Where Is Franklin Templeton Headed?

Sarah Bush: Hi, I’m here today with Jenny Johnson, CEO of Franklin Templeton. She is joining us at the Morningstar Investment Conference this year.

Thank you so much for joining us for this conversation, Jenny.

Jenny Johnson: It's great to be here.

Bush: Great. So, I wanted to start off—you got off to a really exciting start in your first few months as CEO. You stepped into that role and shortly thereafter you announced the acquisition of Legg Mason, which even on the scale of things Franklin has done before was pretty amazing. So, maybe you could start off by talking a little bit about how that integration is going and if there is anything that you learned through that process.

Johnson: Sure. Franklin this year is celebrating our 75 years, and the reason you could make it 75 years is because you built a resilient business that can weather whatever storms are thrown at you. And the primary reasons for the Legg Mason acquisition, which really doubled the size of the firm—we're now a $1.5 trillion asset manager—was it gave us capabilities that we didn't have. I mean, it was over a couple of years that we identified, we wanted to grow in alternatives, we wanted to grow in big categories like core, core plus, fixed income, and Legg Mason had a couple of those: Clarion Partners, a fabulous real estate manager, and of course, Western Asset, very well known in the core/core plus space. But in addition, we have been 75% kind of a retail asset manager and they were 75% institutional. And so, from a diversification of clients it gave us 50/50 with this amazing breadth of capabilities. And then, when we look at the future of asset management—just like financial advisors no longer just manage people's money; they expect them to provide the services that historically only went to ultra-high-net-worth people—we can invest in things like solutions, multi-asset products, technology capabilities to provide additional services to clients.

Bush: Great. Thank you, Jenny. As you've built your career at Franklin, you've spent time in a lot of different parts of the business, running consumer lending, time in tech and operations. Maybe you could talk a little bit about what all those experiences bring to the table and how they shape how you're approaching your new role.

Johnson: Yeah. It's funny. We never fully appreciate when we're doing something how it's going to be relevant to us later in life. I always think of Steve Jobs, who took his first calligraphy class and then ultimately completely changed the way we have fonts in Word processing system. So, for me, I have to tell you, the consumer lending was amazing experience to understand fixed-income investing, to understand today using data, data analytics. I also ran a credit card department. The amount of data that banks use for consumer lending is phenomenal. And so, bringing that to the investment capability was a great learning. And then, of course, running technology. It was the advice of someone that said any executive of the future has to be really good at technology. And I think that was great advice to me. I've always been very comfortable with new technology. And I think technology is dramatically impacting our business in a good way. We're going to be able to customize solutions to clients in a much, much greater way—whether it's tax efficiency or ESG overlay—and deliver things like direct indexing or SMA type portfolios.

Bush: Great. I want to shift again a little bit but also to talk about the future of Franklin. Active management has been a hard place to be, especially in equity. Franklin had several years of outflows when you came in, started to turn the picture there. You've talked a little bit about how you think the next decade is going to look different for active management, so maybe you could talk about what's likely to change there.

Johnson: I've been using this analogy for probably the last five or six years, which was: If somebody asked you to drive a car from point A to point B and do it as cheaply as you can, you go out and buy a used car with no safety features as long as the drive was a well-paved straight road. But the reality of people's financial journey, it's never a straight well-paved road. What was happening over the last decade where governments were pumping money into the system, rates were kept artificially low, is the investing environment was like a well-paved road. All stocks went up. But as the journey of life is, sometimes you take the car into the mountains and you get hit by a snowstorm and oh, guess what, that's what we're experiencing right now with all of these some seen and some unseen circumstances that are impacting the market.

We see the Dow and S&P having declined half as much as the Nasdaq. And if you look at the last decade, it was all about the Nasdaq. Volatile times are when active managers shine. What makes it really hard for an active manager is times where everything goes up and is correlated, and we are seeing real volatility. So, I think—and I don't think these things go away quickly—I was at a conference last week where the consensus was probably the best scenario in Ukraine is a frozen war where it's neither a win or a loss for Russia, and that means it drags on for a long time, impacts energy, impacts food. China's lockdown is impacting supply chains. People are going to re-shore their supply chains and that's going to make different investment opportunities. I feel like in my analogy we've hit that mountainous storm, and this is why you want to have good risk-adjusted approach to any kind of investments.

Bush: Great. Well, thank you very much for joining us today, Jenny. It's been great to talk to you.

Johnson: Thank you.