New Rules & Old Rules: The Principles of Wealth Management

[Music] on how you think politics are going to play out in economic and investment terms in the US well I look I I actually somebody was asking me yesterday what do you think is going to happen in the election I think it's a long time before next no November with these two candidates uh it's always a long time uh and in particular this uh this situation I think there's a lot of in the air I mean do do you feel that we we adue a kind of Correction to uh maybe a more normal investment climate after several years of of there being a little bit of of I mean it's not just volatility but it's unpredictability I mean I think let's start with interest rates because I think that's um been a big part of people's question I I I tend to think that the market is optimistic in their view that rates are going to be cut 100 basis points next year um I think that you know we've had in the US you have had basically the FED coming and constantly rescuing us every time and I think now chairman pal you know he you've heard it before he he doesn't want to be an Arthur Burns he wants to be a vulker um and I think if you look at the underlying numbers why core inflation was looking better super core which now he's talking about super core was not looking as good uh and so you know I think the good news is we're probably to Peak rates probably don't have another increase but I don't know that they come down as quickly and I think the second piece of that which I don't think gets enough coverage is and our prior speaker just talked a lot about debt you look at the US debt you know it's gone from 9 trillion in uh 2007 to 31 trillion this year and we're going to add 2 trillion more from the deficit from this current budget budget this current year uh and you need buyers of that and the largest foreign buyer of US debt today of treasuries is is Japan at 1.1 trillion I don't think they're increasing it second is China at 850 billion I don't think they're increasing it and so you know the long you the rates are going to have to stay high enough to attract capital I don't think I think the US is still the reserve currency I don't think it's going to have a problem attracting Capital it's just at what rate does it attract that capital capital and I think that has a little bit of a drag so if we sort of step back and look at your role at Franklin Templeton over the last three and a half years and the title of this panel is is old rules versus new rules um I'm I'm I'm not sure exactly what the old rules were but but certainly for the new rules and what you've done with the company is look at both traditional investment but also some of the new asset classes and where the Franklin templon needs to move move into which areas to ensure access to some of those new assets for investors as well as Shoring up your traditional areas as well I mean is that is it a mix of old and new essentially that that you're having to chart yeah so we've done uh 10 Acquisitions we're just about to close our 10th uh in the last three years and they've been focused on two areas that we think are big secular Trends in the industry one is private markets um and and the second is customization uh and and so technology and things to help customize so let's talk about the private markets I I saw BCG their wealth study from last year you know predicts by 2027 private markets will account for about 22% of AUM in uh in the asset management industry and 56% of the revenues right so you look at that and you say well all right from just a margin standpoint you have to be in that space um and then you know there's a question well were these private markets fueled just by this artificially low interest rate environment take private credit I don't see Banks continuing to step back in and lend like they ever lent before the capital requirements are such post 08 what's happening in the reaction to the Silicon Valley Bank bu up you you are not seeing Banks want to lend um they can't lend because capital is so expensive and so you've created this massive proliferation of private credit and it's continuing to uh take a bigger bigger share of of the market so I think that's kind of a permanent secular Trend we bought uh Benefit Street Partners in elentra so we have about 78 billion in private credit and then the second area in private Equity yes I do think it was fueled by lower rates uh and it's going to be harder for managers but the fact is people don't want to go public in the US in the same way it's easier to be private why is it easier to be private and and you see in the numbers 2000 and and in 2000 granted a bit of an anomaly companies went public after three years by 2019 they were going public 9 to 10 years by 2022 that was 14 to 15 years so all that early growth is now captured in the private markets so if your PE strategy was based on Leverage it's going to be harder but if it was based on restructuring and as long as it capital's there I think companies are going to stay private longer because you know you need to invest in technological advances um you need to and and the pressure on quarterly earnings are such that I think that in times of this great disruption when you should be investing it it's harder to do when you're public uh not to mention just kind of the pressure uh that I think that there the difference pressure of a a public company CEO versus private Company CEO so we looked at that and said okay this is a space we need to be in um and so we bought Lexington Partners which is secondary PE we have claring Partners which is real estate so we're about 260 billion in private markets and then as I mentioned customization I always say what does Franklin Templeton do our expertise is in making active investment risk adjusted investment decisions we want to deliver it in whatever vehicle our clients want to receive it in and what's happening is technolog is enabling you to create like separately managed accounts that not only have the investment mandate that the client's looking for but can overlay objectives like you know sustainable Investments let me let me overweight sustainable uh companies um so you're able to customize it much more to individual clients and we think that that trend is here to stay and does that extend to digital Assets in terms of demand as well as your interest so I'm a huge fan of uh digital assets you get me started in a small so why do I why do I love blockchain and um I I always say that Bitcoin is the greatest distraction from the greatest disruption I'll put AI as also a great disruptor and and my favorite example of why I love digital assets because you're going to be able to unlock Investments that you never could have access to in the past unless you're a big institution so blockchain does three things it has a payment mechanism it has smart contracts that can execute without anybody being involved and and it has a general ledger which means if I own the token in my wallet I have all the rights of that token so my favorite example is the singer Rihanna who came out with 300 uh nft each worth 0.33% royalties to one of her songs and she was just kind of testing the market but why can she do that she can do it because when a streaming service plays her song the smart contract can execute and say Mustafa has the rights he's a huge Rihanna fan he's holding that token uh it it it executes and has a payment mechanism to pay them and there's no no third parties involved so you can have fractions of cents that actually go and register so if you think about and you're already seeing in the digital asset space interesting types of investment H there's a company today that is going out and and buying up the the image rights on social media of new College athletes star athletes betting on which ones are going to be professional and so you can own a pool of the potential right that that'd be something you'd never be able to own and if you didn't have this ability with the technology you wouldn't have been able to do it so I think for an asset manager it's going to be really interesting way for us to deliver new uncorrelated investment capabilities so you still see there's a role for an institution like Frankin Templeton in that new era it's not a peer-to-peer situation I I think the role and the interesting thing is the portfolio manager of the future who's going to be in that space again it's an active decision is going to be you know somebody who understands an athlete and sports and who's going to who's going to pick the best players who they think are going to be very successful in in Pro versus College um or royalties in singers you know getting into early so I think that the the again it's still an active investment decision but the skill set's going to change now you're still going to have all the traditional types of Investments that we have um but it's just going to expand it more and you talk about these Innovations and very much they're coming out of the United States but you've been on a kind of mini tour these past weeks uh you've been to Hong Kong you've been to Saudi Arabia now in Abu Dhabi it feels as if the regulatory environment outside of the US in these what we might call Emerging Markets are more helpful to an institution like yours than perhaps us reg regulatory environment how how are you finding the experience of what you're seeing in these places first of all there's a very simple rule which is capital goes where it's treated well and one of the very important criteria in that is what is the regulatory environment and so in the case of digital assets we actually have um we had the first 40 act mutual fund approved by the SEC so a money market fund um unfortunately the regulation in the US hasn't really evolved much beyond that uh and part of that is because it's not clear who's responsible for regulating so we are looking and and the UAE is actually been um very Progressive in the regulation that they've come out so we're working with a partner here uh on doing some interesting things uh so I think the the places that have the most Clarity on digital assets are the UAE and um and Hong Kong uh Singapore has it's very interesting they are approaching it by bringing in a lot of Partners and so they have a lot of pilot programs that are The Regulators involved in watching so that they can then build the regulation after they've done some testing around it so I would say the UAE and Hong Kong have said let's give Clarity and will'll come out with the the the rules whereas a place like Singapore is very supportive but kind of blending it along with the with the the pilot programs that are there and and I I think there was a time when asset managers could remain in New York or wherever and and and have a a proper view of of what was happening in the markets but now do you feel you have to get out there L we acquired Templeton in 1992 you know listen our view has always been you have to be in a local market uh speaking the local language reading the local papers understanding the community there uh and so you know from an investment standpoint it's important from a relationship standpoint to really understand your client's needs you got to be local and and you know that's why I think we have we investment feet on the ground and something like 87% of the world's GDP uh we have in you know offices Global we've been in in in this this country for 22 years we actually acquired a local asset manager we have you know we managed 4 billion out of this office in uh in GCC bonds um being local we think is really important it's part of our DNA others have a different approach I mean there was a time when emerging markets were really fashionable and everyone wanted to be in them and everyone wanted to be looking at them and then we we've kind of gone away a little bit from that it is is is that coming back in in your view well I think if you hit Peak interest rates you you'll start and you've already seen it and again I maybe it's a little bit overdone at the moment but the dollar tends to weaken once you once you heat hit uh Peak rates uh so I think that's benefits Emerging Markets I do think this China plus one strategy you're going to have real winners uh you know you you look at it I mean we look at them and and think places like in Indonesia Philippines a India you're seeing foxcon just was talking about their $ 1.5 billion investment in India uh you know you're going to see opportunities um I I think in emerging markets and I think one of the things that's held it back a little bit obviously in this region they almost sit in between price of oil is obviously a a great benefit to the region but also they sit between China and the US and you know they're there needs to be I don't know that that the the the the lat the last Apec um in in San Francisco created sort of a floor and maybe reconnection between China and the us but I don't think it it has repaired the relationship I think there's always going to be competition there and there'll be opportunities for people to play in between that um and so I think you look at some of the trends and I think that Emerging Markets now that the dollar has has or or rates have primarily been uh you know you you probably hit the peak it's a good time to be back in it and I think if I if I wrap with this to to get more of a personal view from you in in in terms of the role of a chief executive these days um with as you mentioned AI coming and and and we have many many different Trends but it it it seems to me that a CEO now has to be much more than just somebody who who kind of leads people internally and you have to wear kind of two hats one where you're engaging with the world around you in a much more deeper way but also helping those within the company understand some of those wider Trends do when you you when you looked at this role when you first went in three and a half years ago compared to now what's what's kind of surprised you most in terms of what you've needed to do yeah I don't I'll tell you what I think a lot about so I'm third generation at Franklin Templeton not only did do rarely do things make it to the fourth generation but in times of great technological disruption and we are living in that right now rarely do the incumbent companies make it because incumbents tend to just improve and make more efficient what you do and not disrupt and so to me it's being able to have the right team around me where and I try to commit 30% of my time to disruption so I I sit there with the AI team say tell me what are we doing are we doing enough Pilots um I spent a lot of time on the digital assets and blockchain uh but you have to have the right team there to be able to spend that time Jenny Johnson thank you so much for being with us thank you thank