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 Johnsen. 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 was.
Speaker 2: And it just acquired Tubleed at 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 Drexel Burnham.
Speaker 1: And and by the way, that's tough when you're a
Speaker 1: West co Coast gal. Used to sunshine and feather. Right,
Speaker 1: Although I was.
Speaker 2: Born in New Jersey, Okay, you know Jersey. I was
Speaker 2: born in Montclair, Okay. So, and I lived in New
Speaker 2: Jersey till I was about nine. So I came back
Speaker 2: and lived in Jersey City.
Speaker 1: And now I remember why we moved to California.
Speaker 2: Hey, there's some beautiful parts in Jersey.
Speaker 1: There are. It's the weather. It's really the big yes effort.
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 is the.
Speaker 3: New already the maybe post right, it's kind of moved
Speaker 3: to Lululemon, Pansen and you know, button down shorts is
Speaker 3: 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, was rough
Speaker 2: life you were you were in the office by a
Speaker 2: lot of people get up at.
Speaker 1: Nine am lunch. Yeah, right, I used to let But
Speaker 1: the good news is you finish it one you could
Speaker 1: go out surfing. Yeah, there you go, always saying, so
Speaker 1: you're at Drexel for a year in New York, you
Speaker 1: come back to Franklin Templeton. What was your first role
Speaker 1: 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: an 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 auto 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 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 rules, yeah, So we kept it for a
Speaker 2: long time. But once the rules search, it 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 your 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 the complications that it caused on our
Speaker 2: 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 poll because people knew, obviously knew who
Speaker 1: you were and who the family was. But from when
Speaker 1: you first started at was a let me get my
Speaker 1: feet wet sort of roll. How has Franklin changed over
Speaker 1: 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, noice serious here hit the bricks. That's
Speaker 1: 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 to be passing that. So h so, so well
Speaker 1: you In the early days, it was mutual funds. It
Speaker 1: 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 well, I think.
Speaker 2: You were seeing a big shift to C shares where
Speaker 2: you know, you had a bigger back end trail and
Speaker 2: a smaller upfront, So that was happening a bit. And
Speaker 2: you know, look, I'm a big believer that some of
Speaker 2: those type commission products are still important. We look in
Speaker 2: the UK where they have something called RDR, so they
Speaker 2: don't permit any kind of commission based selling, and so
Speaker 2: it's all gone to fee based and you have a
Speaker 2: huge percentage of population or orphan from advice because essentially
Speaker 2: an advisor says, ah, that's too small, but an account it's
Speaker 2: not worth my time, whereas if they got that upfront commission,
Speaker 2: they'd spend the time doing it. And the key is
Speaker 2: the difference for people investing early. So if you invest
Speaker 2: for ten years from age twenty five to thirty five,
Speaker 2: say five thousand dollars a year, or you wait till
Speaker 2: thirty five and invest for thirty years at five thousand
Speaker 2: dollars a year, you will have more money if you
Speaker 2: start for those investments over those ten year period because
Speaker 2: of the compounding. And so getting people to invest early
Speaker 2: is really really important, and you don't want to have
Speaker 2: mechanisms regulatory environments that kind of prohibit them 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 interest in finance.
Speaker 1: It gets them thinking about money. That's not a terrible thing.
Speaker 2: No, it's not terrible. It's actually great, and especially because
Speaker 2: you can do some basic kind of asset allocation models
Speaker 2: or the robo advisor 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 gonna be the
Speaker 2: end of the CPA. Who are the number one users
Speaker 2: of turbotaxes? Because in the end, people sit there and say,
Speaker 2: wait a second, Actually, the more money people have, the
Speaker 2: more they have options to do other things, and they
Speaker 2: think the opportunity cost of spending their time trying to
Speaker 2: 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. He 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 do my own taxes.
Speaker 1: And then when you're old, it's like, whatever it costs,
Speaker 1: just do it. Get this, get this junk away from me.
Speaker 1: So so let's talk a little bit about the history
Speaker 1: of acquisitions at Franklin Templeton. Just about thirty years ago
Speaker 1: Franklin acquired Templeton, Galbrith and Hansburger. That new name of
Speaker 1: the company became Franklin Templeton. So it was Franklin along
Speaker 1: with mutual fund pioneer Sir John Templeton. You were kind
Speaker 1: of young in the farm in ninety two when this
Speaker 1: took place. What do you recall from that fairly substantial
Speaker 1: back then, a billion dollar acquisition was 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 for most. So yeah, they
Speaker 2: were they were you know, you you there were pioneers
Speaker 2: in emerging markets and and uh and really kind of
Speaker 2: global equity. And when we acquired it, a lot of
Speaker 2: people were skeptical because asset management acquisitions don't always work,
Speaker 2: and expected a big cultural difference, and and it was expensive.
Speaker 2: And I have to say that my dad understood and
Speaker 2: we It's been our philosophy, you know, throughout all our
Speaker 2: acquisitions in the asset management business. What are you buying.
Speaker 2: You're buying people their investment capability and their investment process.
Speaker 2: So don't destroy value by going in and messing with it.
Speaker 2: So we really left it stand alone on the investment
Speaker 2: side and then integrated the rest of the firm, and
Speaker 2: that worked 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 abount? Right?
Speaker 2: And then we took on some debt.
Speaker 1: Yeah, what was the thinking that what did Leg Mason
Speaker 1: bring 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 corplus 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 Putinham 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 thinking behind acquiring Putnam.
Speaker 2: So let me step back and just say, serve of
Speaker 2: what our strategy is in acquisition. So we've done I
Speaker 2: think ten in the last Putnam will be R tenth
Speaker 2: in the last three years, and they've all been focused on.
Speaker 2: If you think about the big macro trends going on
Speaker 2: in the industry, one is private markets are here to stay,
Speaker 2: and they're here to stay. One take private credit. Right
Speaker 2: the banking crisis of the Global financial crisis, had regulators
Speaker 2: changed capital requirements for banks. Banks preserve their capital for
Speaker 2: their best clients, and it created this opportunity for you know,
Speaker 2: basically private credit outside the banking system. And honestly, with
Speaker 2: the discussion around which I have strong opinions on discussion
Speaker 2: around more capital requirements post the regional banking crisis, I
Speaker 2: think that's only gonna get worse and then you'll.
Speaker 1: Well, that's going to create opportunities for firms that are
Speaker 1: filling that void exactly. And by the way, this really
Speaker 1: began in the late nineties early two thousands as the
Speaker 1: big banks moved upscale. They like to void underneath and
Speaker 1: 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? Right? A
Speaker 2: public company has quarterly earning pressure. You know, there's a
Speaker 2: lot of scrutiny around compensation of the staff, there's a
Speaker 2: 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 it's really important that we're doing it now.
Speaker 1: But if you're a private comp if your public company
Speaker 1: shareholders are going to give you grief about that sort
Speaker 1: of adi.
Speaker 2: If it's impacting your quarterly earnings. We're fortunate in that
Speaker 2: we still have founders and employees and management that have
Speaker 2: a significant amount of the stocks, so we can sort
Speaker 2: of withstand some of that pressure. But if your stock's
Speaker 2: under performing, you can always get an activist in who's
Speaker 2: looking short term to capture the benefit and say we'll
Speaker 2: be worth more if we break all this up. That
Speaker 2: doesn't build a long term sustainable company. But that's the
Speaker 2: type of pressure that public companies have, and so we
Speaker 2: believe that trend is here to stay, and we knew
Speaker 2: 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 POWERCREP,
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 funders phantom taxes. Hey, if
Speaker 1: it's a qualified account, it doesn't matter, it's irrelevant. And
Speaker 1: there are advantages to mutual funds in terms of trading
Speaker 1: and management that give it a leg up over over ETFs,
Speaker 1: especially in that sort of environment. 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 Results
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?
Speaker 2: Oh fantastic. I mean you probably could having being a
Speaker 2: user of it, you probably could even speak to this
Speaker 2: more than I can, But I can tell you we
Speaker 2: think again, a big trend is this direct indexing. But
Speaker 2: the reason we love Canvas, and I know you know
Speaker 2: this is Canvas grew out of a quant shop that
Speaker 2: built the technology to manage their quant portfolio. And so
Speaker 2: when initially you just have direct indexing with tax optimization,
Speaker 2: but we look at it as a tool where we
Speaker 2: think you can take just like the trend towards SMA
Speaker 2: separately managed accounts, you can use the technology of Canvas
Speaker 2: express our active management strategies in there. So take a
Speaker 2: mutual fund strategy, deliver it through the Canvas platform overlay
Speaker 2: with tax optimization, and even include some ESG overlay. So
Speaker 2: if you have a client who says, you know, I
Speaker 2: really want to you know, my daughter will say, I
Speaker 2: really want things that are pushing towards net neutral, on
Speaker 2: net zero and carbon, so she wants her portfolio manager.
Speaker 2: That way, you can put those tags in there but
Speaker 2: still take a professionally managed strategy and express it through
Speaker 2: that technology. So we looked at that and said, this
Speaker 2: is going to be really significant in the future. We
Speaker 2: have to be in the direct index space, but more importantly,
Speaker 2: we have to have great technology because we think this
Speaker 2: is just the beginning of a trend.
Speaker 3: 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. Oh 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 will 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: Yeah, so they can include that now in in like
Speaker 2: 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 was another private equity
Speaker 1: and secondary entity. And then I didn't realize you guys
Speaker 1: bought Advisor Engine that was like a big sort of
Speaker 1: semi robo advisor, uh for for advisors. I mean this
Speaker 1: is a long line. And then Alternative Credit Manager, Benefit
Speaker 1: Street Partners, and then Athenia Capital. I mean, you guys
Speaker 1: have been on a tear. All of these things are
Speaker 1: different products filling in holes. Different services, and you want
Speaker 1: to be able to offer a full rounded set of
Speaker 1: products to 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.
Speaker 2: Today, well, the ra as have been growing again as
Speaker 2: the fee based environment and the fact that people honestly
Speaker 2: can take their book and walk in and set up
Speaker 2: their own shingle and be on a platform provider, and
Speaker 2: so it's a really important channel for us. It's it's
Speaker 2: a we are much bigger in the wirehouse and the
Speaker 2: UH in the independent channels because that's kind of been
Speaker 2: our DNA historically. UH and and those who who were
Speaker 2: big in the ETF tended ra as have tended to
Speaker 2: lean more towards ETFs, although that's a little bit of
Speaker 2: a stereotype, and so it's been an important area of
Speaker 2: focus for us to 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: UH 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 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 little bit of a blurred answer steam yeah, and
Speaker 2: 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 back
Speaker 1: test 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 this 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.
Speaker 1: Years zoom before Zoom, Yeah, exactly, and.
Speaker 2: So we were comfortable. It was already part of our
Speaker 2: DNA to have meetings where inevitably somebody was on video.
Speaker 2: So it was already kind of how we operated. Now
Speaker 2: you had everybody on video, and I think the thing
Speaker 2: that I appreciated was actually people's finally believed you can
Speaker 2: run businesses that way. And so, you know, in many ways,
Speaker 2: we closed the leg Mason deal two months early, and
Speaker 2: I think it was because we were in some ways
Speaker 2: more efficient by doing it via video, not everybody getting
Speaker 2: on an airplane and going and trying to work your
Speaker 2: 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
Speaker 1: run it. So were there any complications from all this
Speaker 1: remote work in your CEO transition or you were in
Speaker 1: place when everything hit the fan and you know, it
Speaker 1: was just a matter of tacking into the wind when
Speaker 1: 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 Templeton. 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, amazing, And so you know, if you think about
Speaker 2: that and you overlay that in any decision, is this
Speaker 2: good for the client? Then I think that gives you
Speaker 2: a lot of clarity. It's kind of a north star there.
Speaker 2: And then I'd say, my dad is you know, he's
Speaker 2: always incredibly fair to people, and you recognize that every
Speaker 2: person contributes to who we are as a company. When
Speaker 2: your call center employee picks up the phone and is
Speaker 2: talking to a client, They're shouldering the entire reputation of
Speaker 2: the firm on them with that client. And my dad
Speaker 2: always understood that, and so there's just a genuine respect
Speaker 2: for everybody's contribution to the company, and I think that's
Speaker 2: 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 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?
Speaker 2: A challenging They were definitely tires of where I'd say
Speaker 2: to my brother, listen, stop, you can't treat me like
Speaker 2: your little sister in a meeting. But no, right, But
Speaker 2: you know what, as a family, we get along great.
Speaker 2: And my brother and I get along great, and you know,
Speaker 2: he's still executive chairman today, and you know, we talk
Speaker 2: about parts of the business, things that I'm struggling with.
Speaker 2: I'll talk to him, I'll talk to my dad.
Speaker 3: 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? Yeah?
Speaker 2: No, I mean for sure, you're you. 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 and that
Speaker 2: that is a short term gain, right, and doesn't build
Speaker 2: a long sustainable business. So it's better to have that,
Speaker 2: you know, for and I genuinely believe scale is going
Speaker 2: to be more and more important as I mentioned, for
Speaker 2: things like data for asset managers, and so building a
Speaker 2: long term business really important. An activist doesn't take on
Speaker 2: a company that's got a forty percent you know, control,
Speaker 2: because you can't get enough stock to be able to
Speaker 2: ultimately you know, right, again, it's.
Speaker 1: Ninety percent of the remaining sixty it's it's so that
Speaker 1: it does create a little bit of a buffer. So
Speaker 1: you guys can think very long term, make acquisitions and
Speaker 1: make investments which other publicly traded companies.
Speaker 2: Might not have that luxury, right, And we're totally aligned
Speaker 2: with the shareholders because we're looking for the best outcome
Speaker 2: for the stock. And again sometimes that's making some investments
Speaker 2: today that you know will pay 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.
Speaker 1: On the 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 them 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 going
Speaker 2: to be a billion people who enter the middle class
Speaker 2: in the next decade, and eighty seven percent of them
Speaker 2: we're going to be in Asia. I lived in India
Speaker 2: for a little while when I was running the Technology
Speaker 2: and 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: Moty'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 can 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 India would
Speaker 2: prefer to go to an I than Harvard. They look
Speaker 2: at Harvard as a safety school. I mean really and
Speaker 2: so I.
Speaker 1: T though, is really still very difficult, right I go.
Speaker 2: But 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 less 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 is
Speaker 2: eighteen percent, the next the third is like Japan at
Speaker 2: four point nine. I mean, it's a big, big market
Speaker 2: and it's going to be important, and so you know,
Speaker 2: we have a joint venture there and we continue to
Speaker 2: you know, invest in China. But then there's other markets
Speaker 2: you know that you look at There're three hundred million
Speaker 2: people in Indonesia. They get their policies, right, it's going
Speaker 2: to be amazing growth. Vietnam, you know another one. Capital
Speaker 2: markets are really tough there, but you know it should
Speaker 2: be a great opportunity and growth. And you see some
Speaker 2: of the supply chains. People are diversifying. India as one
Speaker 2: of the beneficiaries of that. Vietnam is another beneficiary of that.
Speaker 2: Japan even in the case of semiconductors. So I think
Speaker 2: there's just a lot going on there that is pretty interesting.
Speaker 2: And then the Middle East is another amazing Yeah.
Speaker 1: They seem to be purposefully trying to morph their reliance
Speaker 1: 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
Speaker 2: mind oil runs out. I don't get three generations for
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 cheek 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 energy, but materials. So you
Speaker 1: have confidence in what's going to take place in the
Speaker 1: Middle East. How does one invest into that region? If
Speaker 1: you're a retail investor, Hey, I like the idea of India,
Speaker 1: I could go buy an ETF. I like the idea
Speaker 1: of Middle East. How do I invest in that?
Speaker 3: Well?
Speaker 2: I think you got to spend a lot of time
Speaker 2: there and go see because I took my executive committee
Speaker 2: to the Middle East. 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 the
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 exciting yelled exactly, and so you know, I
Speaker 2: think that's that's terrific, right, And then you know the
Speaker 2: other thing is volatility is good for active managers, right,
Speaker 2: It shows whether you have skill, and we've we've come
Speaker 2: off a decade where basically government's been pumping money into
Speaker 2: the system. If you didn't have access to private markets,
Speaker 2: you couldn't make any money in fixed income. So where'd
Speaker 2: you go? You went into equities. It just exploded equities up.
Speaker 1: And was that twenty twenty fourteen fifteen percent years exactly?
Speaker 1: 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 the S and P five
Speaker 2: hundred based on volatility and concentration. And so in those
Speaker 2: types of market it's hard for an active manager to
Speaker 2: actually beat that but when you have volatility, that's when
Speaker 2: 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 the money market fund. I mean that's pretty aggressive, right, really,
Speaker 2: And I think that we've seen a lot of money
Speaker 2: flow into money market funds because people saw that they
Speaker 2: could get that and they weren't ready to get back
Speaker 2: into the market. Now, having said that, we're close to
Speaker 2: the end of the cycle. Uh, you know the rate
Speaker 2: hike se right, Okay, you know, I think the FED
Speaker 2: is saying they're going to still raise more, and I
Speaker 2: think you could see one to two more times that
Speaker 2: they raise this year. I think I think people are
Speaker 2: finally over the they're going to cut this year. I
Speaker 2: definitely don't think they're going to cut this year.
Speaker 1: Those are 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 really 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 a matter of fact, Jaypal's trying to be very
Speaker 2: clear with it, and the market keeps fighting the FED
Speaker 2: and thinking, you know, they're going to call his bluff
Speaker 2: or something. I think that the FED is being very
Speaker 2: data driven at this point and uh, and he's trying
Speaker 2: to make it clear that if they're the economy still
Speaker 2: 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 wild market volatility.
Speaker 1: Just 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.
Speaker 1: Seven 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: We don't think, or at least I don't think. And
Speaker 2: by the way, we have five different fixed income teams
Speaker 2: at Franklin Templetons, so there are some different views on this.
Speaker 2: But that we'll have a deep recession. Uh and uh.
Speaker 2: You know, but the FED is definitely jammed on the
Speaker 2: brakes and it's still been hard.
Speaker 1: 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 2: Well. I think the challenge for him is that they've
Speaker 2: been very vocal about the two percent target, and which is.
Speaker 1: A little weird because two percent target was post nine
Speaker 1: to eleven, post financial crisis, post pandemic, where rates were
Speaker 1: at zero and two percent was the upside target. Maybe
Speaker 1: 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 lighting
Speaker 2: up on that target, I think it's tough for him
Speaker 2: to just take too long of a break. Sure you
Speaker 2: can take the break through the summer, Yeah, take this.
Speaker 1: Off, go fishing. They had a Jackson hole his great
Speaker 1: fly fishing there you go, right, I mean he could
Speaker 1: just chill out for a while, all right. So I
Speaker 1: want to throw one curve ball at you. And as
Speaker 1: a West Coast girl, I got to ask you. You're
Speaker 1: on the board for the San Francisco Giants. What was
Speaker 1: that experience like?
Speaker 2: So I was Now, my brother Greg is the control
Speaker 2: person at the Giants. Look, it was a blast. I
Speaker 2: have to say, Uh, the thing that I learned, I
Speaker 2: think I know a little bit about baseball. I don't
Speaker 2: know anything about baseball. People talk about statisticians, they know everything. Yes,
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 a lot of fun. And of course I
Speaker 2: was there as I tease my brother about. You know,
Speaker 2: when I was on the board we won three World Series?
Speaker 2: Have you done?
Speaker 1: What have you done? Right? Exactly?
Speaker 2: He actually knows a lot about baseball and I don't.
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.
Speaker 2: Whin I think the key was Jenny wasn't really involved
Speaker 2: in making too.
Speaker 1: Many decisions when to bring in the left, we need
Speaker 1: to switch pictures. That wasn't part of your responsibilities, all right,
Speaker 1: So I know I only have you for a little while.
Speaker 1: Let me jump to my favorite question that we ask
Speaker 1: all our guests, starting with tell us what you've been
Speaker 1: keeping yourself entertained with? What are you watching or listening
Speaker 1: 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 huff flick seriously, which I thought was
Speaker 2: it's a it's like a dark comedy book.
Speaker 1: Very funny.
Speaker 2: Yeah, very good, but very good. It was funny. 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 exactly, 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 lost the Yeah.
Speaker 2: No, exactly. So I love watching that kind of thing.
Speaker 1: Huh really really interesting. Uh I know the answer, but
Speaker 1: I got to ask anyway, tell us about your early
Speaker 1: 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. Uh. I feel incredibly blessed
Speaker 2: to have them and and I am grateful. Uh. And
Speaker 2: like I said, he's uh he never tells you what
Speaker 2: 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 understand 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, but
Speaker 2: I think you know.
Speaker 1: His book or the someone 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 follow it.
Speaker 2: I really enjoy his historical fiction books. You 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: Every one 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. Good.
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 were investing and
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 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 one is it's
Speaker 2: a great industry too, is go in and be just curious,
Speaker 2: ask questions. Read I always, you know, say to people,
Speaker 2: read the CEO's letter in an annual report if you
Speaker 2: want to know what's on your boss's mind, right, because
Speaker 2: they're gonna lay it out there and try to connect
Speaker 2: what you do to the bigger picture of 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 investing.
Speaker 1: Really really, really good stuff. Jenny Johnson, thank you so
Speaker 1: much for being so generous with your time. This has
Speaker 1: 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 Ridolts, 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 Ridolts. You've been listening to Masters in Business
Speaker 1: on Bloomberg Radio. Ye