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Speaker 1: Bloomberg Audio Studios, podcasts, radio news. Jenny, wonderful to see

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Speaker 1: you again.

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Speaker 2: I mean, there's a lot going on in the market,

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Speaker 2: just a couple of things here and there, I think, Yeah, So,

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Speaker 2: how do you see the role of traditional money actually

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Speaker 2: changing with alternatives and how do you see it evolving

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Speaker 2: in the next couple of years.

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Speaker 3: Well, look, I think there's some trends that are obviously

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Speaker 3: going to just continue right. One is alternatives, and you know,

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Speaker 3: you look at I think a lot of this the

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Speaker 3: growth and alternatives actually comes from kind of the two

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Speaker 3: thousand and eight financial crisis. So one, you know, with

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Speaker 3: banks not changing the capital requirements around banks. Banks really

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Speaker 3: want to preserve their capital for their biggest and best clients,

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Speaker 3: and so it created this opportunity for private credit to

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Speaker 3: step in. I think that honestly, low interest rates were

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Speaker 3: probably one of the things that fueled private equity, but

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Speaker 3: also a bit of the environment where I think less

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Speaker 3: and less people will less and less companies want to

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Speaker 3: go public. And I don't think that trend changes. I

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Speaker 3: don't think I don't think there's a lot of people

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Speaker 3: going Boy, I'd really like to be a public company

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Speaker 3: CEO these days, and I think in a time where

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Speaker 3: you have all these great technological advances like AI, where

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Speaker 3: companies need to invest in the technology that may not

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Speaker 3: pay off for years, it's really hard with the pressure

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Speaker 3: of cordingly earnings, and so in some cases transforming a

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Speaker 3: company ends up being better in the structure of private equity.

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Speaker 3: So I think like that trend is here. I think

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Speaker 3: I'm a big fan of blockchain. I think that's going

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Speaker 3: to open up new investment opportunities and kind of interesting things.

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Speaker 3: I always say that eventually your financial advisor is going

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Speaker 3: to report your portfolio in three ways.

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Speaker 1: They're going to say, here's your investment.

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Speaker 3: Return, here's the impact you have, and by the way,

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Speaker 3: here the loyalty programs that you've gotten from your tokenized

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Speaker 3: equity ownership that have now tied loyalty programs to it.

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Speaker 3: So that's where I think things ultimately evolve.

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Speaker 2: So on blockchain and bitcoin does change significantly under a

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Speaker 2: trumpet restoration.

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Speaker 1: Oh for sure.

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Speaker 3: And again I always make sure you separate bitcoin from blockchain.

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Speaker 1: Okay, bitcoin different deal.

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Speaker 3: And you know, I was a skeptic of it initially,

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Speaker 3: but a couple of things people said to me. One

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Speaker 3: somebody who lived in Israel, said, my parents and grandparents

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Speaker 3: had their money taken away by the government. They will

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Speaker 3: always keep a portion of their savings in bitcoin. And

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Speaker 3: then I had actually an employee who lived in the

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Speaker 3: Middle East and said, if I say the wrong thing,

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Speaker 3: I can have my accounts frozen. So I always keep

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Speaker 3: a percentage of my earnings in bitcoin, and obviously in

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Speaker 3: the kind of key because they can keep it protected.

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Speaker 3: So if you grow up in a society where you

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Speaker 3: feel your money safe, you think that doesn't make any

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Speaker 3: sense and why should this external currency come in. But

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Speaker 3: if you actually think that there's a lot of the

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Speaker 3: world that would like that safety and control, you can

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Speaker 3: see where bitcoin has a lot of opportunities. And then

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Speaker 3: blockchain is again, it's a technology. It's a technology. It's

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Speaker 3: going to do a lot of really good things in

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Speaker 3: financial services. A lot of toll takers take a piece

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Speaker 3: of a transaction that can eliminate it and so it's

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Speaker 3: going to create more efficiencies.

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Speaker 1: It's going to open up investment opportunities.

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Speaker 2: Jenny, do you think that there'll be a catalyst for

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Speaker 2: companies to want to go public again or is it

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Speaker 2: just private all the way? Is this, you know, the

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Speaker 2: trend for the next five ten years.

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Speaker 3: So I actually think it used to be you go venture,

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Speaker 3: private equity, IPO, public markets, I actually think so I

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Speaker 3: think that stays, and we see it where people are

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Speaker 3: just waiting a lot longer going to go public. But

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Speaker 3: at some point people want that liquidity and monetize it,

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Speaker 3: and the private markets aren't yet that liquid there's some amount,

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Speaker 3: But I actually think what you're starting to see is

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Speaker 3: public companies being taken private because they we invest in

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Speaker 3: a company, invest in it and they have three trillion

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Speaker 3: dollars in assets by financial advisor platform.

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Speaker 1: Right, they need to invest in it.

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Speaker 3: It is hard as a public company to make those

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Speaker 3: kind of investments and stay of the street. Hey, by

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Speaker 3: the way, this is going to impact earnings for the

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Speaker 3: next eighteen months. So they become private, right, And so

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Speaker 3: they were taken private by bank capital, and then they'll

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Speaker 3: go public, I think again, So I think there's going

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Speaker 3: to be this new cycle of pulling people off, doing

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Speaker 3: the investment that needs to happen, whether it's AI investments

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Speaker 3: or whatever, and then going public again.

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Speaker 2: But do you have a concern on valuations in private markets?

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Speaker 2: I mean, this comes over and over again, but we

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Speaker 2: haven't really seen anything. Maybe real estate wan a bit ugly,

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Speaker 2: but there's nothing huge.

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Speaker 3: Yeah, I mean I actually one of the concerns, you know,

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Speaker 3: investment grade and even some non investment grade of private

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Speaker 3: credit is trading at the same spreads as traditional fixed income,

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Speaker 3: Like you get no premium for ill liquidity. That worries me,

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Speaker 3: that kind of thing I think. I mean, fixed income

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Speaker 3: markets are priced for perfection at the moment, so you know,

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Speaker 3: you always have to pick your spots. There's we have

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Speaker 3: a huge secondaries business. I think that they've deployed this

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Speaker 3: current fund with about twenty six percent average discount. There's

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Speaker 3: been seventy percent deployed. And you know what I say

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Speaker 3: is it's not that the valuations are wrong of the

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Speaker 3: private equity. It's that there's not a lot of supply

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Speaker 3: to create liquidity in that market because there's not a

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Speaker 3: lot of secondaries. But that gives you a little bit

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Speaker 3: of a pricing element.

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Speaker 2: So what does that mean that you'll do for actually

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Speaker 2: Franklin Templeton in terms of risk taking and to take

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Speaker 2: advantage of these new trends, do you change the company

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Speaker 2: at the margins?

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Speaker 3: Well, we had to, right, so we've done ten acquisitions

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Speaker 3: in the last five years, and those acquisitions have been

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Speaker 3: focused on really capabilities that we didn't have. I mean,

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Speaker 3: our job is to provide our clients with choice across

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Speaker 3: the full risk spectrum and then deliver it in different

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Speaker 3: vehicles which are appropriate to whatever the client's looking for.

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Speaker 3: And so we recognize that, Look, this alternatives trend isn't

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Speaker 3: going away. You see more and more institutions and right

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Speaker 3: now we're really nascent as far as the wealth channel

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Speaker 3: the average person's access to that, but you could see

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Speaker 3: that trend and you could see the excess returns in

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Speaker 3: there by the better players. I mean, there's a big

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Speaker 3: dispersion in the top performer and the bottom performers the alternatives,

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Speaker 3: and so we recognize. So today we're a top ten

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Speaker 3: alternatives manager. So that was most people think of us

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Speaker 3: as really just traditional equity and fixed income, but we're

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Speaker 3: actually quite large in the alternatives.

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Speaker 1: So it's again about being creating choice.

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Speaker 3: We also filled in some other product gaps that we had,

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Speaker 3: and then now it's going to be about delivering those

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Speaker 3: capabilities appropriately to clients. And so if you look at

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Speaker 3: today with the wealth channel only having about five percent

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Speaker 3: allocation alternatives, that number you talk to big distributors.

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Speaker 1: I think that number is probably.

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Speaker 3: Closer than fifteen percent, which will mean some clients will

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Speaker 3: be zero and some will be thirty. But as it's

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Speaker 3: fifteen percent, what's the best way to deliver it? Well,

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Speaker 3: if you have a lot of money, if you're a

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Speaker 3: high at worth, that might be in direct investments in

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Speaker 3: those alternatives, but it also might be a managed to

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Speaker 3: count with a sleeve or a portion of that mutual

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Speaker 3: fund or use its fund that has an allocation of

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Speaker 3: the alternatives, right, And that way it creates a certain

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Speaker 3: amount of liquidity that's important for a lot of people.

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Speaker 2: I mean, do all these changes change the fee structure?

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Speaker 3: So look, the biggest probably pressure on the fee structure

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Speaker 3: on the traditional markets.

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Speaker 1: Was of course passive, right.

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Speaker 3: I think in the alternatives, it's really important to understand

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Speaker 3: the best top performing private equity manager's top quartel outperform

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Speaker 3: bottom quartile by twenty percent a year. Okay, top quartile

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Speaker 3: versus bottom in real estate was ten percent a year

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Speaker 3: about and private credit was five percent a year. The

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Speaker 3: top quartel performers are over subscribed and so they are

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Speaker 3: not feeling any feed pressure. Right, It's about people continuing

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Speaker 3: to make sure they can come up with liquidity. It's

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Speaker 3: why there's a secondary business because if there's a call

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Speaker 3: for that top manager to start a new fund, you

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Speaker 3: don't want to be left out. My worry is who's

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Speaker 3: on sale. It's the bottom who's going to have the

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Speaker 3: feed pressure. It's the bottom quartile performing. And we have

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Speaker 3: trained so many people to think only about fees that

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Speaker 3: as we start to introduce alternatives and things like into

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Speaker 3: retirement programs, and if it's just fees, the lower performing

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Speaker 3: guys are going to be ones who cut their fees.

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Speaker 3: And you're better off being in the public markets than

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Speaker 3: you are to be in a poor performing alternative manager.

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Speaker 2: And I also want to ask about outflows. So you

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Speaker 2: have been a tough spot because of LEMCO.

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Speaker 3: What happened, Well, it's there's never much upside to talking

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Speaker 3: about government investigation publicly. So you know, look, you know

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Speaker 3: it's a difficult situation.

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Speaker 1: It's it's was.

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Speaker 3: You know, one one person, uh, and you know we're

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Speaker 3: cooperating with the government on it. I think the most

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Speaker 3: important thing is we still have a lot of clients

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Speaker 3: invested in Western asset management, and so we have been

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Speaker 3: made sure that we insulated the investment team from a

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Speaker 3: lot of what's going on with the investigation, so that

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Speaker 3: we can ensure that they're managing clients money and staying

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Speaker 3: focused on that. And so that's been you know what

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Speaker 3: has been important for us to do.

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Speaker 2: Will you fold it closer into the business.

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Speaker 3: So our model has always been and it's and I

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Speaker 3: think all the way back to when Franklin acquired Templeton

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Speaker 3: was look at, if you're in the asset management business,

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Speaker 3: what are you buying when you acquire a company. You're

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Speaker 3: buying people in their investment process. So don't destroy value

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Speaker 3: by suddenly going in and messing with it. So we

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Speaker 3: leave the investment team to be very much independent, and

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Speaker 3: then we take things like the fund administration, some of

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Speaker 3: the client service and we tend to bring those things

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Speaker 3: in technology and those things. In the case of Western

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Speaker 3: the other thing you can't do in the asset management

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Speaker 3: business is do a hostile takeover because people can walk

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Speaker 3: out the door, right, It's not like a lot of

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Speaker 3: other types of businesses. And so in that they negotiated

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Speaker 3: a five year standalone so they really have run independently

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Speaker 3: as a company. And so we are now in the

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Speaker 3: process of looking what does it make sense to bring

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Speaker 3: in We've hired compliance folks to take a look at

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Speaker 3: and obviously continue to enhance the policies and procedures within there.

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Speaker 3: We also, of course took a look more broadly at

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Speaker 3: all the rest of the Franklin's investment teams to ensure

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Speaker 3: that we're confident with all the policies and procedures. And

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Speaker 3: you know, well, the answer is, we do what makes

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Speaker 3: good common sense with each So they're all slightly different.

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Speaker 1: We usually let the CIO define.

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Speaker 3: A bit of what that is, and I go back

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Speaker 3: to Mutual Series today has the traders sitting on the desk,

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Speaker 3: Templeton says, I prefer to use the global trading platform.

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Speaker 1: So it's what makes sense for that investment team.

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Speaker 2: How do you find the right acquisition? Was it a

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Speaker 2: tough I mean, you know, have been one of the

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Speaker 2: most inquisitive.

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Speaker 3: Yeah, yeah, So I always say it's kind of the

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Speaker 3: three season look at investment. Bankers will tell you why

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Speaker 3: it's a great price and a great strategic fit, but

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Speaker 3: they'll never talk about the culture and the paper, and

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Speaker 3: that is what determines whether a deal makes it or not.

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Speaker 3: And so the thing that we look for culture I

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Speaker 3: say it's the three seas. How quickly when you're talking

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Speaker 3: to the team, do they talk about clients right? Pretty

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Speaker 3: important clients, you know? Do they collaborate with each other?

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Speaker 3: Do they actually seem to like each other? And you

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Speaker 3: can see a lot of dynamics on that. And then

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Speaker 3: the third do they have a mindset of continuous improvement?

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Speaker 1: Right?

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Speaker 3: And especially a time like now with all theechnological innovation

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Speaker 3: that's going on, if you don't have a mindset of saying,

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Speaker 3: how should we be thinking?

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Speaker 1: I mean, how should investment team think about AI?

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Speaker 3: I don't know that nobody knew it has the answer,

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Speaker 3: but if you are not thinking about it, you're going

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Speaker 3: to be left behind.

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Speaker 1: And so did they have that mindset?

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Speaker 2: How are you thinking about AI? So?

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Speaker 3: I the type and I love perplexity and all the

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Speaker 3: all the media guys hate it because it's Look, I

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Speaker 3: can't remember last time I googled something. I go to

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Speaker 3: to you know, the either Chatchipete claud or perplexity. I

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Speaker 3: forced myself to use it because you have to use it.

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Speaker 1: Usually.

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Speaker 3: What happens with technological innovation is the first thing that

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Speaker 3: people do is they make more efficient what they do

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Speaker 3: today because that's all we can imagine is what we

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Speaker 3: do today.

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Speaker 1: But as you start to get better.

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Speaker 3: At the tool, and so we rolled out Microsoft Copilot

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Speaker 3: very broadly in the firm because we want people to

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Speaker 3: use the tool, then they will start to come up

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Speaker 3: with the next idea. You know, when when the iPhone

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Speaker 3: came out, we said, oh, this is cool to it's

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Speaker 3: a you know, a a phone, a media flashlight, a camera.

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Speaker 3: But what Apple was doing was they were unleashing the

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Speaker 3: innovation of people.

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Speaker 1: That is what AI is going to do, and we

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Speaker 1: won't see it and you know for a little while.

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Speaker 3: Today from an investment standpoint, it's all the picks and shovels.

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Speaker 3: It's the you know, the navidis and the cloud services.

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Speaker 3: But the real investment opportunity is understanding which firms in

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Speaker 3: each sector actually start to make it be a differentiator

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Speaker 3: and it'll be very hard for the others in that

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Speaker 3: sector to catch up. And so I think, you know,

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Speaker 3: part of an investment process is asked, what are you

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Speaker 3: doing now.

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Speaker 1: We have a strategic.

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Speaker 3: Partnership with Microsoft that we announced where Microsoft's actually made

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Speaker 3: us a strategic partner because some of the things that

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Speaker 3: we had laid out they said, are really challenging from

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Speaker 3: a technical standpoint, and they wanted to be involved. They're

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Speaker 3: actually providing US resources to build it.

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Speaker 2: How do you think about trade and tariffs? So Donald

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Speaker 2: Trump will be inaugurated January twentieth, I mean, are you

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Speaker 2: expecting more deregulation? What does it mean for asset managers?

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Speaker 2: Or is it inflationary because of the specter of terriffs.

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Speaker 3: Well, so on the tariff front, I always say, you know,

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Speaker 3: like remember Trump is a he's a deal maker, right,

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Speaker 3: So if you're the deal maker, the first thing you

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Speaker 3: want to do is express your position of power. So

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Speaker 3: the greatest way to express how to say, I'm going

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Speaker 3: to do all these trade tariffs on all these you

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Speaker 3: know countries, and then you start there and then you

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Speaker 3: negotiate what you want. So you think about it and say,

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Speaker 3: what does he want? You know, in the case of Mexico,

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Speaker 3: he'd like help on immigration. Actually, he probably really does

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Speaker 3: want to reduce the amount of FDI investment.

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Speaker 1: From China that's increased.

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Speaker 3: I think in twenty eighteen it was like two hundred

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Speaker 3: and seventy million. Now it's just under six billion. So

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Speaker 3: you know, he'll probably want some help there. As they're

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Speaker 3: re shuffling their supply chain Europe. You know, he'd probably

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Speaker 3: like some help from a military investment on he'd probably

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Speaker 3: like some help on you know, the attacks on some

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Speaker 3: of the big tech companies.

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Speaker 1: So he'll use that as his negotiation.

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Speaker 3: Now, there are going to be tariffs, and with China,

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Speaker 3: I think China's it's just going to be tough. But

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Speaker 3: remember China has just responded with now saying they're not

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Speaker 3: going to export a bunch of minerals that are critical

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Speaker 3: to the US. We have to remember the US needs

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Speaker 3: China and China needs the US. So there has to

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Speaker 3: be a reasonable approach on both sides, and I think

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Speaker 3: that will happen over time. But tariffs tend to be inflationary.

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Speaker 2: Do you worry about emerging markets? You're very embedded in

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Speaker 2: a lot of the emerging markets that could be the

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Speaker 2: biggest losers in this.

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Speaker 1: Yeah, they can't. I mean they've been pretty savvy.

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Speaker 3: You figure out places where there's growth opportunity one either

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Speaker 3: you know, China plus one supply chain. I know that

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Speaker 3: Trump has said that he's going to go after and

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Speaker 3: try to reduce some of that, but that's very real

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Speaker 3: and it's helping different markets. You can look at some

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Speaker 3: you know, take in India, look at India's going to

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Speaker 3: grow just from domestic They could just get their domestic

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Speaker 3: economy continue to go.

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Speaker 1: It's going to be a great opportunity.

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Speaker 3: Fifty six percent of the population under the age of

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Speaker 3: twenty five. So you know, you have to pick your markets.

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Speaker 3: We like Korea, Thailand in certain sectors the consumer or

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Speaker 3: in Thailand we think is a good opportunity. So you know,

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Speaker 3: it just depends and you have to figure those out.

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Speaker 3: That's why I like active investing.

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Speaker 2: There you go always a pitch. There's what about deregulation.

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Speaker 2: Is it going to be good for.

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Speaker 1: I think well, I think he's expressed.

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Speaker 3: I mean, here's you know, it's only the last time

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Speaker 3: we saw president that was already in power was Grover Cleveland.

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Speaker 3: So Trump's been in power, We've seen what he's done.

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Speaker 3: He has said that he wants less regulation. He did

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Speaker 3: that his first term, so I think we would expect

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Speaker 3: to see that and I think that tends to be

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Speaker 3: good for businesses, good for equities.

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Speaker 1: You have a lot of fixed income.

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Speaker 2: I mean, I don't you know, there's talk about independence

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Speaker 2: of the FED, which he's now walked back on.

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Speaker 3: Well, it's interesting because if you actually do a bottoms

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Speaker 3: up earnings projection for next year on the SMB five hundred,

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Speaker 3: it's like fourteen and a half. It's slightly higher than that,

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Speaker 3: so that these are companies who are projecting their earnings

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Speaker 3: being up right. So they're looking at a lot of

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Speaker 3: the tailwinds that are going on in the US economy.

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Speaker 3: You know, whether they're over zealous about what interest rates

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Speaker 3: ultimately do, who knows, But you know, I think there

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Speaker 3: that it seems to be very positive for equities, and

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Speaker 3: I think the good story in twenty twenty four is

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Speaker 3: that the equity markets broadened out as far as the returns.

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Speaker 2: So what's the best way if I gave you like

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Speaker 2: a three million, how do you deploy those three millions?

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Speaker 3: Well, if you could afford the illiquidity risk. Okay, So

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Speaker 3: I'm just gonna tell you two that I love right now.

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Speaker 3: One is secondaries. Just again, because you had six trillion

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Speaker 3: deployed in private equity, and you've had about one hundred

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Speaker 3: and fifty billion deployed secondaries and maybe another one hundred

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Speaker 3: and fifty billion raised.

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Speaker 1: And we thought that it would dry up once the

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Speaker 1: equity markets came.

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Speaker 3: But the reality is, you know, when the IPO market

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Speaker 3: has slowed down, people need liquidity, and so they're going

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Speaker 3: to secondary managers and the returns we're seeing some of

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Speaker 3: the best discounts that we've seen in the history of it.

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Speaker 3: And the second one is actually real estate debt. And

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Speaker 3: here's why most of the regional banks were the big

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Speaker 3: lenders in the real estate market. And the reality is

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Speaker 3: the office. If you're not a great a office. I

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Speaker 3: think a lot of the real estate people would say,

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Speaker 3: we're still not sure we've seen the bottom yet. But

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Speaker 3: what you see a lot of the bankers saying is, hey,

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Speaker 3: don't hand me the keys back. I'll give you a

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Speaker 3: good term rolling it forward. But that means that they're

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Speaker 3: not lending to the new developers out there, and so

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Speaker 3: we're seeing that there is a real opportunity so Benefits.

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Speaker 3: Street Partners are a private credit manager actually has about

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Speaker 3: nine billion in real estate debt that we're having conversations

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Speaker 3: with Clarion Partners, our real estate team real estate manager saying, hey,

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Speaker 3: if we end up taking over any of these properties,

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Speaker 3: we'd love to talk to you about how to think

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Speaker 3: about monetizing it and maximizing return, and in it they

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Speaker 3: identified that there's this real opportunity because as these regional

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Speaker 3: banks have stepped back, you can't just be a private

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Speaker 3: credit manager and say, oh today I'm a real estate expert.

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Speaker 3: You actually have to have that expertise. So we think

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Speaker 3: that's another really interesting So those are two i'd say.

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Speaker 2: Go for and Jenny. In terms of interest rates, are

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Speaker 2: we higher for longer given all of the uncertainty out there?

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Speaker 3: I'd say with the US deficit, I don't see how

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Speaker 3: in the debt, I don't see how.

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Speaker 1: That you you can't.

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Speaker 3: You obviously have you know, a pretty robust economy, all

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Speaker 3: those things. I mean, But I think most people think

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Speaker 3: the federal cut in December, I think it's something like

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Speaker 3: the eighty seven percent likelihood or something, But afterwards it's

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Speaker 3: maybe two more. But then I don't think I think

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Speaker 3: it's higher for longer. And again I think people are

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Speaker 3: underestimating the risk of or not the risk because the

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Speaker 3: US is still going to be the reserve currency and

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Speaker 3: you're still going to be able to always finance it

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Speaker 3: because there doesn't seem to be another, you know, option,

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Speaker 3: But at what price does it crowd out other investments.

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Speaker 1: I don't think that's a twenty twenty.

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Speaker 3: Five problem, maybe not even a twenty twenty six problem.

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Speaker 1: But at some point this becomes an issue.

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Speaker 2: But this is what a diversification away from US dollar reserves.

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Speaker 3: Well, like I said, I don't think it's a twenty

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Speaker 3: twenty five or twenty twenty six problems. So I think

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Speaker 3: it's it's somewhere further down the road, but I do

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Speaker 3: think it.

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Speaker 1: Keeps the rates up a little bit.

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Speaker 2: Final question, you're what's your priority for twenty five.

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Speaker 1: I think, for you know, we we.

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Speaker 3: Did these ten acquisitions and now it's about digesting and

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Speaker 3: finding opportunities. Like this real estate credit example, you know,

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Speaker 3: came because two CIOs we're having a conversation just to

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Speaker 3: try to gain some insights from each other, and they're like,

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Speaker 3: we see this dislocation in the market. Like one of

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Speaker 3: the key things that we do is twice a year

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Speaker 3: we bring all our CIOs together, both from public and

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Speaker 3: private side, to just get to know each other. I

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Speaker 3: always say the dinner is more important than any topic

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Speaker 3: because as they get to know each other and they

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Speaker 3: get curious and they're comfortable asking questions. I mean, it

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Speaker 3: was really fun to be sitting there watching the value

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Speaker 3: Guy and the Growth Guide debate the valuation of Navidia,

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Speaker 3: both in their in their core. I always think one's

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Speaker 3: a pessimist and one's an optimist, but in their core,

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Speaker 3: their view and what that is. That makes for healthier

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Speaker 3: investment teams to have that kind of access and we

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Speaker 3: can provide that three sixty view of capital markets to

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Speaker 3: all our investment teams, which I don't think you get

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Speaker 3: in most other firms.