Bloomberg Wealth: Jenny Johnson

The problem is you can never time the market well. And so the message is stay in it stay diversified in it. As a manager your job is long term investment performance. There is no business that helps people more than this business. We help people achieve the most important goals in their lives. A penny saved is a penny earned. That quote is attributed to Ben Franklin and that philosophy struck home with Rupert Johnson who in 1947 named the retail brokerage he founded after Franklin. My grandfather just wrote it was a big fan. I think he's probably the most interesting of the founding fathers. Almost three quarters of a century later his granddaughter succeeded her brother as CEO of a company now called Franklin Templeton. Now there was never there is never any pressure to go into the business. I always aspired to be in the business. In 1957 the firm's funds had 2.5 million dollars in assets under management. Now under Jenny Johnson that's climbed to one point four trillion dollars. Today were a dominant global asset manager. Probably more coverage than anyone else. Just after Johnson took over in 2020 Franklin Templeton closed its biggest deal ever. The 4.5 billion dollar takeover of Legg Mason. Now the firm operates in over 30 countries with 13 hundred investment professionals and operates more than 200 investment strategies. My father always said take care of the client and the business takes care of itself right. And so the reputation of the firm and the reputation of the family are very much intertwined. Franklin Templeton is a much different company than it was three generations ago. But then Ben Franklin did say when you're finished changing your finished. Let's talk about this companies people may not be that familiar with it. This company was started in 1947 by your grandfather is that right. That's correct. And was he in the money management business before. So he had a brokerage business Johnson Associates and he set up a little subsidiary called Franklin Funds. And my father his older brother took over the brokerage business. And my father wanted to do his own thing as an entrepreneur. And so he asked if he could run Franklin Funds. It was two and a half million dollars in assets and a part time employee. That was the extent of it. And as he reminds me it was ten thousand dollars in revenue at the time. So when you were growing up did your family say you're gonna be the CEO someday of a money management company that we own. No. There was never. There was never any pressure to go into the business. I always aspired to be in the business. There was only one time where I considered a different career. And I never I wasn't focused on being the CEO. I loved what I did. I ran technology. I ran the operations a you know kind of came up on that side of the business. And you know I think my brother after 15 years was ready to do something different. He had an opportunity to be the control person of a Major League Baseball team. I mean who wouldn't want to do that. And so it was kind of time. My team is the San Francisco Giants. OK so they won a World Series under his leadership. Yeah they haven't. I was on the board when they won their three World Series. So I just will put that out there. OK so let's talk about the size of your company and what it actually does today. How much assets under management do you have. We. I think one point four or five trillion. And most of what you have done over the years is offer mutual funds right. Correct. Now in the last 10 20 30 years or so a new phenomenon called index funds or ETF funds have come along and they say more or less don't worry about smart money managers picking good stocks. We're just gonna get you the index. And you don't need to worry about paying higher fees or mutual funds charge. How does that affected your business. So let me buy for take that answer. So one is ETF as I look at as a vehicle. Oftentimes people confuse them and say well they're just a passive index but they're just a vehicle to deliver your investment capabilities. So at Franklin Templeton our expertise is people managing money. You know you have a certain mandate and a risk return and we manage it that way and we deliver it. We're agnostic to the vehicle in which we deliver it. So it might be a mutual fund. It might be an ETF. We have ninety nine ETF. It might be a separately managed account or a collective investment trust. So that's the vehicle. We're agnostic to that. Now the passive versus active question which is sort of your index question you know we've just come off a decade where essentially interest was interest rates were zero. You could borrow money for nothing. You didn't get paid to be in fixed income. And so where were you gonna put your money. And meanwhile the government was essentially printing money. And that pushed everybody into the equity markets or into private assets. In that environment index often passive funds often outperform in a momentum market. Having said that as an asset manager your job is is to provide risk adjusted returns. So you know it got to the point where the the top five companies in the Russell 1000 large cap represent 40 percent of the index. And you know and we had excess returns at the time. But the average investor cares about downside protection too. So a manager I think at one point one stock was twelve and half percent of that of the Russell. So Russell 1000. So you know that's a lot of exposure from a risk standpoint. It's a heavy concentration. So as an active manager you didn't look that say. I don't I don't necessarily want to have that. I want a more diversified portfolio. What that meant you probably underperform. But now when you've seen the market decline those top five declined 24 percent on average whereas the rest declined about 17 percent. So you know again as a manager your job is long term investment performance. But suppose I say all right I want to put somebody in a Franklin Templeton fund. What type of return should I expect on a stock fund or shall I be getting 6 percent a year 5 percent 8 percent. What should I realistically expect to have for fees. Well if you look at I think it's the the S&P from its S&P 500 from its sort of beginning. I think the average return is about 10 and a half percent. The last decade of this kind of very momentum market it was closer to 15 percent. The problem is people then start to expect 15 percent. And I think you take too much risk for somebody trying to put money away for retirement to expect something like 15 percent. So I think a pre-tax you know 10 percent return over a long period of time you're going to have. And when the markets go down. But you know a 10 percent. The average is probably a reasonable return after fees something like probably like 9 percent. OK. So that's what people should realistically expect. But in the business that I've been in the alternatives business private equity and things like that they've been getting higher rates of return. You have kind of said if you can't beat them join them. Recently you have bought a lot of alternative businesses. Why did you do that. So I tell people you know my my grandfather got into the mutual fund business because the average investor could not get a diversified stock portfolio. And it was too dangerous to put you know your entire savings in it just a couple of companies. So the mutual fund was created to give a diversified expert management at a reasonable price. Today we have a phenomenon where companies are waiting much longer to go public. And so in in 2000 the average company went public after three years. Now companies are waiting nine to 10 years because there's so much money available in the private markets. As a matter of fact there are half the number of public companies that there were in 2000 and there were five times the number of private equity back companies. So just from an investable universe you look at the private markets and it's it's significantly bigger. So the question is that return that used to be captured in the public markets is now captured in the private markets. But the problem as you know is you're really tied up for a long time. When you invest in a private equity fund. And so trying to figure out a way to solve the same problem my grandfather was trying to solve which is how do you bring those returns responsibly. The democratization of the of the private markets to the retail investors. And I describe it as a bit of like running with scissors scissors great tool if you use it appropriately. And so we're focused on trying to figure out responsibly bringing it in to the average investor. I would say that that bit coin is the greatest distraction from the greatest disruption that is happening in financial services today. For the asset and wealth management industry emanating activity was on fire last year according to P.W. C.. There were at least two hundred and ninety six deals in 2021. That was 50 percent more than 20 20 in the most since 2000. One of the big deals announced last year was Franklin Templeton's purchase a private equity fund manager Lexington Partners for almost one point eight billion dollars. This year the pace has been even faster to the middle of May. There were one hundred and nine announced deals 11 percent more than it thought same time in 2021. A couple of the big ones UBS bought robo advisor wealth front for one point four billion dollars. Alliance Bernstein paid the same amount for private credit manager Carvel and Franklin Hamilton bought asset manager AL Center for 350 million dollars up front. And it could pay another 350 million dollars. Give out Centra hit certain targets. TWC notes though the deal momentum slowed in the second quarter. What you expect for the rest of the year. Jenny Johnson has indicated Franklin Templeton will continue to explore ways to accelerate growth in infrastructure and wealth management by acquisitions. So as we talked today the United States economy seems to be slowing down a little bit. And some people actually worry about a recession. How has that affected the money management business that you're in. What are your investment professionals telling their clients. So we have 18 independent investment teams. And I can tell you that our macro economists have differing views on whether there'll be a recession if there is a recession. The depth of the recession. So I'm going to say that it depends a bit on that. But what I look at is we're looking at some statistics on market returns and in a 20 year period between 2001 and 2020. All right. I guess 2002 and 2021 there are five thousand thirty five trading days. If you missed the 10 best days of the market you lost 65 percent of your return in that window. So the problem is you can never time the market well. And so you know the message is stay in it stay diversified in it. And because too often you see people when the market's gone down they pull their money out they wait till the big increase and then they put their money back in. And so you know you just have to be a long term investor and you know stay diversified. So today the Federal Reserve has been criticized by some for not raising interest rates quickly. And often some people say it's raise it too quickly. Where do you come out on what the Fed has done. You think the Fed has done a reasonably good job in dealing with higher inflation. You know I think the most important thing for the Fed to do and they probably could be a little bit better at it is communicating what their plan is. Markets can absorb as long as they understand and are no surprises. And so I think the most important thing for the Fed is is to communicate their plans as they're raising rates. OK. And right now today if I had some money should I be putting it in a mutual fund or equity fund or fixed income fund. What is what's better today given where the markets are. You think stocks are likely to keep going up or you think fixed income because interest rates are going up or going likely to be a better value by for people like me. So I mean I think we know that the Fed is going to continue to raise rates. So that's going to make any kind of longer term fixed income a little bit of a challenge for the short run. You know the equity markets may go down some or they may may be bottom. I don't know that any of us know that we're entering into earnings season right now. But again I would just say to folks just have a good diversified portfolio that's appropriate for your risk level and stick with it. And if if anything don't look at it. If you can't afford to be invested for probably a couple of years maybe cash is a better move right now. But if you could afford to be invested for a couple of years then then set up a diversified portfolio. And just don't look at it. Some people say that one of the best opportunities now is crypto currencies though crypto has had some problems. What do you tell people that say they want to be in crypto currencies. Do you offer the opportunity for people to invest in crypto through Franklin. Some of them. Yes actually we do. So first of all I would say that the that bitcoin is the greatest distraction from the greatest disruption that is happening in financial services today. So I wish because every time everybody gets in a conversation about crypto it leads into a conversation about whether this currency whether it's doge coin or bitcoin is of value. Forget that. That's like a religion. Either belief I get a believer or a non-believer and they're never going to great but block chain as a technology. And what it can do is going to be hugely disruptive. So not only is it going to be disruptive on traditional back offices and just create much greater efficiency but disruption on business models. And I'll give you a couple examples that today you go on Google and they capture a hundred percent of your value on your search via their ads. There is a company that has been set up. And when you use their search engine they're actually paying you in cryptocurrency for some portion of your economic value that you're bringing to the table. There's another company that wants to be the fastest streaming service out there. So when you're watching that content so long as I'm watching it on my save phone I'm agreeing to let them cash their content on my phone. So now that you want to watch something it only has to jump from my device to your device. And they're paying me in their currencies to to leverage my devices infrastructure. So now I'm not just a client. I'm capturing the economic value as they grow as a firm. And by the way I've become part of the infrastructure. They don't have to buy as many computers and because they're leveraging their clients infrastructure. So the technology enables that kind of disruption. And then you know you have new revenue streams like I think the NBA raised 500 million in selling off and video clips. So that's an. A news stream I can imagine. We talked about my brother and his role in the San Francisco Giants. You could imagine sports teams what have you sold. 1 percent of the San Francisco Giants. Two hundred thousand people. And oh by the way it you know they get bragging rights that they own it. They own it with their token maybe that they get special access to the coach who's gonna do a post video after the game where there's it becomes a loyalty program. What do you do about ESG. Are you very conscious of investing companies that have good ESG performance. Yeah. Well again we're asset managers so we we do what our clients ask us to do. But we know anybody who's been in Europe for any amount of time and we've been a big manager in Europe for a very very long time knows that there is a big push on ESG. And so it's been a big focus of ours. What you have to think about in an ESG is you have to first think about how it's risky. What are these risks. The environmental social and governance risk to the underlying companies. How are you measuring its alpha contribution to your portfolio. And finally what is the impact of that on society. And so all of those things are really important. And you see that regulatory environment is mandating that you have this in the USA tend to be more focused on what are you saying you're doing and then prove to me that you're doing it. And Europe tends to be more focused on what is the actual societal impact. But you know clients are absolutely demanding that you not only report on returns and we all have a fiduciary duty to to have good returns but also what is the impact. I feel strongly that people should use a financial adviser because a financial advisor we'll deal with the emotional difficulty of a market drop. So let's talk about your own background. So where did you grow up. Well I was born in New Jersey and California. In 1973 my Franklin bought a company out in California and so I moved out to California with the family. And so you grew up in a pretty large family a lot of seven children and ten years. Yeah. A lot of CAC at the family dinner table. They talk about money management all the time. I mean as a matter of fact my mother after having seven kids went on and graduated from Stanford Medical School. And I would say there were way more conversations around the sciences than there were around financial services and asset management. So when you were growing up did you say you wanted to do the same or what did you say you wanted to do when you were growing up. I for some reason always wanted to be in this business. I. There was a period of time in college where I thought maybe I would become a coach because I loved sports. I was a double major in economics and physical education. I thought that would be a fun thing to do. And then I decided that I could probably volunteer as a coach. Where do you go to college. I went to university California Davis. And so after college what did you do. I went to my father said if you're going to be in the financial services business you should probably live in New York. And so I got a job at Drexel Burnham and I worked in kind of like a trainee program at Drexel. And at that time did you think a woman could ever be the CEO of her family's business. You know I grew up in a household where it was viewed women could do as much as men is perfect. My father was the first one to hire the first female general counsel and the asset management business. You know he was obviously very supportive of my mother going back and going back to school and graduating as a doctor. At one point we had three times the number of female women running our investments in the industry. Get it. That's through acquisitions that has actually declined. We're about where the industry is that did your brother who you succeeded and your father who he succeeded. They say don't screw up the family business when you got the job. Trust me you do not want to script the failing business for sure. Yet that is. And actually it's it's why I think that having the family still involved in the business is important. I mean you know my father always said take care of the client. The business takes care of itself. Right. And so the reputation of the firm and the reputation of the family are very much intertwined. And so when you feel that responsibility you make sure you're you're doing what's right for your clients. So today you're happy with what you're doing and being the CEO. Love it. And do you think that today this is a job that young women and young men should really aspire to go go into the money management business as opposed to public service or things like that. So it's funny I tell the story about saying to my kids you know so are any of you going to follow me in this business. And my daughter who makes documentary film says no mom I want to do something that helps people. I said are you kidding me. Like there is no business that helps people more than this business. We help people achieve the most important goals in their lives. And we have to you know every day we walk in. And I think that the employees at Franklin Templeton feel this. We walk in with a fiduciary duty and a responsibility to help help a person who's who wants to retire and be independent financially. Or if you have a special needs child and you worry about saving enough money to make sure that that child is taken care of after or you know you want to save enough money to launch a business whatever it is. These are people's dreams. And like there's no better business to do this and ours. So what do you think is the biggest mistake that investors make when they generally look at what they're doing. What your observation would be that the typical most common mistake investors make is what is they. They sell low and buy high. The typical investor. That's why I feel strongly that people should use a financial adviser because a financial adviser will deal with the emotional difficulty of a market drop. When you suddenly look at your retirement account it's down 25 percent and say don't worry we're in this for the long run. Just stay in. And so it's you know that's been one of the biggest challenges I think. And what's been the best investment advice anybody ever gave you. You know be diversified and stay in the market. I think the biggest issue is is people hesitating and not getting in the market. So I assume you know you go to cocktail parties from time to time you're running Franklin Templeton ISE. People come up to you and say Johnnie can you give me some investment tips. What should I do with my money. Does that happen a lot. Well it happens. What I would say is the best thing to do is actually to ask an expert financial adviser who knows exactly what your needs are. Because you know the beauty is people can customize for their personal needs. I don't know what a person's situation is. And frankly. I just managed 13 hundred investment people. That's not my expertise. While this job. What's the pleasure of it. What's the greatest pleasure of running. Franklin Templeton. I think it's this knowing that we're helping people achieve their most important goals in their lives. What is the greatest challenge of running a company like this. I think you know look it's it's it's hard. My cat is saying he's as you know you either are a tough boss or you work for one. Sometimes you have tough decisions. You you have to you know terminate people or move amended to a different role. And you know sometimes a job's grown beyond somebodies capabilities. Sometimes you have to to make a decision where you're outsourcing. And those are tough people. Decisions are the tough part of job. Let me ask you isn't it really difficult though when your father is around and your brothers around. Both them are CEOs. You've got two family members who are CEOs and they must know your business pretty well. Isn't that the toughest part of your business your job. I think that's the greatest benefit. You know when we're making it done I think eight acquisitions in the last two years and you know very much engaging in conversations with them about is this the right time here. The thinking on it and knowing that their goal is exactly the same as mine. So any feedback they have you know is coming from the right place. So I think it's a tremendous benefit.

Channel: David Rubenstein

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Length: 24min 1sec (1441 seconds)

Published: Wed Aug 10 2022