Tapping into the Future of Blockchain and Digital Assets
Ric Edelman: I've been in the financial services industry for, well, more years than I like to count (pushing 40 years now). I first got licensed as a financial advisor back in the mid-1980s. I had been writing in the financial trade press prior to that, but I became a financial advisor in the 1980s and the very first mutual fund company that I recommended that my clients invest in were mutual funds from Franklin Templeton. Franklin Templeton is one of the oldest mutual fund companies in the nation, 75 years old now, I believe. They're one of the largest mutual fund companies and money management firms in the nation, $1.7 trillion in assets. And so I am really happy that Franklin Templeton is one of the sponsors of DACFP. You have heard me talk about DACFP in the past, here on the program. DACFP is the Digital Assets Council of Financial Professionals. DACFP is an organization I founded about five years ago to teach the financial community, financial advisors, and their firms about blockchain, bitcoin, digital assets, and such. And I'm really excited that Franklin Templeton is one of my sponsors, and I'm even more excited that right now I have the wonderful opportunity to have you meet Jenny Johnson. Jenny is the president and CEO of Franklin Templeton. She's been with the company more than 30 years, and she's been a key driver in the company's transformation to becoming what is now - one of the largest and most respected investment management firms in the world. Jenny Johnson of Franklin Templeton, so good to have you on the show here with us today.
Jenny Johnson: It's great to be here, Ric. Thanks for having me.
Ric: You talk to many advisors, Jenny, and you know that they know the Franklin Templeton name. Everybody does. Franklin Templeton is well known for managing very traditional asset classes, stocks and bonds and investing internationally. The Templeton Funds are super well known for that. And as I mentioned, I first started putting client assets back in Franklin Templeton funds back in the 1980s. In fact, I remember way back when Franklin Templeton was a leader in municipal bond investing and still is today. But as CEO, you've really focused on innovation and you're reinventing, reimagining the entire company, focusing on what's possible. I think people are surprised to hear how Franklin Templeton has gotten engaged, not just with stocks and bonds and municipal bonds these days, but now Franklin Templeton has gotten engaged with digital assets.
Jenny: I think, you know, Ric, you don't make it for 75 years if you haven't been able to innovate along the way. And so I actually do think it's part of our DNA as a firm. There are some things that have just never changed in what we do as an asset manager or a financial advisor - and that is - try to deliver for our clients and help them achieve the most important financial goals of their lives. So that part hasn't changed. I think what's changed is the opportunities from an investment standpoint is that technology has changed the way we deliver some of those capabilities. And I look at digital assets and think of the things ahead of us from a technology standpoint, it’s probably one of the things that will impact the way in which we deliver those kinds of goals to our clients. So I think for Franklin Templeton, it's just really important that we stay on the forefront of it.
Ric: So give me an illustration of what you mean by that. How is it that this new innovation of crypto, blockchain, digital assets, how is that going to transform itself into changing how we invest?
Jenny Johnson: First of all, I always like to say, look, Bitcoin - is the greatest distraction from the greatest disruption that is happening to financial services. And so I'm going to put Bitcoin -this kind of government sponsored currency, aside and I think there are arguments positive and negative on that. But put that aside, I think what remains is in three big buckets. So the first is efficiencies and cost savings. We're going to be able to deliver at a much more cost-effective level of capabilities because of blockchain making us more efficient at what we do and even customizing those things better.
The second is access and it’s one of the things that I'm really passionate about. My grandfather got into the mutual fund business because the average person couldn't access the equity markets and the equity markets were where you were getting access returns. Well, nowadays, the private markets, because companies are waiting so much longer to go public that the average investor is not actually capturing that private market capability. And I think blockchain and its ability to fractionalized ownership and to reduce the transaction costs of transferring ownership is going to unlock a bunch of what today have been really honestly only available for the ultra-high net worth.
Finally, I think it's about this exciting concept of unlocking value in creating new business capabilities. So think about the Internet. What did the Internet bring us? It brought us things like Uber and Airbnb, where you had this asset, a home or car that you could now actually unlock the value of it, use it for part of your business case. Well, there are some really interesting things being created that are, I think, Web 3.0 is just going to take that to a whole other level that I think is pretty fascinating.
Ric: A lot of folks are not familiar with Web 3.0. You're talking about the metaverse, really. You're talking about NFT adoption in the marketplace. Elaborate on all that for us.
Jenny: So again, let's take this concept of kind of the Uber and the Airbnb. Unlocking the value of your car and your home to be able to create additional revenue streams. Well, because of tokenization. So maybe the easiest way to think of Web 1.0 was (I like to say it was) kind of the 'read it'. It was like a billboard when you first were talking about the Internet. Companies were thinking about their website as just, all right, I'll just put a bunch of information and leave it up there. Web 2.0 became transactions. It became a communication channel. If you wanted to see your assets of Franklin Templeton or you wanted to make transactions at Franklin Templeton, we enabled that. That was kind of Web 2.0. I like to think of Web 3.0 as ‘own it’. You can actually participate in some of that ownership. So a couple of examples. There's a company that wants to be the fastest streaming service out there. So if you're watching their content on your device, you're agreeing to let them cache content on your device so that if the person next to me wants to watch content and only has to jump from my device to their device, so suddenly they pay me in their cryptocurrency for that, for the fact that they get to use my device as part of the infrastructure.
So now I'm a client, right? Because I'm a user of it. I'm actually kind of an owner because as their economic value increases, my economic value increases, and I'm actually part of the infrastructure. They don't need to go buy as many computers out there because they've figured out how to unlock their clients' computer. So that's one example. Another company (and I have no interest in it) is called Helium where you can actually turn over your router capacity. They're trying to build a network of Internet access. And so rather than building all the hardware, you can turn over some portion of your excess capacity and get paid to use that. So that builds a network for them. So it's that network effect that makes you as a client also really kind of an owner and contributing to part of that company. And that's only enabled because of the blockchain technology.
Ric: And you mentioned that you wanted to set Bitcoin aside, but Bitcoin and blockchain are kind of connected at the hip and not just Bitcoin, but all digital assets - Ethereum, and there are 20,000 of these coins and tokens out there, they're all kind of connected to the blockchain. How can you really separate and segregate? Talk about how your focus at Franklin Templeton is really about the tech and the innovations that's bringing, and not so much about the speculation as to what Bitcoin will be worth in the future.
Jenny: Yeah, it comes down to they're using the same sort of technology and applying it in different ways. And so one of the ways we'll know that the digital asset market is maturing is when things like Ethereum and Bitcoin don't trade lockstep, right? That right now it's a risk on, risk off, but it's a lack of understanding about the difference. And so the choice of the application on Bitcoin is really 'I want to create a currency that's independent of governments'. Whereas Ethereum...I like to say Ethereum is, is sort of like when Apple came out with the iPhone and we first looked at the iPhone and we said, Hey, that's pretty cool. I've got my phone, I've got music, I've got a G.P.S., I got a flashlight. You know, this is really great. But what Apple understood and what Steve Jobs understood was he was providing a platform to unlock the creativity of individual programmers who came. With all these ideas that he never thought of himself that he'd be able to do or that Apple would be able to do. So, Ethereum or Solana or Cardano, all these layer one platforms are really platforms to create, like the iPhone, where entrepreneurs can come in and build businesses and many of them kind of replicate traditional type businesses. But as I said in both of those examples, they are able to kind of pay the clients for helping them build the network.
Ric: So it sounds like it's hard to get excited about one without getting somewhat excited about the other because they're all kind of in a broad spectrum. But the real focus here is on the fundamental technological innovation and how it's going to allow us to do things we otherwise haven't been able to do, or we couldn't do as quickly or as cheaply or as safely or with a profit opportunity. And that's what I think has you so excited at Franklin Templeton. So give me a couple of examples if you can, Jenny.
Customers Become Owners Thanks to Blockchain Technology
Jenny: Let’s start with pretty traditional approach and then we can go into a little more esoteric. From a traditional standpoint, imagine today that you own an iconic building like the Empire State Building, let's say, and now you want to go sell it. You are able to sell it to a million people because now you can tokenize that ownership. So if you were to try to do that today, the cost of maintaining everybody's title ownership to one millionth of the Empire State Building would almost be overwhelming. But now, because you have the smart contract that can embed the title of ownership in that smart contract, I can fractionalize ownership of real assets at a much greater level. So now let's say I have my one millionth and I want to sell it to you. The rents are getting paid, right? So that comes in through my smart contract. But I can sell it to you without having to go to all these third parties, title companies and others, to lawyers who are going to get paid to prove that it's legit. Because I've been able to build that into the token itself.
So if I can reduce the friction in transferring ownership, I can fractionalize more ownership. It gets even more exciting because there’s a social component. So let’s say you can own a piece of a Four Seasons hotel. When you check in, they recognize you as an owner and so you can get a room upgrade. Meanwhile, you still get your payments as an owner of that hotel, just like a stock dividend. So now I've got a loyalty program.
You can also see how you could sell off a piece of ownership on a sports team. Your value for ownership is that when the better seats come up for season tickets, you get a priority. Maybe after the game you get a special coaches review. So it's that social component that's actually getting tied to this ownership that honestly is not that different from being an equity owner with a traditional stock, but it's just way more efficient.
Ric: So we're doing two things here. It sounds like on the one hand, we're tying customers and owners. You're becoming one and the same. And we're creating access to ordinary investors who aren't particularly wealthy. They'll now have access to investment opportunities they've never had before. I mean, the only people right now who can afford to buy the Empire State Building are incredibly wealthy institutions or individuals, billionaires, or pension funds. So we're talking multibillion dollar pieces of real estate. I'd love to buy the Empire State Building, but I can't write that check. But if I can buy one millionth of it for $10, well, now I can participate. And it also becomes liquid and easily available, just like my stocks and bonds are. So this creates new asset classes, new investment opportunities, all of it affordable. Instead of having 15 or 20 asset classes, we're going to have 15 or 20,000 of them creating true diversification.
Jenny: And a couple other examples. In one quarter the NBA raised $500 million in revenue by selling little NFTs, non-fungible tokens, which are essentially video clips. So I get to own maybe this iconic video of a great dunk being made by LeBron James or something, you know, so that's a new asset class. I mean, in some ways it's sort of like owning an old baseball card, right? But wow, now it's really, really engaging, and interesting.
You're seeing artists. So think about the fraud that happens in the art world. So I know of companies that are helping artists tie an NFT to their physical art. So it does a couple of things. As the artist today, if I paint a painting and I go sell it, I might capture a third of the initial economics. But if I tie an NFT to that now, when somebody buys it from me, they know they have a legitimate original piece of art. When I want to sell it to you, you only want to buy this if you get the NFT because you want to know that it's authentic. Oh, and by the way, in the smart contract, the artist can get paid a piece of that ongoing sale. So now, artists of the future can continue to capture some of the economic value on that art, which gets pretty exciting. And then from that social component, that artist can say, ‘Hey, I want to do a zoom cocktail with everybody who happens to own my personal paintings’. So that's a value you get of building that kind of community.
Ric: So how do you anticipate Franklin Templeton being able to turn all of this into the marketplace? What are the products, investment opportunities you're going to make available to your investors?
Jenny: Well, so we already have a couple of things. We have a SEC approved blockchain money market fund, which we think can be kind of interesting. If you think about owning a digital token where you're getting interest as rates go up, you'll actually get paid on your money market funds someday, we think. And so you can hold it there and then trade digital assets, always knowing that you go into something that's tied and regulated, tied to the dollar. So that's the one. But we built a transfer agency system on that. So you can take any of our traditional funds ultimately and tokenize them. And we think that will drive down the cost of delivering those types of things. We do have products that are available to investors where we do just like we do on stocks and bonds and do the detailed research where we are researching the companies and you can buy our portfolio. So we'll deliver in a separately managed account a portfolio of different coins that we've gone through like Ethereum. We might have one that's themed around the platforms. We have one that's themed around the platforms. We have one that's themed around gaming. So we have different themes to provide professional management and research and deliver to these types of capabilities and really kind of this new world through financial advisors.
Ric: This is just an inkling of the kind of innovation that is coming from some of the most advanced thinking in the financial services world. If you were wondering, Gee, all these crypto companies are brand new startups, who knows where they're situated? Who are the people behind them? How much money have they got to support themselves? What's the rest of mainstream Wall Street doing? Well, Jenny Johnson is giving you a pretty good indication of what the leadership is doing in some of the forward-thinking firms in the financial services sector. You're going to be hearing a lot more from Franklin Templeton as they bring more and more of these investment opportunities to market. I'll be sharing the news with you as well right here on The Truth About Your Future so you can stay up to date on all of this. But before we go, Jenny, I can't let you go without changing the conversation entirely. I'm going to take advantage of the fact that I've got you on the phone and on video right now. You're one of the most successful executives in the financial services industry and in the Fortune 500. And you're a bit of a rarity, sad to say, because you're a woman. Talk about what it's been like over the past 30 years in the financial services industry, being female in this industry. And where do you think we are today regarding gender equality in the industry and what you see in the future about all this?
Supporting Women Investors and Entrepreneurs
Jenny: I was always lucky, having worked for my father for many years at Franklin Templeton. And we were the first firm to hire a female general counsel. My mother, after having seven children, went back to college and then ultimately graduated from Stanford Medical School. And you couldn't do that if you didn't have a spouse that was incredibly supportive and, you know, shared in some of the work and effort. So I always grew up in a household where there was just a view that men and women, you could do whatever you wanted to do. I think as an industry, we're recognizing the great opportunity that having a diverse group of investment investors, how important that is. And I like to share the example of we have a venture capital fund, our Stratus Fund, where it's run by women, and it's focused on kind of female entrepreneurs. And today, less than 2% of VC money goes to women. So 50% of the population has less than 2% of the ideas. And I think the real growth opportunity here is when you start to get more women investors. Only 12% of VCs are female. So women will say, the reason I think I didn't get funded by this venture capital firm was they didn't understand my business case.
And so the two examples I like to share is, one, we invested in a company called Rent the Runway, and I laugh for it because I'm certain that when you and your wife head off to some gala or some event, you're just hoping that your 20-year-old tuxedo is still fitting. Well, whereas your wife is saying, I've worn all these dresses over the last five years, I can't wear it again. I mean, there's real pressure on women. And so I think about somebody coming in and pitching the Rent the Runway. Women can rent dresses for these events, talking to a bunch of guys that have been in their 20-year-old tuxedo. And you might miss that opportunity.
We're starting to recognize, because female entrepreneurs tend to have twice the returns when you aggregate what they've done versus the average venture fund, which tells me that the idea is the ones that finally get through are phenomenal, but we're probably missing a bunch of them. So I'm actually really optimistic that the industry is really woken up to the growth opportunity of having real diversity on investment teams. And then I think the other thing that we haven't done as well as an industry - and I was reminded of this when I asked my children, asked my daughters whether or not any of them would join me in this business - and one of them said to me, Mom, I want to do something that helps people. And I was like, Are you kidding me? This is a business that helps people. What are you saying? And I realized it's because we don't talk about it in such a way about helping people achieve the goals that are most important. You know, you talk to somebody who is afraid they're going to lose their home when they retire. Believe me, that's fear. Or somebody who has a special needs child who wants to ensure that they've saved enough to take care of that child once they're gone. These are real, personal, and important, and as an industry, we have to remind people that that's why we come in every day. And I think in that we will attract more women to this business.
Ric: Well, I hope you're absolutely right about that. I am optimistic myself and we have a lot more work to do. But with folks like you at the forefront, I have every reason to be optimistic. That's Jenny Johnson, who is the president and CEO of Franklin Templeton here on The Truth About Your Future. Jenny, thanks so much for joining me on the show today.
Jenny Johnson: Thank you, Ric. It's been great.
Ric Edelman: Jenny and I actually spoke for a lot longer than you just heard on the air. So if you'd like to watch, read, or listen to the entire conversation, just visit TheTruthAYF.com.