Jenny Johnson
The president, CEO and third-generation family leader of Franklin Resources, operating as Franklin Templeton, sees plenty of changes coming to asset management in the next decade.
“If you ask me what I think the most disruptive trend is going to be, it’s tokenization. It’s blockchain,” Jenny Johnson told Pensions & Investments.
Franklin Templeton created the first tokenized money market fund in 2021, building the shareholder record-keeping system in-house. Other firms have followed suit.
“It’s just a more efficient technology to do record keeping. It is designed to be a general ledger,” she said of blockchain. “If you think about the huge cost in financial services of reconciliation between systems within a company and then you got to reconcile the same data with your counterparty who also has a bunch of reconciliation, all that goes away when a transaction is done on chain, because there’s only one source of truth and it’s immediate.”
Johnson thinks blockchain will play a significant role in financial services and open up interesting investment opportunities, such as song royalties from smart contracts.
“I think mutual funds and ETFs will all be on blockchain” down the line, she said.
And Johnson is quick to point out that the cryptocurrency bitcoin should not be “confused with the rest of the blockchain ecosystem. I always say it’s the greatest distraction from one of the greatest disruptions that are coming to asset management.”
Franklin Templeton launched a bitcoin ETF at the start of the year and Johnson says she did buy some of it, but her father, Charles B. Johnson who served as the company's CEO, did not. “He is not yet a bitcoin fan,” she said.
Franklin Templeton had $1.6 trillion in assets under management as of March 2024.
Franklin Templeton announced a partnership with Microsoft at the end of April to build an advanced financial AI platform. One benefit could be improving sales and marketing productivity and personalizing client experiences. Johnson said she feels fortunate to have a team involved in AI since 2018, before ChatGPT “made it a cool thing for everybody.”
Franklin Templeton built a goals optimization engine, which allows for dynamic asset allocation based on individual goals, she said.
Johnson herself spent time with the firm’s head of AI to understand machine learning, regression analysis and large language models. She expects interesting innovations in AI to happen once complex models are brought together, and compares today to the early days of Apple’s iPhone.
“What tends to happen with technology is the first thing that people do is they improve what they’re doing today. Hence, we’ve got a model … doing our help desk, we’ve got a model reconciling information between systems, we’ve got a model reconciling for exchange transactions. All that’s doing is creating efficiencies in the existing things,” she said. “Once you tend to learn with those, that’s when you’ll get the great breakthroughs.”
Since Johnson’s watch as CEO of the San Mateo, Calif.-based company started in February 2020, Franklin Templeton has acquired 10 companies. In 2022, the firm acquired alternatives specialists Lexington Partners, a private equity secondaries and co-investment specialist, and Alcentra, a European credit manager. And this year, Franklin completed its acquisition of Putnam Investments.
“We had to diversify to alts,” Johnson said, pointing out that startup and family-owned companies are staying private for longer.
“I tend to think generationally, and say, ‘well, I’m not going to worry about this quarter,’ but I think that’s harder and harder to do,” she said. “So firms are recognizing in those early growth years, when they need to capture market share, that they’re better off not being public. So they can reinvest their profits into growing the business.”
Johnson points to the parallel of her grandfather getting into the mutual fund business because in those years, the average investor couldn’t get the returns of the equity market.
“That’s a bit of the dilemma that’s happening now in alts,” she said, adding that big wealth channel distributors recognize that they need to offer alternatives to their clients, but the challenge is how capture the segment given suitability requirements. "I think the next big step is going to be to figure out a responsible way to bring these to the wealth channel," she added.
Johnson sees harder times ahead in private equity, noting that investors will see “who’s actually skilled, because now costs cash costs something.”
But she sees opportunities in the private equity secondaries space. “We think it's a fantastic place to be,” she said, noting that the deals Lexington Partners are seeing are the “best they’ve seen.”
“There’s a real supply and demand kind of mismatch there that’s enabling really aggressive discounts from marks,” she said.
With the proliferation of private credit, Johnson said banks just aren’t lending like they used to. She doesn’t think there’s systemic risk.
“The investor in a private credit fund knows they’re tying up their money. It’s a very conscious decision,” she said.
Commercial real estate and real estate debt are areas where Franklin has grown through acquisitions, including Clarion Partners and Benefit Street Partners. Johnson said the two units meet regularly to discuss the space.
Commercial real estate is a space where there are areas of opportunity, Johnson said, pointing to segments including logistics and data centers. “It requires you to really be in the sector to know where the opportunity exists,” she said.
Johnson said the last remaining acquisition gap is infrastructure, but it’s an expensive proposition.
“If the right infrastructure manager came around, we think that would be pretty interesting,” she said. “If I were to choose, I think I’d prefer infrastructure debt over equity type portfolio, but either one, we think that that’s just going to continue to be a huge growth opportunity. And, you know, I don’t think we could create it ourselves. I think we’d need to acquire.”
Johnson sees a massive infrastructure need globally, and in the case of the U.S., there are a lot of aging assets that will need to be “creatively financed.”
“I just think there’s a massive need for infrastructure to be financed. And we would love to be in that space,” she said.
Franklin Templeton doesn’t have a house view on inflation since they have several fixed-income CIOs. "We don't have a house view because we have five different fixed income CIOs. And they're all slightly different on it."
But Johnson says she thinks it will be hard to get inflation under control down to 2%.
“I think it’s probably … one cut this year, if at all, if I were to pick my second choice, I'd say no cuts,” she said.
Growing U.S. debt hasn’t received enough coverage, she said.
“We are going to be the reserve currency, there’s nowhere else to go,” she said. “Nobody has confidence in any other currency (besides the U.S. dollar) to be the reserve currency. It’s just at what price do you choose to put your money in Treasuries vs. another asset class? And I think that’s what keeps the longer end of the curve a little more elevated.”
Franklin Templeton has clients in 160 countries and that means navigating geopolitics. Johnson gives the example of a U.S.-China relations and points to a U.S. pension fund that may not be comfortable investing in China, but others will be.
“I probably wouldn’t invest in technology in China,” Johnson said adding that it could be an area with additional risks due to political issues. “But don’t write off China from an investment standpoint around a country that has got a lot of really smart, well-educated people who want to have growth in their domestic economy.”
In times of volatility, “you often as investor can find opportunities to invest,” she said.
Johnson, 59, is a mother of five, and said the next CEO of Franklin Templeton “is not necessarily going to be a Johnson.”
Franklin Templeton goes through a detailed succession review of all key positions, including CEO, for the board, Johnson said. And her role includes looking at potential candidates who can step in and do the job.
“It’s really about what’s best. We’re a public company,” she said. “We’ve got to go through the process.”
