00:00:00 · Molly O'Shea, Jenny Johnson
[00:00:00] S0: Your grandfather started in 1947, managing 2,500,000 in AUM to now 1,800,000,000,000 in AUM. Done 17 acquisitions in the last six years. [00:00:10] S1: I think the Canvas application was about 2,500,000,000 when we acquired them, and it's now 30,000,000,000. [00:00:16] S0: I found out that you guys had exposure [00:00:17] S1: to SpaceX. We did. We did. Anthropic. I mean, a bunch of them. Yes. Well, I think the biggest growth lever is AI. It is such a massive disruptor. There is no person who's who's had more significant impact on really where we are in the technological advances today than Elon has. [00:00:34] S0: Ken Griffin was just on stage for the Citadel Securities Conference, and, of course, they asked him about the AI bubble. Maybe this is a bubble. There's almost certainly bubbles within this moment in time. [00:00:44] S1: It happens over and over. New technology is the greatest thing ever. It's gonna be the greatest thing. It goes all the way up. It's so great. It's so great. Boom. And everybody's disillusioned by it. It's terrible. And then it comes back up to where it sort of should be. So the question is, where are we on that curve? [00:01:08] S0: Jenny Johnson, welcome to Sourcery. [00:01:11] S1: Thanks for having me. It's great to be here. [00:01:12] S0: Well, thanks for having me in your super fancy, gorgeous new New York City office. [00:01:18] S1: We are very excited, and you're in the Heritage Room, which is all about our history. [00:01:21] S0: I know you guys like Benjamin Franklin,
00:01:21 · Molly O'Shea, Jenny Johnson
[00:01:21] S0: I know you guys like Benjamin Franklin, [00:01:23] S1: We we do kinda like him. He was a stud. Was a pretty cool guy. [00:01:27] S0: Yeah. So I'm going to ask you a question about him later, but before we begin, I just want to give a nod to Franklin Templeton. You guys have been around for multi generations. Your grandfather started in 1947. You went from managing 2,500,000 in AUM to now 1,800,000,000,000 in AUM, which is crazy. [00:01:48] S1: Yeah. [00:01:48] S0: It's a huge growth. There's a huge growth story behind it. And for your story in particular as well, like you started in the mailroom, and now you're the CEO. So [00:01:57] S1: I want [00:01:57] S0: to talk through all of that, but before we get to it, where are we in the state of the market? We have people saying we're in a hidden bear market. There's also all this fun about AI and the premiums there and the big deals that are happening, and the IPOs are getting pushed back. So how do you consider this?
00:02:14 · Jenny Johnson
[00:02:14] S1: I think you have to break down a couple of things. Look, there is a ton of noise in the AI and the hyperscaler space. There's noise around the circular financing, there's noise around how they're doing revenue recognition, right? So let's put that aside for a second. You look at the economy, you know, we've managed I think inflation is probably pretty sticky and rates are probably going to stay higher, But the current rate level is not unusual from a historical standpoint. It's unusual for the last twenty five years, but actually in history, it's not that unusual. You're young, so you remember those days of mortgages being much more expensive and it still functions. The rate environment, I think it's definitely higher. If you built your business model or have a lot of leverage, that's a concern. But if you're a good cash flowing company, the consumer is still very strong, particularly in The US. Productivity is up, you know, at 2%. I don't think any of that productivity story has anything to do with AI. This is all technologies that have been around for a couple of decades. Digitization, cloud servicing, all of those things. It takes a long time for new technology to be adopted in an organization. I always say, you know, I ran technology at Franklin Templeton, and I always tell people, your two biggest challenges in technology, people will tell you it's integration of systems, it's actually the quality of your data being organized, and then the second thing is change management. Because the fact is people don't like it to change. They don't want to adopt new things. It's a lot of effort on their side. And so the AI that we have today is gonna take a while before you really see it being meaningful to company's earnings. So that's the upside that I think we're gonna see happen. And so back to kind of the market, if you look at the hyperscalers, you do see some broadening of markets. You still see strong earnings. I think something like 70% of companies beat their projected earnings. And so we're still seeing good tailwinds around that. Now, what are the headwinds? Well, the headwinds are obviously that it looks like it's it's gonna be tough for this war in The Middle East to end anytime soon. Right? You can have a $20,000 drone essentially ground to a halt a tanker.
00:04:33 · Jenny Johnson
Effectively, if that happens, it's hard to get insurance and it effectively stops the oil getting through the Strait Of Hormuz. Having said that, there's actually a lot more getting through than I think people thought would happen. And as I said, the economies, particularly in The US, we've been pretty well adjusted to oil at this price. But that's probably going to stay there for a while. And frankly, don't see much, you know, a quick resolution in Russia and Ukraine either. So we have to sort of look at these as almost business as usual. And then, you know, I think The US and China are much more constructive than we've been in the past. But having said that, I think it's kind of a frenemy type thing. There's areas that you're just going to not cross the line, tech particularly, China's going to head their direction, The US is going to head our direction, but there's also we need each other. We need them for rare earths, they need our economy and consumers to sell the things that they manufacture. So we'll figure out ways to work well together. What are the growth levers that you're watching? Well, think the biggest growth lever is AI. It is such a massive disruptor. Now, having said that, I'm a student of history, I tend to be more optimistic on what this means. Every major new technology that comes in, if you go back and look in history, there's the prediction of the demise of all the jobs. In 1997, the cover of Business Week said the broker of the Internet was going to eliminate broker. And now today, a financial advisor does more for their clients than ever. They're no longer just an investment advisor. They're a true financial planner. They're leveraging the Internet and these tools to provide more services. So, you know, what happens is that a lot of jobs that you couldn't imagine will come about. And so, I think that there's tremendous tailwinds for companies as they start to figure out how to leverage it. First thing that you tend to do is you make more efficient what you do today. But once you get it in the employee's hands, they start to think of the creativity. There's going to be a lot of things that we never imagined we would need or do that will come out. And I was using Meta glasses recently. Oh,
00:06:51 · Molly O'Shea, Jenny Johnson
[00:06:51] S0: you have the Kylie ones? Are those the ones with the screen? [00:06:53] S1: I don't know. You're saying the design ones. No, I got the Ray Ban basic whatever. But I was on the golf course, and I was like, why can't these MetaGlasses find my golf ball? Right? Know? Right? So I said to my son, hey. Because he's a programmer. I... Can you make it... So he's working on an app to say, right? Now did I ever know or think about it? And and by the way, my... Would leverage the iPhone, but you couldn't have your iPhone. You need to have the Meta Glasses. So suddenly there's... And I've already come up with three other programs that I told my son he should go write. So, you know, we find new things that we can't imagine initially. So I'm not a negative, but there is going to be this transition that we all have to be careful. But I do think there's massive, massive upside. And so I think that's probably the biggest tailwind. And everybody talks about AI. There's a ton of other innovation going on. What's happening in biosciences? Oh, it's major. Major. The pipeline of new drugs, the customization of medicines, you know, material sciences, there's a ton of things that are being done there and innovations. Three d printing, they're not talking about four d printing, it actually will, when it gets in the right position, it will move into place. So, you know, those are all big tailwinds that are the bull case.
00:08:10 · Molly O'Shea
[00:08:10] S0: Ken Griffin was just on stage for the Citadel Securities Conference, and of course, they asked him about the AI bubble, and one of the biggest positions that he had against this was we just don't know what's going happen with the supply and demand, especially with chips. We're making all these chips now. When are they going to expire? When's that going to fault? And how do you make up of this? I'm very curious because I've heard that you are a student of history and you love history, and so we've been saying we're in a bubble for two or three years now, so when are we actually in the bubble? Have we been in the bubble the whole time? How do you make bubbles while you're seeing them throughout all these cycles? When