WEBVTT - Franklin Templeton President/CEO Jenny Johnson Talks Tariffs

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

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<v Speaker 2>We're standing by with Franklin Templeton President and CEO Jenny Johnson, and.

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<v Speaker 3>You know what.

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<v Speaker 2>It's at Jenny john on the sidelines there.

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<v Speaker 1>Everybody's here. Everybody is here.

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<v Speaker 2>And the reality too is everyone is talking about what's

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<v Speaker 2>going on in the United States right now with the

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<v Speaker 2>president's tariff plan. How do you see things playing out

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<v Speaker 2>and what do you think is being underappreciated by investors

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<v Speaker 2>right now?

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<v Speaker 3>Well, I think, first of all, I think Veston is

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<v Speaker 3>doing a better job at describing this as interlocking engine. Right.

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<v Speaker 3>It's it's tariffs, it's it's taxes, and its deregulation. And

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<v Speaker 3>I think that that you know, you got to remember

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<v Speaker 3>in the US you sort of have eighteen months when

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<v Speaker 3>you get in.

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<v Speaker 1>To make big changes. Otherwise, in the.

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<v Speaker 3>You know, Congress is like to flip, but he's not

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<v Speaker 3>going to get things passed. Right. So if you think

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<v Speaker 3>about this, the first thing, does he hits tariffs?

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<v Speaker 1>I think he's working through to get his tax cuts.

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<v Speaker 3>And remember this is really a tax extension with some

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<v Speaker 3>additional tax cuts. If we don't get the tax extension,

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<v Speaker 3>it's a massive tax increase, which then becomes an economic problem. Right,

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<v Speaker 3>he needs to pay for that, So how does he

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<v Speaker 3>pay for it? He pays for it by tariffs.

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<v Speaker 1>So when he first.

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<v Speaker 3>Came out with the tarifts, he says that's a six

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<v Speaker 3>hundred billion dollar revenue increase. Today you get about eighty

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<v Speaker 3>billion dollars from terriffs. Now, whether it's six hundred and

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<v Speaker 3>four or whatever, he needs four hundred billion to four

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<v Speaker 3>or fifty billion a year to get to pay for

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<v Speaker 3>his tax cuts.

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<v Speaker 1>There is tax extensions, so terrafs is a great way

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<v Speaker 1>to do it.

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<v Speaker 3>That's the interlacking nature of this, And when we think

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<v Speaker 3>about from an economic standpoint, the deregulation is really important,

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<v Speaker 3>especially as a business. You know, somebody running a global business,

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<v Speaker 3>and so I think that's the plan. The problem is

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<v Speaker 3>it's messy because you have to do it all quickly

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<v Speaker 3>in this sortain eighteen months.

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<v Speaker 4>There's also an issue too when it comes to tax

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<v Speaker 4>cuts and other types of more pro growth policies. Is

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<v Speaker 4>that going to run into issues with concerns about our

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<v Speaker 4>budget deficit. We had the budget director on yesterday and

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<v Speaker 4>there's been a lot.

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<v Speaker 1>Of talk as.

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<v Speaker 4>To how much can you really afford to do right now?

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<v Speaker 4>You have one hundred and twenty percent debt to GDP

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<v Speaker 4>ratio and other metrics that are also eight historical norms.

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<v Speaker 3>Listen, there's no question that you know what has happened

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<v Speaker 3>with a deficit in time.

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<v Speaker 1>You want to be able to take.

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<v Speaker 3>On to add additional deficits during bad economic times. We've

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<v Speaker 3>done it during good economic times, which means you have

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<v Speaker 3>nothing to be able, no leverage if things turned into

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<v Speaker 3>a recession. So that's a difficult point. But again, as

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<v Speaker 3>long as he pays for it. How is he going

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<v Speaker 3>to pay for it. He's going to pay for from

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<v Speaker 3>changing tax revenues of eighty billion dollars a year from

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<v Speaker 3>tariffs to four hundred and eighty or you know, five

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<v Speaker 3>hundred billion, and so as long as it's paid.

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<v Speaker 1>For it, that's less of a problem.

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<v Speaker 3>And then, of course, you know, the other part of

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<v Speaker 3>his plan is government efficiency, right, so to be able

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<v Speaker 3>to reduce the deficit, that's going to be important. We

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<v Speaker 3>are on a you know, one point eight of two

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<v Speaker 3>million dollars a year in additional debt that is not sustainable.

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<v Speaker 2>I mentioned throughout the course of this conference that that

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<v Speaker 2>pat is concerning the bond market.

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<v Speaker 1>Today. You have a ten year.

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<v Speaker 2>Yield that has been drifting higher in the last couple

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<v Speaker 2>of days. Despite the palm that the Treasury Secretary seems

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<v Speaker 2>to be providing to the market, the bond market's not

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<v Speaker 2>quite showing it.

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<v Speaker 1>So what does this mean. Do you believe that.

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<v Speaker 2>The bond market risks a tantrum if the US financial

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<v Speaker 2>situation is not figuring out.

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<v Speaker 1>I don't know if it's a tantrum, but I do think.

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<v Speaker 3>Look, we've you know, our view is you probably get

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<v Speaker 3>a only one cut this year. But I also think

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<v Speaker 3>you have to be realistic on the ten year. I mean,

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<v Speaker 3>I don't think it'd be surprising to have the tenure

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<v Speaker 3>like four seventy five at the end of the year.

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<v Speaker 3>Why you have to buy you have to buyers of

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<v Speaker 3>our debt. The economy is still pretty strong. Ism numbers

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<v Speaker 3>came in today, you know. I mean a lot of

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<v Speaker 3>people said, oh, we had this recession. Well we had

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<v Speaker 3>a recession number because GDP imports people accelerated them.

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<v Speaker 1>That's the sort of a false signal.

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<v Speaker 3>I think. So, you know, the economy still feels pretty robust. Now,

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<v Speaker 3>that doesn't mean that we aren't at a really important

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<v Speaker 3>moment where there's no question.

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<v Speaker 1>Businesses are hesitating.

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<v Speaker 3>They're hesitating in CAPEC spend because they're concerned about what

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<v Speaker 3>these tariffs mean to us, and they can without certainty,

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<v Speaker 3>they can't spend.

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<v Speaker 1>If that goes on for too long, you will risk

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<v Speaker 1>triggering a recession.

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<v Speaker 4>Are your investors hesitating at all?

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<v Speaker 1>Are they worried right now?

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<v Speaker 3>You? So, First of all, most institutions are long term, right,

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<v Speaker 3>and so they're not gonna deal.

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<v Speaker 1>They're not going to.

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<v Speaker 3>Make switches because of tactical shifts. They're waiting to see

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<v Speaker 3>what's going to happen here, right, I mean because any

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<v Speaker 3>day it kind of you know, jumps up and down.

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<v Speaker 3>So that's I think most of them are viewing this

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<v Speaker 3>as all right, we're gonna wait and see. You did

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<v Speaker 3>European investors pulled back a little bit from the US.

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<v Speaker 1>A lot of people said, well, is that because they're

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<v Speaker 1>annoyed with the US?

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<v Speaker 2>No.

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<v Speaker 1>I think it's because they realize that.

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<v Speaker 3>There are opportunities in Europe defense spending, other areas. And

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<v Speaker 3>it was the best performing index today. So again, I

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<v Speaker 3>think most institutional investors and I and actually because we

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<v Speaker 3>sell through the wealth channel through financial advisors, they tend

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<v Speaker 3>to be more sort of long term in their thinking

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<v Speaker 3>and say, listen, if you missed it at the start,

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<v Speaker 3>there's no point in making those shifts now because it

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<v Speaker 3>changes every.

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<v Speaker 2>Day because you also operate through the wealth channel. I'm

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<v Speaker 2>really curious about your view on what's happening in private

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<v Speaker 2>markets right now. Also, since we've been here, we've had

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<v Speaker 2>a huge range of views. We've had private asset editors say,

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<v Speaker 2>don't worry about it, everything's fine, the marks are all good,

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<v Speaker 2>and then we've had others say there's a lot more

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<v Speaker 2>trouble under the surface.

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<v Speaker 1>Where do you.

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<v Speaker 2>Stand on that spectrum and how do you consider this

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<v Speaker 2>moment where so many asset managers are opening up to

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<v Speaker 2>wealth clients for an asset class.

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<v Speaker 1>That's not as in follow exactly No, So, I mean

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<v Speaker 1>it's interesting.

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<v Speaker 3>Look, first of all, fundamentally believe that it is important

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<v Speaker 3>that we open up the private markets to the wealth

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<v Speaker 3>channel responsibly, right. I mean, there's a big difference between

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<v Speaker 3>a pension fund who knows exactly what their cash flow

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<v Speaker 3>liabilities are for the next thirty years making a commitment

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<v Speaker 3>to saying I want to put thirty percent or forty

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<v Speaker 3>percent in private markets, and an individual who may have

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<v Speaker 3>one year or two years of expenses and savings and

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<v Speaker 3>locking up those assets.

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<v Speaker 1>So education is really important. The type of vehicles are

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<v Speaker 1>really important. We're working. I love the idea of retirement.

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<v Speaker 3>Plans because there's always cash flows coming in, right, people

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<v Speaker 3>don't tend to stop their payroll contributions and putting kind

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<v Speaker 3>of a managed account solution which is dealing with the

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<v Speaker 3>illiquidity risk. But the liquidity risk is very real and

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<v Speaker 3>it's permanent capital. So in times of stress, people don't

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<v Speaker 3>you don't get the same pressure the stock market gets,

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<v Speaker 3>will use it as their liquid So what do you

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<v Speaker 3>think of.

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<v Speaker 4>Some of these new products kind of ETFs and similar

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<v Speaker 4>types of products that are effectively putting private assets in

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<v Speaker 4>there but with the mix of public assets to try

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<v Speaker 4>to address some of those liquidity concerns.

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<v Speaker 3>So Franklin Templeton actually in some of our growth products

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<v Speaker 3>because we're headquartered in Silicon Valley. I mean, honestly, our team,

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<v Speaker 3>our growth equity team that was there saying, gosh, we're

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<v Speaker 3>missing these IPO performance kickers that we used to get

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<v Speaker 3>because companies are waiting so long to go public and

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<v Speaker 3>so we actually for the last decade have put late

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<v Speaker 3>stage venture into some of our growth equity mutual funds.

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<v Speaker 1>You can do that up to fifteen percent of the

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<v Speaker 1>mutual fund.

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<v Speaker 3>So again, as long as you know your product and

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<v Speaker 3>you know what your commitment is as far as the liquidity,

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<v Speaker 3>then that doesn't concern me. What concerns me is when

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<v Speaker 3>people start to convince themselves that these things are more

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<v Speaker 3>liquid than they really are, because they're not liquid.

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<v Speaker 2>Now, Jenny, I love a business update from you as well.

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<v Speaker 2>Of course you've been navigating trouble out the west an

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<v Speaker 2>asset management unit. What's outdating, what's the latest on what's

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<v Speaker 2>going on and how Franklin tumbltin is turning past that page?

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<v Speaker 1>Yeah, so you know, we're working through it.

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<v Speaker 3>There's obviously been a change in administration, so as you

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<v Speaker 3>can imagine a lot of these government agencies, the new

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<v Speaker 3>leadership takes time for them to get into office, and

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<v Speaker 3>so we're continuing to work through that process. And you know,

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<v Speaker 3>I think the good NEWSS we today are an incredibly

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<v Speaker 3>diverse asset manager.

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<v Speaker 1>You know, the one point five train that we.

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<v Speaker 3>Have no single investment team accounts for more than I

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<v Speaker 3>think eleven percent of our revenues. And so actually our

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<v Speaker 3>Franklin Fixed income team, which wasn't historically, particularly institutional, has

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<v Speaker 3>had tremendous net flows in there, and so again the

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<v Speaker 3>key is is to be able to have that.

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<v Speaker 1>Stable of capabilities.

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<v Speaker 3>We're a top ten alternatives manager. We have massive I

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<v Speaker 3>think we're we probably have about four hundre and sixty

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<v Speaker 3>billion in fixed income between private credit and.

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<v Speaker 1>Traditional fixed income.

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<v Speaker 3>So what makes a so resilient is the ability to

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<v Speaker 3>have all of this stable of opportunities

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<v Speaker 2>Looking forward to seeing how you navigate the year, that

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<v Speaker 2>is of course Franklin Templeton President and CEO, Jenny Johnn