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00:00It was telling for me when we look back at the interview we had last last year, which was two days after President Trump was inaugurated, about how much was expected for him to do in terms of investments in markets away from geopolitics.
00:12Where are we? So actually, you know, I think that what he had said at the time was he's going to reduce regulation and provide more clarity.
00:20So both in private markets, I think that's been a positive thing, as well as things like tokenization. And, you know, both of those things he kind of stated from the beginning.
00:30Actually, you see sort of his game plan. A lot of the things even today, the noise he's made, he kind of stated that from the beginning.
00:36So, you know, in the case of private markets, like we've been big believers that you need to have fair access to private markets.
00:42And I say, you know, it's akin to when my grandfather set up Franklin Templeton, the average investor couldn't get access to the equity markets.
00:48Today, the average investor doesn't really have access to private markets and the size of private markets today, because companies are waiting longer to go public.
00:55Banks aren't lending in the way they used to lend that folks have been left out of that.
01:00And so I think with some regulatory clarity and a real desire to provide fair access, the administration has done a decent job with that.
01:08I mean, we're also hearing from the administration things about, you know, capping interest rates.
01:12And this goes back to the affordability issue in the U.S. How does that impact your world, but in general investment?
01:18Look, I'm not a big fan of capping. I used to run a credit card department way back when.
01:22And, you know, it's pretty simple. There's three things that go into your cost of funds, the cost of operating it and your loss profile.
01:28If you cap rates, it means that you cannot lend to as many people. So I don't think that's a great move.
01:33I think there's probably, you know, it's great rhetoric to say, oh, gosh, I'm going to reduce my cost there.
01:40But I think that's a that's a tough one.
01:43And when you look at private markets, you've expanded really rapidly in private markets, but we've also seen outflows.
01:48So how much can you grow that to also bring inflows back?
01:51We've actually had our best year. We raised 23 billion in private markets last year.
01:55And over 20 percent of that came from the wealth channel.
01:58And it's about bringing these types of products.
02:01You have to really structure the product to understand the individual's risk and liquidity profile.
02:05And so, you know, we've been really focused on being able to do that.
02:08And sometimes that's a combination of public and private together in one product.
02:12Sometimes it's a perpetual type of product where you can get, you know, 5 percent liquidity.
02:16So it's actually so far been been a good year.
02:21And we're looking to this year to even be better.
02:23What are you expecting this year? How much will you grow in that space?
02:26So we had laid out a plan that said we'll raise 100 billion over five years.
02:30We raised 23 billion this year and we didn't have a big flagship product in the market.
02:35So this year we will with our Lexington Fund 11.
02:38And so we think it's going to be bigger.
02:41I think we've targeted, say, 25 billion this year.
02:44We love secondaries.
02:46We love secondaries because there's been so much private equity that has been deployed.
02:51And now they're not the liquidity of those have not come out as fast as about half of what historically it's been.
02:57And so people are looking for a liquidity mechanism.
03:00Secondaries is a great way to do that.
03:01We love them structurally.
03:02They don't have the same J curve.
03:04You get a diversified portfolio.
03:05You get your cash flows earlier than traditional private equity.
03:08We also love real estate debt.
03:09So, you know, in private credit, a lot of people make tons of noise about private credit.
03:13I'm always surprised you would never look at your fixed income portfolio as one big portfolio.
03:18You'd say, is high yield attractive?
03:20Is middle market attractive?
03:22Is asset backed attractive?
03:23You need to think about your private credit portfolio that way as well.
03:26And so if you look in areas, we think real estate debt, because regional banks aren't lending the way they used to lend, is a great opportunity.
03:32We think asset backed is looking very, you know, is looking like a good place to be attractive.
03:39And so I think it's really important to understand you've got to underwrite it like you would underwrite a fixed income portfolio.
03:46And manager selection in private markets is really important.
03:48The diversity of the top quartile performing and bottom quartile is significant.
03:53So you really have to pick the right managers.
03:55Jay, how much volatility in general are you expecting?
03:58And actually, does that, again, because of AI valuations, I know there's a large presence of U.S. tech.
04:02Because of geopolitics, because of these tariffs.
04:05Expecting a lot of volatility.
04:06I mean, it is, right?
04:07Is opportunity or volatility?
04:09It's always opportunity.
04:10Volatility is opportunity for active managers, right?
04:12And so, you know, look, this administration has shown us that there are surprises around the corner.
04:18And so you have to position your portfolio.
04:21You know, Franklin Templeton, we have clients in 160 countries.
04:24We're going to celebrate 80 years next year.
04:26We've been through a lot of administrations.
04:29Our job is to make sure our clients have their investment portfolio that is really diversified so that they can actually take these kind of short-term shots.
04:37And if you do it right, you can get through it.
04:40And I think, you know, in the case of President Trump, look, think about what the markets did after Liberation Day.
04:47You know, we were all like, oh, my gosh.
04:49And you know what?
04:50We came out pretty okay on the tariffs.
04:53China, it was going to be 100%, right?
04:55The markets reacted to that.
04:56A little less, he got through that.
04:58I think we'll get through this latest.
05:01Is this because the U.S. economy is resilient?
05:04I mean, the world economy is resilient?
05:05Well, it's both that.
05:07And believe me, I think AI, we haven't even begun to see the impact of AI on individual companies.
05:13I think the next really exciting thing is the companies within sectors that actually get it right.
05:18They will take off, leaving the others behind in that sector.
05:23And so right now, it's been the picks and shovels that have really been the ones that have gotten the evaluation advantages.
05:29It's going to be those companies, and it takes time for them to figure it out.
05:31So that, of course, is part of the volatility.
05:34I think the other thing is—
05:35But this, Jenny, is it productivity that they work on or just in general, like spending, you know, to upgrade their systems?
05:41It's going to be hugely transformative in the productivity.
05:43And by the way, you actually have seen in the U.S. companies, for a decade, productivity was running at about 1%.
05:50We're now closer to 2%.
05:51It's massive, which is why I also think you've seen not so many jobs created and yet companies growing.
05:57Because we're getting—there are 157 million people working in the United States.
06:03We've had a 1% productivity.
06:04That's 1.5 million less people that you need for the same kind of growth.
06:08And so definitely AI productivity.
06:11And I don't think that's in the numbers yet.
06:12I think that the productivity games are from the technologies that have been kind of the last decade.
06:17Cloud servicing, other things, digitalization.
06:20So the AI, it's going to take time, and there's going to be winners and losers in it.
06:24But the pace of it is so dramatic, faster than even I thought it would be.
06:28Is it faster?
06:28I mean, is the next 12 months, 12 to 24 months, actually crucial for that?
06:33Because that could also mean job losses, implications on the macro level.
06:36So I'm always one to say, like, every time there's a big new technology, we predict that there's not going to be any jobs.
06:43And somehow, you know, like nobody would have thought Google would have 300,000 people and that there'd be all these new things that we have.
06:49So I'm always optimistic that way.
06:51Having said that, I think that there, when you say in the next 12 months, companies are going to invest in it to try to figure it out.
06:57There's going to be a lot of failures and dead ends in that process.
06:59But there's going to be learnings in that.
07:02And so I think that it's going to take a while for companies.
07:06And one of the reasons I ran the IT department for a long time, one of the hardest things about IT, you know, any kind of new application, I think, is people resist change.
07:16So change management's tough.
07:17It's going to be hard to bring it into organizations.
07:20But the ones who get it right, it's going to be dramatic.
07:22There's a big presence of crypto here.
07:25The chief executives, if you walk around Promenade, a lot of the houses are actually country houses.
07:30Qatar has a big presence.
07:31Some of the other countries.
07:32But then you also have a lot of the crypto exchanges.
07:35How do you see crypto getting more into the mainstream?
07:37And what does it mean for Franklin Templeton?
07:38So I think 2026 is going to be a huge year where TradFi and DeFi start to come together.
07:44And I'll tell you why.
07:45So Franklin Templeton launched an on-chain money market fund.
07:49It was approved by the SEC in 2020.
07:51It's natively on-chain, which means we actually pay you your interest posted in your account every day.
07:57We can do that because it's on the blockchain.
07:59You can actually transfer, you will within the next few weeks, be able to transfer on a Saturday from your money market fund into a stable coin.
08:07You can only do that because we are natively on-chain, right?
08:10The SEC had us run it parallel between our old system and our new system.
08:14We were astonished by how cost-effective it was.
08:17And why do I think it's 2026?
08:19Because, one, I just attended a crypto conference last week, is that you suddenly have the traditional financial people who are showing up to these things.
08:27And you have your crypto exchanges and others trying to launch traditional products.
08:32And you have your traditional financial firms saying, I need to figure out how my clients are asking me how to provide advice on this.
08:40How do they invest in this area?
08:41And so I think you're going to have these things start to come together more.
08:44But this is because of support and blessing from the Trump administration.
08:47Is that a catalyst or is it just the way that business was going to work?
08:50So it has helped in the U.S., but there are other, Singapore, Hong Kong, the UAE, they've actually been, you know, much more advanced on kind of the regulatory environment, which was leaving the U.S.
09:00It's because this is a technology that does really important things.
09:03Number one, it has a source of truth.
09:05There's a huge cost in financial services reconciling data within firms.
09:10And then once you have to reconcile with your counterparty, that's expensive.
09:13Number two, it has the ability to have a smart contract.
09:15If you own the token, whatever that agreement is, is actually programmed in it.
09:20So it's much more efficient.
09:22And then finally, it is a payment mechanism.
09:24We're going to see innovation on the types of investment products.
09:26We're going to see more financial inclusion because it's going to be less costly to be able to deliver financial products.
09:31What about Bitcoin?
09:33So Bitcoin's a different deal.
09:34It's different, but does it translate into also bigger demand or more acceptance of Bitcoin?
09:38So here's what I think about Bitcoin.
09:39I think that just like we're seeing gold take off, if you actually look at why gold has rallied over the last year, a lot of that is because central banks are trying, are starting to buy gold.
09:51Why?
09:51They want diversification from the dollar.
09:53You know, I talked to folks after the U.S. froze assets from Russia.
09:58Not only did we freeze the central bank's assets, but we froze oligarchs' assets.
10:04And so there were people who said, wow, if we end up on the wrong side of that, that can be kind of scary.
10:08And so you see central banks diversifying.
10:10Well, the other option is you can diversify with Bitcoin.
10:13And you see the big countries where you had heavy inflation, Turkey, El Salvador, Venezuela.
10:19They were all actually big in Bitcoin.
10:20And so it's it's a way for people to get a certain amount of diversification.
10:25I always argue it's a little bit like religion.
10:27You're a believer or not.
10:28But those who believe view it as kind of a gold alternative.
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