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A
This episode is sponsored by GPZ by Veneck. When private markets expand, who leads the charge? The asset managers behind the scenes, those investing in private equity, credit, infrastructure and real estate. Introducing GPZ, the VanEck Alternative Asset Manager ETF. For the first time, retail investors can invest alongside Blackstone, Brookfield, KKR Apollo and peers sharing in the growth of private markets with minimal effort. GPZ tracks a specialized index of ultra pure alternative asset managers capped at a low cost 40 basis point expense ratio. Want diversification with a twist? Step beyond traditional funds. GPC gives you access to the firms making private markets move for less. Ask your advisors today or find it by Ticker GPZ for more information and the prospectus, visit vaneck.com gpz Josh.
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Welcome.
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To the Compound and Friends. All opinions expressed by Josh Brown, Michael Batnik and their castmates are solely their own opinions and do not reflect the opinion of Ritholtz Wealth Management. This podcast is for informational purposes only and should not be relied upon for any investment decisions. Clients of Ritholtz Wealth Management may maintain positions in the securities discussed in this podcast.
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Thank you so much for having us. It's a pleasure. We really appreciate it. Raise your hand if you listen to the Compound and Friends. Any fans? Yeah. Okay, what about you? Watch on YouTube say y. All right. See people? People are into the show. I told you Jenny wasn't sure what this really was. Okay, for those of you who are new to the future, proof or not necessarily aware of our show, it's called the Compound and Friends. Last year, the Compound Channel, the podcast and YouTube and everywhere our stuff appears did about 16 million downloads and views, which I'm told is pretty substantial, pretty decent. Give yourselves a round of applause.
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B
Did you fill the audience? Saw your guys.
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D
We have an extremely, extremely special guest today for the live recording of the Compound and Friends. But before we go there, ladies and gentlemen, Mr. Michael Batnik.
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What up?
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D
All right, guys, hang on. Bear with me one second. On stage with me today is somebody that we've been dying to have on the show. We managed to get it together for a live edition of the Compound and Friends. Jenny Johnson is President and Chief Executive Officer of Franklin Templeton, a manager with more than $1.5 trillion under management. Jenny has received many recognitions, including Forbes World's 100 Most Powerful Women list in 2023 and 2022, as well as its 50 over 50 list in 2022. Ms. Johnson serves on a variety of boards, including the New York Stock Exchange Board Advisory council. And in 2023, she was appointed to the US Brazil CEO forum. Previously, she has served on several other boards, including Stanford's Lucile Packard Children's Hospital and the San Francisco Giants. Ladies and gentlemen, a huge future proof welcome for Jenny Johnson. Okay, let's start easy. What's your year end Bitcoin target. And why? Save that for the end. Okay, here's where I want to start. Why do financial advisors work with Franklin? What is it about your firm's culture that makes you guys special and makes you guys stand out?
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First of all, I have to take my sunglasses off, because I don't think you trust anybody with your sunglasses.
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D
We're all taking off the glasses.
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B
There we go.
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D
We're all taking off the glasses.
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B
But I'd been filming you on my meta glasses. Okay, so you're all on there. Look. You know, I mean, so my grandfather started Franklin Templeton, and he started Franklin Templeton at a time because the average person could. Couldn't get access to the stock market. So we started out in the mutual funds, and that was the creation that gave everybody really the democratization of access. And so I think at our roots, we have been a firm that is built around the financial advisor and working with financial advisors. And today we're 1.7 trillion. We have 260 billion alternatives. So we have a broad platform of capabilities where I think the seventh largest alternatives manager. And why do advisors like to work with us? Because I think you can trust us. I mean, people, when we look at our brand and have asked about our brand, trust comes up as the number one kind of factor with that. And I'd say we've done 11 acquisitions in the last five years. So Legg Mason, Lexington Partners, Clarion Partners, Benefit Street Partners. So a bunch of brands. And a lot of times people will ask, well, how do you deal with the fact that you're bringing in different cultures? And I always say it's the three Cs that we look for. It's amazing when you're doing due diligence on a company, how quickly the management team starts talking about clients. Because if they don't start talking about clients pretty early, they're actually never gonna be bold.
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D
Is that something that you'll actually listen for?
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Absolutely.
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D
Okay.
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B
I mean, it is amazing how quickly you can kind of see what people's priorities are. So one is clients. The second is collaboration, which usually you can see in how well they work with each other and kind of like each other. I remember doing a. We were looking at an investment in a company, and we were pretty far along in it. And finally I ended up meeting the investment team and I turned back to my team after I said, you guys realize like these two owners don't actually like each other. Like you can see it in the room. And sure enough, we had already done the investment and it ultimately went to zero. So I don't know whether that was a factor or not, but it matters. And when you're bringing them into another organization, if they already don't collaborate with each other, they're not going to collaborate more broadly in the firm. And so we don't want to be a firm with a bunch of managers. We want to be a firm that you actually get benefits by having capabilities. I was having a conversation with our private credit guy. He spends a lot of time with our secondary PE Lexington Partners talking about building relationships with sponsor firms that helps him in his origination. So it's that kind of collaboration. And the third C is a mindset of continuous improvement. And, and look, in my 30 plus years in this industry, there has been no time that has had the pace of change that we are experiencing now. And most of the change is technologies that have been existing out there for decades, cloud computing, others. We haven't even scratched the surface on how AI is impacting our industry and how blockchain is going to impact our industry. And so you don't have a mindset in an organization of trying to find ways to improve. You are going to be left behind.
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E
Our clients are asking more and more of us every day. I would imagine it's the same thing in your industry that your clients, us, the advisors are asking you to do more 100%.
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B
I mean, they rarely say, hey, what's your latest large cap value fund? Right. They're like, what else can you do to help me? And so we built a lot of technologies around that to support the practice management of advisors. Obviously we did an acquisition of Canvas, which started out kind of direct indexing, but it actually has option overlay. It has a lot of ways in which you can customize. Cause your clients are asking you to customize for them. And so we're providing those kind of tools to help do that.
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D
So it strikes me that one of the big waves that we're seeing in the RIA space and probably also at the wires and the independent broker dealers, is that advisors are increasingly looking for firms to work with that can offer them an entire suite versus just one specific, not only strategy, but even like mutual funds, SMAs, they want somebody to also be in the tamp. I think as Advisors try to serve more types of clients and try to standardize what they're doing. Having fewer asset management partners is probably the wave. And I'm curious if you guys think about that when you're looking at acquisitions or new lines of business that you might start 100%.
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I mean, you consistently hear that because it's gotten more and more complex. Right? I mean, again, your clients are asking for personalization, they're demanding much more of you. And so one of the ways to reduce your complexity is to work with fewer managers who can do more for you. So, so we definitely see that trend. And you know, let's face it, the due diligence you have to do on one firm is whether it's a small firm or a big firm. It's kind of the same element of firm due diligence.
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D
You have to do the same amount no matter what.
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Exactly. So if you can get a firm that can provide you broad breadth of capability and then you can demand more because you have more assets with them, and so, you know, what additional services are you providing? We're getting a lot of, you know, questions around, like alternatives. And no advisor needs to be convinced that they should have alternatives in portfolios to their clients. The questions are around how should I think about it? How should I do portfolio construction? And so we built a whole academy that's just focused on helping advisors do think about portfolio construction with alternatives. So it's those types of things that scale enables you to do. And then I absolutely believe that if you are an asset manager and you don't have scale in this world of AI, you, you are going to be left behind because you will not have the data to train your models. You're just not going to have enough.
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How are you thinking about scaling your business, servicing your advisor clients, keeping your shareholders happy, all within the context of two back to back 20% years in the S and P. The wind has been at our backs for a long time now. And at some point the title will go out. So how do you think about going, going, going in, investing and growing while managing the risk for your shareholders and your employees?
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B
Yeah, well, first of all, my father always said, take care of the client, the business takes care of itself. So he's one focus, right. Do what's right for the client and he lives it. At one point we had a bank and I ran this credit card department. We'd done a little acquisition and there was a way to interpret some of the contract that allowed us to kind of go in and get excess. I Can't even remember some additional fees or something but. But it was probably not intended at the time. So I remember I was in my 20s and I said to my dad, what do you think about this? And he just looked at me and he goes, listen, I don't know the details, but I can tell you something. If you blow your reputation, you never get it back. So you do what's right, you treat people well and you focus on the client. So I think that that first of all is just a. When you talk about all those constituencies, focus on the client. So that's one. And then I say the. If you are listening to what the client's needs are, you're trying to bring those types of capabilities. So from an investment you talked about all those different vehicles. We think that what we bring to the table is our investment management expertise. Right. And risk adjusted turn active managers have to focus on risk adjusted returns. And so in 20 plus percent markets, sometimes you will underperform the benchmark because you have to consider concentration risk. And when you have a series of stocks that are so heavily concentrated, you have to decide do I want to underweight the benchmark or am I okay with that risk? Right. So that's that kind of conversation when you're having with advisors and communicating with advisors. So expectations are appropriate. And then the key is we got to be transparent about the risks of our products. Because as advisors you've got to make sure you understand your clients risks appetite and so that the products have to be appropriate for those risk appetite.
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So we've seen huge wave of innovation in asset management. I know it's always that way, but over the last five to ten years it really does feel like it's been speeding up, it's been accelerating. I wanted to ask you, is there any type of product or suite or approach that you guys chose not to pursue that you now regret? Is there anything you missed? Whether more active ETFs or leveraged ETFs, single stock ETFs. Are there any thematic ideas that you guys didn't jump on that maybe now you say maybe we should have? And then are there any categories where you feel that there's still an opportunity in the marketplace that's not being served and you guys might have the ability to do something much bigger there's than other players? Like how do you think about all that evolution and where you guys fit in?
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Yeah, I remember. I mean I.
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And you can bash any of your competitors. They're not listening. They're all in the breakthrough tent.
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B
Right, There you go.
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Okay.
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B
No, I mean, I have to be honest. Like, you think about, you want to have vision where you believe things are going. I mean, honestly, somebody brought one of the big direct indexing platforms to me saying, hey, they're looking for some investment in there. I think there were 100 million. They're now multi, multibillions today. And I was like, no way, that'll never take off.
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D
I know the feeling. There are still people that believe that.
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And you know, we were, we were early on active ETFs, but probably late on passive ETFs. And I don't think we had the vision about how the passives would be used in kind of model portfolios early on, you know, so you never get it fully right. And I think the most important thing is to. Okay, let's take a look at that. Think about what our rationale was on the decision making at the time and did it make sense? And you.
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D
So where are the areas that you guys currently are most focused because you think they could be the next big thing?
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Well, I think there's no question that alternatives to the wealth channel is going to be the next big wave. And every alternatives manager is focused on the wealth channel, which brings some concerns to me, which I'll talk about in a second because they have probably saturated much of the institutional market, right? So they're going to justify multiples and be able to grow. They look at the wealth channel. So, you know, and if you, if you think today only 13% of companies who have revenue of 100 million or greater are actually public. So there's, you know, just over 4,000 public companies. There's 17,000 plus companies with 100 million or more revenue. So, you know, your average investor who's not investing in the private markets is not getting access to 87% of those opportunities. And so it's a natural. But the question is, how do you bring it appropriately? Areas that I am passionate. I think there's huge opportunity on. I love secondary PE. There's been $6 trillion deployed in private equity. The realizations are half of what they were before. In other words, these institutions who counted on the cash flows coming to to make their next allocations in investments. Private markets are seeing half of what they saw before. And so they're having to clear out their balance sheet. And so they sell them to a secondary manager. And you take Lexington Partners, I mean their current fund 11, I think is lights out as far as the discounts they get. But they buy these portfolios at discounts and so here's a real transaction. State pension says, I need a billion dollars out of my portfolio in 30 days. So you go in as a secondary manager and say, you know, I'll take that fund, that fund and vintage over here. So you get to literally kind of cherry pick which ones you want, and then you negotiate a discount, which immediately accrues to your investors. And so I love the secondary space because of the amount that's been deployed in private equity.
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D
The right way to think about secondary is that it's private equity investing, but potentially de risked.
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I mean, look, you're getting a diverse portfolio because there's multiple vintages from different firms in there. You have no J curve because the average age of a secondary portfolio that you buy is five years old. And the average PE fund didn't start paying cash flows out to year eight, which can be really hard for your average investor. And so now they only have to wait three years and they start getting cash flows.
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D
Okay?
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So to me, it's the best way for the wealth channel. I actually even personally love it. I think for institutions are now loving it because they love that discount.
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E
So Franklin has your roots in public markets. Lexington Partners, a company that you just mentioned, you own them. You're also a top 10 provider in private markets. When did you all start making the move into that area?
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So we bought Benefit Street Partners, which is private credit manager, and they're about 82 billion, I think, today in 2018. So that's when we first made the move. And then we got Clarion Partners, which is a real estate manager, as part of the Legg Mason acquisition, and then bought Lexington Partners a couple years ago. We, interestingly, the only real organically grown alternative manager, you know, private markets alternative manager, was our venture group. And it's because the Franklin Equity team, which is housed in Silicon Valley, they're sitting there looking at attribution, and they're like, we're not getting the IPO kickers that we used to get because these companies are waiting so long to go public. We can have up to 15% allocation. And so they started to do late stage venture, so you can have up to 15% mutual fund in private markets. So they did late stage venture. And interesting in many ways, some of their best deals were deals they didn't do because they're embedded in. They're the only VC fund I'm aware of that's embedded in a public market equity fund. And so they'd look at it and say, well, the VC guys are convincing them of this price but if you look at the public market valuation, it just doesn't justify the price. And so it was the deals they stayed out of. But you know, they're in Silicon Valley, so their kids are going to school with all these entrepreneurs and others. And so they've done very well.
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D
You are the granddaughter of the founder, but you started your career in the mailroom. So can you tell us your Horatio Alger rags to riches story? But look, you could see, Jenny, we have a fairly young audience or a lot of young people in the audience. And if they're not chronologically young, everyone here is young at heart. I think you guys would agree with this. Yes. Okay, so people love to hear. People love to hear about the early careers of those they admire because it's inspirational, it's motivational. So tell us a little bit about your career, how you started, and what it took to gain enough trust to become the CEO of the company.
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Well, I did start in the mailroom stuffing envelopes for money market funds, because in the 80s, that was like, nobody could keep up with that. And so late 70s in the 80s, and I remember it was a summer job. And I said to my dad, I think I was. I think I was like 14, but maybe I was 16. I don't know whether what was legal at the time. And I said to him, you know, you know, my sister, I'm number six of seven kids, and she was number two, and she was moving off to Hawaii to go live with her boyfriend. And I was like, you know, you're paying her $5 an hour and I'm doing the same job and you're only paying me $2.50 an hour. And I would work harder than she does. So I think I should get paid $5 an hour. And my dad just looked at me and goes, well, go get a job somewhere else.
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D
I love it.
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That was what I learned.
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D
Good lesson. Okay, so when do you become an executive? And what was your path to the C suite?
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B
So I'll talk about probably the areas I did every part of the company at different times. But when I look at my career today as a CEO and I say, what were the most valuable areas that I took over? Or I ran and we had an auto finance business. Cause we had this bank. And so I ran that. And one is I learned, gosh, any business that looks easy, chances are you just don't know what's going on. Because I always said I made every mistake you could make, but only made them once, so you learn quickly from it. And two, as you have private credit becoming more important. Having that background in credit is really valuable. And then the second was technology. I feel for CEOs today who don't understand technology with the kind of pressure that's coming on us with things like AI and blockchain. And so I am so thankful for having had that experience. And you know what it took? It was digging in, rolling up your sleeve, asking a lot of questions, being willing to look stupid, admit that you're stupid, that you didn't understand it, but not being afraid to just dig in and ask the questions.
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D
I like that. I want to ask you about the four P's, which is, I think, your leadership philosophy. So people, purpose, pickleball, passion. What was the fourth one? Persistence. Where'd you get that from? And what about that is applicable? Would you say to all the entrepreneurs and people in the audience today, I.
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B
Came up with it because I think it's true.
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D
Patented.
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B
I've not patented yet. Trademark. People, passion, purpose, and persistence. What I say is, look, the most important decision you make as a leader is a team you put together. There's no question it's about the people that you put together. By the way, as of today, I'm no longer president. I have three co presidents. So that was officially announced today.
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D
Okay. Congratulations.
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B
Thank you. So it's about the team, right? And making sure they work together and they work as a team. But your people's most important decision. Passion. Love what you do, and it won't feel like work. And I love what we do. I mean, I think this is a great business, great industry, and it's hard. You guys do it. You're running your own business. You work a heck of a lot of nights and weekends, I'm sure. And so you gotta love what you do, purpose. Talk about what you do in a purposeful way, and people will follow. So I always say, I tell this story that I clearly wasn't very good at it. Cause I asked my kids, I have five kids, and I said, is anybody gonna join me in this business? And my daughter goes, no, Mom, I wanna do something that helps people. And I was like, are you kidding me? I failed at describing it. Cause this business helps me. People. We help people achieve the most important goals in their lives. I mean, there's. It's pretty rare that a goal doesn't have a financial component to it. And so it's really important what we do. And if you can describe it in a purposeful way, people get excited about following along and then persistence. Look, you're going to fail, you're going to make mistakes, you're going to miss opportunities like the original direct indexing, really cheap. And you just got to keep at it and not give up.
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E
Not to make you pick any favorites, but you all have done a lot of acquisitions. Is there any that stand out as particularly meaningful that have shaped the path of Franklin's success?
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B
Well, templeton, back in 1992, honestly, we were kind of primarily a fixed income manager with a little bit of equity. And Templeton really brought us to the global investment firm that we are today. You know, we have clients in 160 countries. You go out, I lived in India for a little bit with my kids. And my kids said to me at one point we were the third most recognized brand in India and LinkedIn. And my kids were like, mom, why does everybody know Franklin Templeton? And it was because of the Templeton acquisition. And so I think that one was amazing. And then, you know, more recently, just the alternative managers. I feel for firms who don't have a real presence in alternatives because they're incredibly expensive now. They weren't as expensive when we did the acquisitions. And it's going to be hard for firms to be able to acquire now.
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E
So as advisors are hearing more about alternatives from the press and legislation, about 401ks and their clients asking for it, are there any areas that you think are less suitable for individual investors as opposed to the traditional institutional, Institutional allocators?
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B
Look, it definitely depends on the client, right? So suitability is what's appropriate for the client. Which is why I am passionate that we sell through advisors, because advisors are the tip of the spirit and they understand suitability for their client. So again, that, you know, it makes, that's the most important message. And then I would say the one thing that's been on my mind lately is this. I don't think we're have to worry about private credit from the standpoint that banks have retreated so much from lending that there isn't like this just massive additional amount of credit. It's just kind of shifted. But we've gone from an environment where there were these drawdown funds and now we're moving into perpetual. I mean Franklin has a great real estate perpetual. It's a billion dollar perpetual real estate fund. And the reason we did it is because the regional banks all pulled out of real estate lending. And so it was actually our real estate guys who said, you guys should, should move into this area. But if you are in a drawdown fund and you have to deploy capital that's a risk in lending, right? Like the pressure to draw, to have to deploy capital. And so if you are in a fund that doesn't have the ability to move because the key in the fixed income market is, you know, you can look at high yield. Right now it is trading like the market does not believe that there is a recession or else there's just not enough demand of high yield bonds. Investment grade, it's trading like investment grade. And so you know you're not really getting paid for the risk. You want to be able within a strategy to pivot to say asset backed is pretty rich right now. So you want to say, oh, okay, I'm not, I'm going to stay away from that. I'm going to move over here. And so if you're locked into a perpetual strategy that has to deploy capital and they don't have enough variation in their ability of where they're going to deploy it, that worries me a little bit.
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D
Is there a multi strat approach to private credit and, or private equity where an advisor can say to Franklin, I'm really not interested in having 12 new slices in my allocation and I also am not capable of timing my allocation based on the various valuation concerns that may exist in each slice. Will you guys just do it for me? Is that something you have or that you're working toward?
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B
So we're working toward it. So, so it's funny, I just met with this.
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D
I would, I would guess that will be the most popular version for the RIA space. Most of us here don't want to become nano experts in all of these different areas of the opportunity set.
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B
And you can't possibly. Right. Because your ability to be, it's really at the origination that you start to see that where, where there becomes issues. When I, when I was doing the auto business, this is why I'm very sensitive to this point. If you had a competitor that, I always said a stupid competitor that mispriced risk. So you'd say, gosh, in Huntington Beach, X competitor just moved in and they're mispricing it. You had to pull out. And it usually took about two years for that to blow up, right? Like they, they just mispriced.
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D
Stand back, let them make the mistake and then come back into the market with, with rational pricing, right?
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B
And so as long as you're broad enough in your capabilities, you go, oh, we're not going to deploy capital over here. But we know that Vegas is a good place to core or Northern California, whatever. So that ability in that and so right now, I mean, I think the good news is we have this perpetual fbrad, which is a real estate debt fund, which does kind of transition. It is going to take couple of years for enough lenders to come in with experience. So we feel really good about that. But in my conversations with our, our private credit team, we're talking about, all right, let's build some of these strategies that provide that movement of flexibility. Just because you have more and more competitors jumping into this space.
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D
You mentioned that you guys have about 260 billion in assets amongst your alternatives managers. Roughly what percentage of that is coming from the wealth channel versus traditional institutions? And could you describe the growth rate that you guys are seeing amongst the wealth channel?
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B
Yeah. So of that 260, about 10% of it is in the wealth channel. But year to date, I just know this from my last earnings call. So that was end of July. About 25% of our flows had come from the wealth channel.
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E
Why do you think the gap is so enormous that it's the wires driving at least or 90% versus 10? I understand the growth is coming from RAS, but why do you think that disparity exists?
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B
Meaning that the growth is coming from the wires versus or.
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E
Yeah, yeah.
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B
I think it's probably. I don't know that I know the answer.
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E
Because we're serving the same people, right.
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B
100% and. And in some cases, yeah, no, for sure. It's probably that there's. Because there's so much of an education component. There's probably a view while the wires. You're hitting it. You know, you can cover more people or something.
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E
That's probably. That's a big part of the story. So to that point, Josh mentioned like the, maybe the model portfolio business, the OCIO business. You mentioned the lack of education. You're right. We don't have benches of people that are experts in private markets. How does that get gap get bridged? Is it just time?
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B
So here's my view. I say this to anybody who'll listen. I'll be like, don't just hire. Don't just look at the product and say, oh, I'm gonna put it on the platform. Cause what ends up happening is the product just sits on the platform. It doesn't move. The question is, what is the manager doing to help you in education? Right. And that's. We have Alternatives by Franklin Templeton that is all about educating advisors on how to think about different alternative asset classes there. So it's. And then we have 100 people whose sole job it is, is to support our market leaders in the field specializing in alternatives. Right. And so honestly taking a company like Franklin Templeton, whose roots is in the wealth channel, right. We understand we have relationships with these advisors and so that market leader can sit there and say, hey, this advisor is actually really interesting in these particular alternatives. Let me grab a specialist and be able to bring that specialist in. So we cover 100% of an advisor's book. Somebody who's just in the alternative space is selling to 5% of the advisor's book, hoping to grow that maybe even 4%. And so they can't provide the same kind of education resources.
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E
I also think a lot of it, maybe the reticence on advisors part is due to the recent market activity. So markets have treated us very well for a very long time. Who needs diversification when you have Nvidia? A year like 2022 was, was difficult and you saw the rise of a lot of the income overlay option ETFs explode. You saw private credit explode because of the floating rate nature. Right. The duration there was none of like people didn't get hurt there. And then you saw the massive flows come into that asset class. I wonder if it's going to take something similar to Kickstart a lot of these diversifiers that are going to provide diversification when you need it and you just haven't needed it.
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B
Yeah, no, it's a really great point. I mean we talk a lot about the retirement business being a great place to bring alternatives. And I was talking to a consultant who basically said, look, I got all the asset managers who are asking me about how to get sold in the retirement business, but I haven't had a single plan sponsor ask me about how to get alternatives. And I think you're right. And I think that in a real momentum market, and again, it's also where active management is challenged, right? Because you have to think about risk adjusted returns. And so people get. Everybody's a brilliant investor in a great momentum market.
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E
Why would you want an alternative to the S&P 500?
- [32:17]
D
Well Jenny, to that point though, when we read announcements about private credit firms making loans to data centers and then we're investing in private credit firms that are now taking on all this exposure to the AI theme. Well, it's great on the way up, everyone wants to back data centers. Everybody understands why Meta is a great issuer or not issuer, but borrower and it would make sense to be aligned with that. But if that turns against us, I guess are we really diversified or are we taking NASDAQ esque risk in the fixed income portion of of our clients portfolios by virtue of these data center investments that are being extended credit? So is that something that you guys think about?
- [33:04]
B
So there's a lot in there, right? So one is very bright in 2022, right? Everybody learned. And actually in 2008, I should even go back to 2008, like hey, we have credit risk in our equity portfolios, right? You know, so, so it's that factor of risk that's, that's, I think we're much more sophisticated with portfolio construction and the tools around that to understand that. So that's one piece of it. Second piece is you said, you know, this whole if the S&P 500 is doing so well, why invest? Well because 87% of these companies are not included in there. And you know, if you have all the money pouring into all capital going into the same investments, eventually they get inflated. And that's a risk that we have to take into consideration. And then finally, look, I have to say, if your AI bet is Nvidia, which is a fabulous company, that's concentration. But when I look at the thematics of AI we are just scratching the surface. Greatest party trick is get this Synovus music app, put in your friend's information and generate a song. I literally was showing off this to, to a CEO and he's like my 60th birthday's coming up, can you send that to me? And it generates it on the spot. I just created a little documentary for my son on this history thing. I was able to generate videos that I would have to pay for for others in a documentary on Google Images, Perplexity was, or sorry video Perplexity was generating the images and I wrote the whole script in Perplexity like and it's. And right now it's so rough. I think the AI thematic is incredibly powerful and we are still only from an investment standpoint in the picks and shovels, right? That's what always happens with new technologies. It's the picks and shovels that you first invest in. What we're going to see is the companies within sectors that actually get it right that are going to take off and leave behind their competitors. And the pace of this is so fast and that the competitors are not going to be able to catch up. And we haven't even begun to see that today.
- [35:12]
D
What do you tell human asset management professionals and financial advice professionals about the import of the AI moment to what they do? Are you optimistic? Pessimistic some sort of a mix about how many people will be needed in these professions going forward and will the people who currently do these jobs, will they be able to adapt in time? What's your, I guess, remarks on that topic for those people?
- [35:46]
B
So a couple things, and I saw this when I ran technology. The hardest part of technology is not technology, it's change management. There was a picture of Wall street in around 1900, maybe 1910, and it was all horse and buggies in one car. Ten years later it was all same similar location picture, all cars, one horse and buggy. I'm pretty sure the guys who are taking care of the horses didn't become mechanics. Right. It is change, but a lot new jobs are created. And so the people who are curious, who are digging in, trying to understand how this will improve their work will be the winners. And for all you Advisors out there, 1997 cover of Business Week was the death of the broker. The Internet was going to completely disintermediate all advisors. You provide services today that you never imagined you'd be providing because the technology's enabled you to do that. And so human nature is really good at finding Google. Nobody knew that there'd be 300,000 jobs created by something we didn't even understand that we needed at the time. So human ingenuity to figure out ways to leverage this technology and create new jobs. I'm a big believer that that will be the case. And I think investment people who fail to force themselves to think about how to leverage this technology to help them be better are going to be left behind too.
- [37:07]
D
I want to ask you, in the time we have remaining, I want to do some digital asset stuff. One of the things that a lot of people here may not be aware of is that amongst all of the CEOs of major asset management firms, you were part of a small handful that had believed in digital assets very early. Still do you were passionate about them. I find it fascinating when I talk to people because I spoke to you probably closer to the bottom than the top for the price of Bitcoin and you were indefatigable about it. A lot of the things that you were saying to us at that time would happen have started to happen. I'm curious when you see, when you see Bitcoin Treasuries now, Ethereum Treasuries, today Dan Ives announced something called a Worldcoin Treasury. Why have none of the major asset management giants gotten into this treasury business, publicly traded treasury business? Why are they ceding this to Influencers and research people. It seems like something that could very easily be set up by a firm like Franklin.
- [38:17]
B
So I'm not going to answer the Treasury. Let me talk about the technology and why. I think one, it absolutely every mutual fund, etf, they're all going to be on chain. Our entire financial services system is going to be on chain, you could argue. Well, is quantum computing going to be a problem? Well, you're going to have quantum security too. So I think it solves itself. But here's why this matters. And I always say, let's put Bitcoin aside for a second because it's a little bit like religion. You're going to end up in a debate. And it misses the point a little bit. There are three things that this technology does really, really well. Number one, it has a source of truth. Okay, so if, Josh, you're holding a token and I am trading with you, I know that you have ownership rights to it. Okay, so that's number one. Number two, there's a smart contract, so I can execute anything in there. So if I'm doing. You and I are doing a foreign exchange contract today, we have it in paper. I got a department of people who look and they say, oh, do you owe me money or I owe you money? Oh, and by the way, if I don't know who's on the other side of that, I hire a bank in between, right. And make sure that they ensure that I get paid. And then the third piece is I, I have the ability to make a payment on the spot. Why does that matter? Because if you look at financial services, the world is all about one, reconciling data between systems. Huge amount of our costs are data reconciliation that is eliminated. Two is why does the New York Stock Exchange Close at 4:00'? Clock? It closed at 4:00 clock because everybody had to settle their books.
- [39:53]
D
Well, if I had to feed the horses.
- [39:55]
B
He had to feed the horses.
- [39:56]
D
Exactly.
- [39:57]
B
So if that goes away, think about the friction and the cost in the system, that goes away. And so that's why I look at it and say, and we're the only one, I believe, that is running a money market fund on chain. There's others that are shadowed on chain. So if you, our Benji fund, you get paid. One is we calculate the interest every second. So if you own it for four hours and 22 minutes in a day, you're gonna get paid. You will see your yield posted at the end of the day. That happens because blockchain allows you to do it. And oh, by the way, our other money market fund, you have a minimum of $500 investment. Our Benji fund, you have $20 investment. Because it's so much cheaper. The SEC had us run the shareholder record keeping system in parallel and it was so much cheaper to run it on chain. So it is going to basically take over the infrastructure of financial services. Why is it going to be slow? Because guess what, there's a lot of toll takers who make money today in their entire business model. Banks and others that are based on this and they're going to try to control it and slow it down.
- [40:59]
D
When you say on chain, this is versus an alternative. The industry standard is things like settlement, dtc, two different databases trying to communicate with each other. Sometimes it's literally a guy on the phone from New Jersey to somewhere else confirming where these bonds are held and what the rates are. So all of that stuff is what the on chain thing can kind of obliterate.
- [41:25]
B
Exactly.
- [41:25]
D
Which should make the price of investing and the speed of investing faster.
- [41:29]
B
And listen, NASDAQ just, I think filed today, asked the SEC to approve tokenized stocks. All the Binance, Kraken, Coinbase, they all intend to have 24 by 7 stock trading. And so it's just enabled because the settlement can be enabled because you're going to have atomic settlement. It's going to settle the moment. And so what that's going to do is it's going to open up new investment opportunities. And I'm using the same example for years because I haven't found a better example. Even though this one didn't really work that well. But Rihanna came out with 300 NFTs. Each one had the right to 0003.
- [42:03]
D
Michael bought most of those.
- [42:05]
B
What's that?
- [42:05]
D
Michael bought most of those.
- [42:07]
B
Big NFT guy, big Rihanna fan. So when Spotify played Rihanna's song, the smart contract could kick off and say Michael gets his royalty for it because he's got the token in there. You could never do that without the automation of a smart contract. And it's a fraction of a cent that's getting paid to you for that one time that song's run. But it will open up new investment opportunities. I genuinely believe in the future, financial advisors will talk about their investment portfolio to their clients in three ways. They're going to say, first of all, here's your investment returns towards your goals. Right. We structured your portfolio. It's personalized here how you're doing. Number two, here's the impact your portfolio has made. So we could all say ESG's out the window, but if you talk to the younger generation, they care about the impact. And so we'll discuss it in its impact and it'll be very specific to the client's desire. And the third is there will be loyalty programs that are tied to the ownership. Today, you know, if you own certain tokenizations for Nike, you get special shoes that only you can get. So those will start to be tied to. And they're just loyalty programs. There's a hotel in Aspen that has been tokenized. And when you check in, they say, michael, I see that you're owner. We've given you a room upgrade. All it is is a loyalty program.
- [43:25]
E
That's if you're an Apple shareholder, why can't you get discounts on the products and across the board, every company.
- [43:31]
B
That's right. And so they'll add new things and it'll create engagement with their customer base. So this is all. All enabled by this cool technology called blockchain.
- [43:40]
D
How's the ETF doing? We could skip the bitcoin treasury stuff, but how's the ETF going and how do you see people using it?
- [43:48]
B
So, look, I think the ETFs are. And a lot of people will say, well, we won't need blockchain because the ETFs. And you won't need tokenization because the ETFs have done so well. As far as with Bitcoin Ethereum, we have a couple that blend it. But I think that kind of misses the point of what the real opportunities are out there.
- [44:08]
E
Josh doesn't get it.
- [44:11]
D
I own the ETFs. I get it. I'm with it. I'm down with the kids. Jenny, we told people that we were interviewing you today. I have to tell you something. Every single person that I told that's in the industry, hey, we have Jenny Johnson on stage. Every single person says the same thing about you. She's awesome. That's your reputation. So I want to just say thank you so much for being part of this. You are awesome. How about a round of applause for Jenny Johnson?
- [44:38]
B
Thank you. Thanks for having me.
- [44:40]
D
Now we want to see how good you are at Frisbee Toss. We've got Compound and Friends hats, and we're going to try to get as many of these out to the crowd as we can. Guys, thank you so much for watching. Thank you for listening. We love you. We appreciate you and we'll see you soon. Thank you.
- [44:55]
B
You.