorites and what are you reading right now?
Speaker 2: I am reading a book on Kissinger right now.
Speaker 1: But I think you know his book or the someone
Speaker 1: else's biography.
Speaker 2: I'm reading Walter Isaacson's book on Kissinger. I loved his
Speaker 2: book on Steve Jobs, and he's done so. I like
Speaker 2: historical fiction, and I like history books. Probably can fall it.
Speaker 2: I really enjoy his historical fiction books. She once in
Speaker 2: World War One, World War two. He's a great one
Speaker 2: called it's about the building of cathedrals, pillars of the Earth.
Speaker 2: I think it is.
Speaker 1: Everyone of his books could absolutely be a movie, right,
Speaker 1: I mean they all are like a James Bond online.
Speaker 1: But by the way, if you liked Isaacson's biography on Jobs,
Speaker 1: I'm drawing a blank on his name is on the
Speaker 1: tip of my tongue. Did you see the book on
Speaker 1: the right Brothers? Oh, David McCullough, Oh yeah, yeah, so fascinating.
Speaker 2: Yeah, he's another one. I'm a big fan.
Speaker 1: Right, Everything he writes it's just amazing. Right, It's like
Speaker 1: he was there reporting on it, and one hundred years
Speaker 1: forward exactly, just so much details. Down to our final
Speaker 1: two questions, what sort of advice would you give to
Speaker 1: a recent college graduate who is interested in a career
Speaker 1: in either investment management or finance.
Speaker 2: You know, I feel like as an industry, we don't
Speaker 2: do a good enough job at selling people and what
Speaker 2: we do. And I tell the story about I have
Speaker 2: five kids and with my daughter I I was talking
Speaker 2: to my daughters and I said, so are you going
Speaker 2: to join me in this industry? And one of my
Speaker 2: daughters said, no, Mom, I want to do something that
Speaker 2: helps people. I'm like, are you kidding me? This industry
Speaker 2: is a great industry to help people. You know, you
Speaker 2: wouldn't have the vaccines that we had without you know,
Speaker 2: the businesses that were out there that we're investing in
Speaker 2: trying to you know, find opportunities. We help people I
Speaker 2: say it Franklin Templeton to achieve the most important financial
Speaker 2: goals of their life. And know, by the way, every goal,
Speaker 2: not every goal, most goals require some financially.
Speaker 1: Buy a house, retirements, kids, education, down the line.
Speaker 2: Sadly, So, I my first thing is to say, this
Speaker 2: is just a great industry to be in if you
Speaker 2: want to make a difference and you want to help people.
Speaker 2: You think about some of the stuff on esg. You know,
Speaker 2: the kind of impact investing those types of things. All
Speaker 2: of those things require money, and so uh, one is
Speaker 2: it's a great industry too is go in and be
Speaker 2: just curious, ask questions. Read I always, you know, say
Speaker 2: to people, read the CEO's letter in an annual report
Speaker 2: if you want to know what's on your boss's mind, right,
Speaker 2: because they're going to lay it out there and try
Speaker 2: to connect what you do to the bigger picture of
Speaker 2: whatever a company.
Speaker 1: Is really interesting. And our final question, what do you
Speaker 1: know about the world of investing today you wish you
Speaker 1: knew thirty five years or so ago when you were
Speaker 1: first starting out.
Speaker 2: Well, I think the tenants that have always been important,
Speaker 2: which we talked about earlier, like diversification get invested early,
Speaker 2: the value of compounding dollar cost averaging where you just
Speaker 2: keep committing, you know, and investing month after month after month.
Speaker 2: Those things get lost sometimes in the stories, and yet
Speaker 2: they're probably the most important things about.
Speaker 1: Investing, really really, really good stuff. Jenny Johnson, thank you
Speaker 1: so much for being so generous with your time. This
Speaker 1: has just been delightful. We have been speaking with Jenny Johnson.
Speaker 1: She is the CEO of Franklin Templeton. If you enjoy
Speaker 1: this conversation, well, be sure and check out any of
Speaker 1: the five hundred other such conversations we've had over the
Speaker 1: past nine years. You can find those at iTunes, Spotify, YouTube,
Speaker 1: wherever you find your favorite podcast. You can sign up
Speaker 1: from my daily reading list at ridults dot com. Follow
Speaker 1: me on Twitter at Ridults, follow all of the Bloomberg
Speaker 1: Family of podcasts on Twitter at podcast I would be
Speaker 1: remiss if I did not thank the crack team that
Speaker 1: helps put these conversations together each week. Attika of Albron
Speaker 1: is my project manager. Justin Milner is my audio engineer.
Speaker 1: Paris Wald is my producer. Sean Russo is my researcher.
Speaker 1: I'm Barry Ridholts. You've been listening to Masters in Business
Speaker 1: on Bloomberg Radio.