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Perspectives: Evolution of asset management
0 Playsin 12 hours
This episode of HSBC’s Perspectives series features Franklin Templeton President and CEO, Jenny Johnson, in-conversation with Lisa McGeough, HSBC’s CEO and Head of Banking, US, discussing how asset management is adapting to market shifts and evolving investor needs.
Watch or listen to their discussion covering the democratisation of private credit, the potential for AI and blockchain, and the importance of portfolio diversification.
This episode was recorded behind the scenes of the HSBC Global Investment Summit in Hong Kong, March 2025. Find out more here: grp.hsbc/gis
Disclaimer: Views of external guest speakers do not represent those of HSBC.
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Transcript
Introduction: Market Shifts and Innovation
00:00:05
Speaker
Welcome to Perspectives from HSBC. Thanks for joining us. And now on to today's show.
00:00:13
Speaker
hi welcome to our Perspectives series recorded live from the Global Investment Summit in Hong Kong. um I'm Lisa McKeown, CEO for HSBC in the United States.
00:00:26
Speaker
I have the privilege of speaking today with Jenny Johnson, President and CEO of Franklin Templeton. a global investment powerhouse with over one and a half trillion in assets under management.
00:00:39
Speaker
Jenny, it's fantastic to have you here. It's great to be here, Lisa. Thanks for having me. Oh, it's a privilege.
Adaptation Strategies and Technological Integration
00:00:44
Speaker
So today we're going to explore how Franklin Templeton is adapting to market shifts, integrating new technologies and driving innovation while meeting the evolving needs of investors. So we're going to dive in.
00:00:56
Speaker
But Jenny, this is the third day of the Global Investment Summit. So before we talk about Franklin Templeton and your impressive tenure, you have 30 people here. we do.
00:01:07
Speaker
And I would love to hear um from you and the official Franklin perspective on the Global Investment Summit and whether HSBC has delivered for you. It has been a tremendous lineup of speakers that you guys have brought in. And of course you have clients from all over the world, yeah which is fantastic for us because we get to meet these folks and have great conversations. So it's really been impressive. Wonderful. Thank you so much.
00:01:31
Speaker
So you've been with Franklin since 1988 and it's wonderful to look at. I am that old. Yeah. Well, Hey, I started in the eighties as well. So we we're, we're, we're the same ah class.
00:01:43
Speaker
um You've played a really key role in shaping the evolution of Franklin and now you're at the helm as CEO. um What are the biggest shifts you've seen in asset management over the past you know um several decades and how is Franklin adapting to stay ahead?
Evolution in Asset Management
00:01:59
Speaker
yeah so I mean, I think that the you know some things have not changed since I began and frankly, since my grandfather started Franklin Templeton way back in 1947, which is we're here to meet clients needs to the most important financial goals of their life, right? And to work through advisors who are right at the you know the tip of the spear having those conversations with clients.
00:02:23
Speaker
The beauty is that the tools have improved, the investment opportunities have expanded, and so we can really personalize clients' portfolios in a way that you haven't been able to do in the past.
00:02:36
Speaker
There's a huge growth in private markets. And i think that's a secular change. One, you know companies are just not going public. yeah There's enough money in the private markets to stay private longer.
00:02:48
Speaker
So what used to be in 2000, like average three years, they were going public. Now that's 10, 12 years, right? So those early growth years are captured. in in the private markets, and i don't think that changes.
00:03:01
Speaker
And then the second thing is that you know banks, that the regulations around their capital requirements ah have gotten restricted, or restrictor and so they can't lend like they used to lend, and that's created this massive proliferation of private credit.
00:03:17
Speaker
And so what you saw is that initially a lot of institutions today, institutions have about 30% of their portfolio ah that is allocated to private markets, whereas the individual investors only like 3%.
00:03:29
Speaker
And so I think there's ah going to be a shift to the private markets. And then I think there's you know disruption with things like blockchain and AI that are you know coming down the road. Right.
Democratizing Private Credit
00:03:37
Speaker
Jenny, can you talk a little bit ah about democratizing private credit because that's been a trend lately and I think you've been at the forefront of of of allowing your clients to access private credit. Maybe I remember you always had a fantastic loan fund and yeah i know you know you're always Franklin always has deep expertise in lots of areas.
00:03:58
Speaker
but private credit, how how are clients your clients accessing that market? Yeah, we acquired two companies, Benefit Street Partners and Alcentra. So ah it's European and US private credit primarily. ah And you know,
00:04:13
Speaker
the The challenge is that this is permanent capital, which is why it works well, right? So historically, you know, these alternatives managers would raise a fund and you didn't get liquidity until they monetized whatever their investments were.
00:04:27
Speaker
ah That's very challenging to the average individual who may need their savings because of a life event that comes up. And so the type of vehicle that we are launching are things like we have we have what are called evergreen funds.
00:04:42
Speaker
in our private credit area, in our real estate area, in our secondary private equity, where you can redeem up to 5% a quarter of your holdings. And so you build a structure, you probably keep a little bit more in cash there to be able to meet those demands. The reality is not all clients need that 5%.
00:05:00
Speaker
ah And so it gives the excess returns. It gives the individuals access to those excess returns. There's other ways to do it. We think tokenization is going to be helpful in the future.
00:05:11
Speaker
But the key is, is and this is where I believe so strongly in that financial advisor, working with the clients, because you really have to understand a client's spending patterns, their saving patterns, to understand what the right vehicle is and what the right amount of allocation of private markets. So we work,
00:05:28
Speaker
with HSBC, for example, as they're talking to their clients about bringing those types of vehicles to give them access. And I think the other point about that is that the education of the financial advisors is even more challenging now than ever yeah because the markets are moving, you're evolving your product suite and the tools available. Maybe could you dive
Educating Financial Advisors: Private Markets
00:05:50
Speaker
into that? So great point.
00:05:51
Speaker
So we have the Franklin Templeton Academy. ah which we learned one is to be able to talk to advisors so that they can understand how to think about you know they kind of get it that okay there's excess returns because you get an illiquidity premium but how do I fit it in those clients portfolios and I've got different client needs and so our academy we have a lot of education on that we also have 90 people that are dedicated to just being alternative specialists globally So when when ah what we call a market leader is out working with a financial advisor talking about the various Franklin Templeton products, they can call in a specialist to say, oh, you want to go deep on private credit, for example.
00:06:32
Speaker
Let me bring this specialist in and really work with you so you can understand all the nuances of it. Okay, so putting the client at the center, making the whole organization work for that client, understanding their needs is really critical. Yeah, and i I do think that it is often folks who haven't worked in that wealth channel.
00:06:52
Speaker
um So alternative managers who have been selling to institutions, you talk to a pension fund, they know exactly what their cash flows are, right? But that financial advisor, like I said, they not only need to understand the client's savings patterns and the size of the portfolio, they need to understand their spending patterns. They need to understand what life events are gonna come up where they're going to need liquidity. right And so i always say they're the tip of the spear and they risk if it ah if they put the client in the wrong type of locked up vehicle, it really is a risk to them. And so being part of that education, really helping those advisors think through it, we think is really important. okay
00:07:28
Speaker
That's super
Growth through Acquisitions
00:07:29
Speaker
helpful. And Jenny, I mean, so you're north of one and a half trillion of assets under management. We talked a little bit about some of the acquisitions you've made. It's a competitive environment, but you're in a great position.
00:07:40
Speaker
How do you think about the Franklin Templeton portfolio and some of the acquisitions that you've made thus far and where you feel like you might have gaps? So many people know us as, you know, sort of Franklin Templeton, um primarily an active manager. We have since acquired Clarion Partners, which is our real estate managers, Lexington Partners, which is secondary private equity.
00:08:01
Speaker
And as I mentioned, the two private credit managers. We also have launched our own venture capital fund. because our Franklin Growth Team is based in Silicon Valley. And they were noticing that they were losing those, you know there weren't they weren't getting those return kickers because there weren't IPOs coming to market.
00:08:17
Speaker
So they started to late stage venture, which kind of replaced that IPO. And you can hold up to 15% in mutual fund and illiquids. And so that got them into the venture business and we had clients actually come to us.
00:08:28
Speaker
and say, hey, you're doing this, we she you're doing this, well, you want to fund. And so being housed in Silicon Valley, I think gives them an advantage. And honestly, being part of a growth equity team is also advantage because sometimes I think the VCs convince each other of valuations, but if you have the discipline of saying, wait a second, let me look at what the equivalent in the sector is trading at in the public markets, sometimes sometimes the best deals were the deals you stayed out of because you knew they were overvalued at that late stage. So anyway, so we we got in there.
00:08:58
Speaker
um So today we're, I think the seventh largest alternatives manager. ah And if I were to say that there was any area that we we don't have in scale, we have a couple of small teams is infrastructure, which I think is gonna be ah both on the debt and equity side. I think there's a lot of opportunity there with with you know the the kind of energy transition.
00:09:20
Speaker
um And so you know that's an area that we would love to acquire if the opportunity came up. Okay, all right, so always evolving. um AI
AI and Blockchain's Role in Finance
00:09:29
Speaker
and blockchain. So we hear a lot about this, how it revolutionizes financial services.
00:09:35
Speaker
You know, there's a lot of buzz, but how are you really using it to increase productivity, increase effectiveness of your of your teams? um And with that productivity, you know, where do you go?
00:09:48
Speaker
So if you look in history, anytime there's a new technology that comes in, the first thing that people tend to do is they make more efficient what you do today. sure right So that's all you do. You look it, you say, how do I be more efficient at that?
00:10:01
Speaker
And then what happens is as your staff gets more comfortable with the tool, they start to figure out opportunities to innovate. So I think when we look at AI and you look at from an investment opportunity where most of the investment opportunities, but it's been in the picks and shovels, though right? that the The Microsofts who have the Google Cloud, of Google Microsoft, AWS, sorry, yeah know Google. So the the cloud service providers, the NVIDIA is the chip providers, right? The next phase is going to be, I think, which companies figure out how to get that competitive advantage. And initially, it's going to be operational. efficiencies So, Michael Templeton, we're doing a lot looking at kind of those operational efficiencies, but then it's going to be where the revenue opportunities.
00:10:45
Speaker
Now, we launched, we have a partnership with Microsoft where they're helping us build a platform along our distribution team. So, you know, as you can imagine, I say it's it it's a simple,
00:10:56
Speaker
problem with a complex solution, right? So the the problem is if I'm ah a market leader and I'm going to go visit visit a financial advisor, I want to say, what's the optimal meeting agenda topic, right?
00:11:08
Speaker
So then you go from a platform, your AI goes in, it'll go into your CRM system. It starts to look at, okay, let me understand the patterns of conversations. Maybe let's go look at what information I have around that advisor's portfolio. Let me go into say a Morningstar to see some of the ratings. Let's look at the Franklin products that make the most sense.
00:11:26
Speaker
Maybe I'll look at social media to figure out what that advisor, what's going on in this community, right? what creates the best conversation with that advisor to both be efficient with that advisor's time and connect with the advisor.
00:11:40
Speaker
And so you build an AI platform. Now, initially, um most people are doing what are large language models and other which are just kind of a set of data and they the model goes in and gets information.
00:11:54
Speaker
This is actually an eugenic platform, which means you sort of give it permission to go out and find additional information to add as it finds its valuable. like It gives the model permission to go out.
00:12:06
Speaker
And then what happens is it comes back, as you of course know the hallucinations, it comes back and you say, well, that's not quite right. And so the model starts to learn. You could imagine a similar thing for your investment teams, right? So let's say you know China obviously came out with Deep Seek. It was a really aha moment in the US on, wow, we thought we were so far ahead and it was gonna be so expensive.
00:12:26
Speaker
So imagine if you're an analyst covering that, you can say like, okay, let me understand all the ways in which DeepSeek could be disruptive in what industries. Well, by the way, it's obviously from the chip making industry, but maybe it's the energy industry. Then I start to look at oil, right? And so there's a lot of different things that can come out of that.
00:12:43
Speaker
And so if you have this agent, It helps you sort of sift through. You can sift through all your own research reports, the streets research reports, right? you You know how long it would take you to it yourself, right? And pull out the salient information. So we think it's going to be really powerful tool. It doesn't distant replace the human, but it enhances the human's ability and knowledge. So it's productivity, but it's relevant content for the problem you're trying to solve. And when you think about, I'm sure the engagement levels with clients are,
00:13:17
Speaker
as high as they've ever been given what's going on in the world. So you your your financial advisors have the opportunity to sort of synthesize all of this and make it make sense. 100%. And then let me just go into the blockchain answer.
Tokenization and Cultural Assets
00:13:30
Speaker
So look, we're big believers in this. We we launched a tokenized money market fund in 2000.
00:13:37
Speaker
Why do we think this is important? And again, it's it's a vehicle in which you'll be able to deliver, ah just like an ETF as a vehicle, others, that you can deliver investment mandates and capabilities. So first to think of it that way. So think of the technology, put Bitcoin aside and say technology does a couple of things. It has um a source of truth as far as ownership. It has the ability to execute a smart contract. So whatever the rights and agreements are in a transaction are programmed into that token and has a payment mechanism.
00:14:07
Speaker
And so we think that people will tokenize alternative assets and now I can trade it. I can go straight to you, Lisa, and say, do you want to buy my token? And you have all the rights in that asset.
00:14:18
Speaker
I don't need to go to a third party. You know, today much of financial services requires you to go to a third party because you don't know the counterparty and you don't know that the counterparty has all those rights. But if you have it programmed into the token, it actually brings those rights in. So it takes the frictional cost out of a lot of transactions, which we think will open up more investment opportunities. So things like song royalties will be able to invest in that, right? so and And Rihanna, I love giving this example, Rihanna came out with 300 NFTs. Each one has, a I think it's like 0.006% royalty to one of her songs. Well, how can she do that? So if I buy it, Spotify or whatever streaming service plays the song, the smart contract kicks off, says, oh, Lisa has this token, because I'm sure you're a Rihanna fan.
00:15:08
Speaker
And actually I have to pay her for her royalty. Right. You couldn't do that today. Right. Institutions can invest into royalty programs, but the individual can't. And so we call them cultural assets where people's portfolios will be able to participate with their favorite sports athlete or their favorite song, ah you know, singer. So I think it's going to be a really interesting evolution. And and Jenny, I'm just so impressed by all of these areas where you're you know, evolving, innovating, you know, it it adds a competitive edge to what Franklin provides. But where do you get these ideas?
Innovation Culture at Franklin Templeton
00:15:45
Speaker
Well, I do think that we're we're headquartered in Silicon Valley. So that's certainly been helpful. Yes. um I ran technology at one point, so I have a natural curiosity towards it. But honestly, I just came from China and, you know, there's some ah tremendous innovation that's happening there. I mean, I think China in many ways is probably ahead on EV battery.
00:16:07
Speaker
The stuff they're doing in robotics is incredibly interesting. um You know, obviously we we heard the deep seek story. I think with AI, all these models are going to kind of keep jumping ahead of each other, which is why as ah in both an investor and somebody using them, you should probably diversify the the sources that you leverage.
00:16:26
Speaker
um So you have to just have a curious mind. i mean, we're living in a time of great change and you can't approach it with fear. You have to approach it with curiosity and say, how can I think about leveraging this tool?
00:16:37
Speaker
Okay. And then seeing around corners, right? Yeah. and Well, you hope to. We hope to. We
Future Disruptions: AI and Blockchain
00:16:43
Speaker
hope to. So if you think about the industry 10 years from now, talk about seeing around corners, you know, the most disruptive forces shaping asset management and Maybe are there areas where the industry isn't paying enough attention to?
00:16:58
Speaker
Well, i so I do think the two most disruptive are ai and blockchain. um I think the industry is paying a lot of attention to AI and it is it's challenging, right? It's challenging because ah it's hard to find the talent to really understand it It's challenging because AI requires a lot of data. And by the way, data has to be organized. the The dirty little secret in so many of our companies is it's hard to organize your data. It gets proliferated and it's, know, there's no kind of, in the US we have the Dewey Decimal System to find books in a library. You kind of need that on your own data. And so those are all challenges to it. But I think that you know everybody's focused on solving it.
00:17:38
Speaker
In the case of blockchain, um I think it's mixed as far as people's adoption of it, because there's a lot of skeptics who sort of just say it's akin to crypto and blotch and Bitcoin and and those can get you know a big debate and so instead of just saying, well, but yeah, but this is a really efficient technology to leverage.
00:17:57
Speaker
um And I do think that ultimately, financially, you say 10 years from now, I think ah an HSBC advisor will talk to their clients about their portfolio and talk about three things.
00:18:08
Speaker
They'll say, here's here's how you're performing towards your goals. So you're meeting your goals here. Here's been your investment returns to meet them. ah Here's the impact your portfolio's had. and it's going to be really customized to the client's desire for impact. maybe it's it's um you know energy transition and sustainability, maybe it's gender equality, whatever it is, but the data is gonna get better and better. So you'll be able to talk to your clients about that. It'll be part of the scorecard on how portfolio is.
00:18:34
Speaker
And the final piece is you'll say, you know, by the way, here are all the benefits, the loyalty benefits you get for owning these companies. So today, apparently if you own certain types of NFTs on Nike, you get access to specific sneakers that only you will get.
00:18:53
Speaker
um There is a not exactly well executed, but the concept's important. ah I think it's a St. Regis in Aspen that's been tokenized. And when you check in, they say, oh, Lisa, I understand. i I see you're an owner. We've given you a room upgrade, right? It's going to be a loyalty program tied to your ownership to that that equity.
00:19:14
Speaker
And that's, i think, going to be part of sort of the overall portfolio story. That's fantastic. Okay, super interesting.
Growth of ETFs: Strategic Insights
00:19:21
Speaker
um A little bit on ETFs. You and I talked about this in Miami a bit, you know, massive rise over the past two decades.
00:19:28
Speaker
Talk about this as an investment vehicle vehicle in your business. Where is it heading next? We've seen you know massive growth in ETFs. It's a great vehicle for a lot of strategies. There are some strategies that I think it's better to be in a traditional mutual fund.
00:19:42
Speaker
or say even an SMA depending on the you know separately managed account depending on the client. So again, another area where advice of to your financial advisor is going to be critical. Absolutely. Okay, wonderful.
00:19:54
Speaker
So we were together in February at the FII conference in Miami, which was quite a thing. um You made comments about risks in the market that were quite different to the other
US Government Debt and Fiscal Responsibility
00:20:04
Speaker
panelists. Could you talk about the U.S. government debt theme? We're looking at $35 trillion.
00:20:09
Speaker
I guess we're not sure if there's gonna be a Mar-a-Lago accord, you know the dollar gets weaker. I mean, how do you think about managing around well this topic? you know I think I said it then, you know it's not a problem until it's a problem, right? And the the problem is, so of the G7 countries,
00:20:28
Speaker
all of them, with the exception of Germany, are at at least 100% of GDP to debt. right like that's That's kind of emerging market type numbers. right So you know rates had been low.
00:20:42
Speaker
If rates stay higher and you have these refinancing, suddenly the amount you have to cover in interest payments is going to go up. So that's always a concern. um But the biggest issue I think is take the U.S. s So we went from nine trillion in debt in 2007 now thirty five trillion dollars.
00:21:01
Speaker
And ah we're adding anywhere between one and a half to two trillion a year. Our largest foreign buyer of U.S. debt is Japan at one point one trillion and China.
00:21:11
Speaker
at 850 billion. So those are arguably your two biggest customers other than the US government fed buying it itself, right, which is inflationary. So ah chances are they're not going to increase a lot. So you need buyers.
00:21:26
Speaker
And to me, the point I was making on the on, you know, at the at the conference is it then starts to squeeze out other investment opportunities because you know In the end, it's it's not a threat to the dollar. right The reality is there's not a lot of other places to go. So the dollar still maintains itself as the reserve currency.
00:21:45
Speaker
ah But at what price do you have to attract additional investment to buy Treasury versus the other things to buy? And that's that crowding out. And so that was my only point of now, um you know, you look at what President Trump is doing and trying to create some efficiencies with the government. we cannot sustain the trajectory of spending.
00:22:03
Speaker
I mean, ideally, what you do is in difficult times, COVID times, financial GFC, financial crisis, government increases the spending to help stabilize the economy. But then in good times, you kind of pull back that spending. And we just didn't. You know, yes it is so hard. It's like ah it's like a drug. You just you know, you're in this. But you keep you keep spending and it's not sustainable. So um I think some of the programs difficult. It's really difficult to do. But we need to curb that kind of spending. Yeah, it makes sense. It makes sense. It's kind of how we would advise corporates.
00:22:33
Speaker
Yes. And in bull markets, you know, to take care of your cash flow and. manage your finances. Absolutely. And you know, corporations go through tough times. And what happens when you go through that tough time is you start to re-look at everything you do and say, number one, should we be doing this?
00:22:48
Speaker
Two, is there a better way to do it? When things are good, you don't always stop and look at that. Governments never go through that process. And so inefficiencies get built on in the system that honestly, you need to sort of have a mechanism to take a look at it and say, is there a better way
Importance of Diversification and Advisory
00:23:04
Speaker
to do this? Yes, no, that's perfect.
00:23:06
Speaker
So um on closing, any final thoughts or advice for investors navigating this evolving landscape? it's a It's a tricky time for investors. We are constantly reminded, and then we we get complacent on this point, but like the deep seek moment was diversification of a portfolio is so important because you never know. i mean I can tell you, and I'm sure Lisa, you saw this,
00:23:32
Speaker
six weeks ago, two months ago, you would talk about, people go around and talk about the world and they wouldn't say anything about Europe. Like it was as if Europe didn't, they're like, oh yeah, Europe's been the best performing stock market in the year today. Especially DAX. Yeah. And so, you know again, diversification, that's number one. Number two, I always say managing investment portfolios is not a part-time job.
00:23:55
Speaker
being able to keep track of all the changes going on in the world, you need somebody who is full time helping you do that. And that's why I personally use a financial advisor. That's why you use a financial advisor.
00:24:06
Speaker
And so I say, like, don't think of it that you're going to be an expert in bull markets. Everybody becomes an expert in investing. It's in the difficult times, the volatile times that you realize, you know what?
00:24:17
Speaker
I need somebody to help me plan through this. Absolutely. Filter the hype from reality. Exactly. Okay. Wonderful. Jenny, this has been a great discussion. Thank you so much. It's been an honor to be with you this morning. Great to be here.
00:24:28
Speaker
Thank you for joining us for this episode of Perspectives. Make sure you're subscribed to HSBC Global Viewpoint to stay connected.