00:18:58 · Jenny Johnson
[00:18:58] S1: Yeah, so on the Legg Mason deal, there were parts of the market that we just knew we needed to fill out, and Legg Mason filled those things out. One, they had the largest category is core fixed income, and they had a huge franchise with core fixed income. We want to get bigger in private markets. We bought a private credit manager. Had Clarion Partners, is an outstanding real estate manager. So that got us into the private markets. And at the time, Franklin was 75% sort of retail wealth channel, 25% institutional, and Legg Mason was exactly the opposite. So we suddenly became 50% institutional clients, 50% wealth clients. And so that just balances out your business better. So for all those reasons, it made a ton of sense. The challenge was... So that was announced, like, five days after... And we'd obviously been working on it for a year, but five days after I became CEO, the problem was three weeks after everything was locked down with COVID. And, Of course, the market tanked. It was really interesting because it never occurred to me to think, Oh, that's too bad. We got this deal and we locked in this deal. Some of the articles are written up, Oh, poor Franklin, they can't get out of it. If you're getting into the deal because it's a good strategic fit, you're going to roll through those ups and downs. We knew it was an important strategic fit. Frankly, asset managers in down markets don't tend to transact because they're a great cash flowing business and people know they'll bounce right back with the market. So we were really happy to do it regardless, but it just meant there was much greater complexity in trying to close that deal. Because what do you do when you do a deal? I mean, part of it is you're just trying to figure out your talent. You know you're going to have to reduce some of it. You have a lot of overlap in your corporate services, finance, HR, legal. So you're trying to pick the best athlete and put together the best team. And I think a big mistake that people who are acquirers do is they just assume that their team is the best team. They really wanna try to decide that you can pick the best athletes across the board. And so suddenly, we weren't really able to travel and go meet the people. And so you had to do everything over video.
00:21:10 · Jenny Johnson, Molly O'Shea
Fortunately for us, because we're so global, we had already adopted an environment where you often had people on video in meetings. Now that's standard. But back then, that was something that people were really skeptical and they didn't really believe in, but it was already part of how we operated. And so we ended up closing the deal sixty days early, which was kind of amazing at the time. I don't think we ever lost faith that it was the right deal for us, and it turned out to be an amazing deal for us. [00:21:39] S0: Of the 17 acquisitions you've done in the last six years, what are the themes for that? What are the reasons? I know you're on this growth trajectory and that kind of thing, so maybe talk through that, and then the higher goal.
00:21:51 · Jenny Johnson
[00:21:51] S1: Sure. So first and foremost, it was about making sure we had the capabilities that we needed to compete. A big trend in the industry is that clients are saying they want to work with fewer managers, and so the managers have to have a broader breadth of capability to be one of those fewer managers and be able to offer more things, and that's where scale is really important. And so as I mentioned, we had those categories that we wanted to fill in. The other acquisitions were all about either product capability and again, the only thing I've said we feel like we don't have completely today is infrastructure, but otherwise we're probably the broadest breadth of capability of any asset manager. And then the second thing was usually to enhance distribution. So maybe it was a technology tool, Canvas, O'Shaughnessy, So Asset Management, they had a quant shop, but what was really interesting to us was this direct indexing technology platform that they had created that allows separately managed accounts to be taxed efficient. And because it was such an excellent technology, we can now use that as an overlay on active strategies, which is pretty new. So that was, you know, I'd call it both the capability and a distribution, because there are clients who want these separately managed accounts. They don't want an ETF or they don't want a mutual fund. They want it in an SMA. So that's an example of kind of that distribution capabilities. We bought a couple of wealth managers to bolt on to Fiduciary Trust, our wealth manager, Lexington Partners. So that brought us additional capabilities in the private market, so they're secondary private equity. And we've bought, I think, three bolt on transactions to our private credit manager to ensure that we have global scale, global reach, and capability. The crazy thing that's happening in private credit is everybody talks about private credit like it's one big asset class. When you talk about fixed income, you'd say, I've high yield, I've got mortgage backed, asset backed, investment grade. Well, private credit is the same. You have to have those capabilities, which means you have to be able to originate. Our most recent announcement was buying a team that does asset backed, right?
00:24:00 · Jenny Johnson, Molly O'Shea
Because that was an area that there's a lot of clients, pretty good spreads there, a lot of clients interested in it, and we just didn't have the origination capability until we acquired those. [00:24:11] S0: And so how do they grow once you acquire them? You mentioned with O'Shaughnessy, Patrick O'Shaughnessy, asset management, what happened with that after you [00:24:20] S1: acquired I think the Canvas application was about $2,500,000,000 when we acquired them, and it's now $30,000,000,000 I think that's probably four years later. Wow. And so that one's done very well. Lexington has more than doubled since we acquired them. Clarion Partners, a real estate manager, has more than doubled. The private credit, I think when we bought BSP, they were $26,000,000,000 Again, we bought a couple other ones, but we have just under $100,000,000,000 in private credit now. They've been successful. A lot of people are skeptical about traditional asset managers' ability to have a cultural fit with the private markets folks. There's obviously very different compensation structures and things. That has actually worked really well for us. Our expertise in the wealth channel, as these guys are looking to expand into that channel, has been really helpful, because that is a very different sale than an institutional sale. [00:25:12] S0: Are most of these deals all cash? How do you structure them? Because if they're getting enormous benefits after the transaction, growing quadruple even more, How do you incentivize that?
00:25:26 · Jenny Johnson
[00:25:26] S1: Well, first of all, you're buying these at multiples, so you're assuming a good growth. If you don't get growth, you're really in trouble, because believe me, they're pretty good multiples, especially in the private markets. Although, I have to say, because we were really early, we got them at very good prices. I would argue that Lexington, we definitely paid full price at the time, but we hit the absolute sweet spot for secondary PE, which meant that they actually grew faster than even our models. So that ended up being a really tremendous deal for us. But at the time, it was certainly fully priced for the size of assets that they were. You know, I think that what is lost on some people is that the mechanism of paying somebody in the private markets with carry, and carry is embedded and doesn't get paid for years, you have an unbelievably good natural retention that you don't have in traditional when you buy a traditional asset manager. You don't have a natural retention where they have multiple years waiting to get paid out for investments they made five years earlier or ten years earlier. To answer the question, in most cases, we did cash, maybe cash with debt. And then in the case of the Putnam deal, we actually did a bunch of Franklin stock. They wanted Franklin stock. The Great West Life had realized this trend of needing to be a big scale manager in order to get on these platforms. They could see the consolidation. And the problem was, Putnam had great performance, but they were just subscale. And so, you know, I think we've taken the equity team or the total assets there from 136,000,000,000 to over $220,000,000,000 And it's really because we're able to bring this high performing team onto platforms that they just were too subscale to get on those platforms. And so we did most of that deal. They were looking to diversify. They wanted to hold stock in an asset management company. They were looking to diversify how to do that. Instead of having just Putnam, they wanted to own a broader asset manager. So we did that with stock.
00:27:33 · Molly O'Shea
[00:27:33] S0: How good is AI at real professional work? Mercor AI Productivity Index, or APEX, tracks it with every major Frontier model release. Bill with partners like Harvey and Cognition. See where the frontier actually stands at mercor.com/apex. Today's episode is sponsored by VCX by Fundrise, the public ticker for private tech, allowing investors of all sizes to invest in venture capital. Learn more at getvcx.com. Public is a multi asset investing platform where you can automate your investing with AI agents. Create your own custom agent with a simple prompt. Agents can monitor markets, execute trading strategies, and manage your cash across stocks, bonds, options, crypto, and more. Want to buy at market close and sell the next day is open? Just tell your agent. Automate your investing at public.com. Founders scale faster on Deel. Set up payroll for any country in minutes. Hire anyone, anywhere. Get visas handled fast and get back to building. Visit deal.com/sorcery. That's deel.com/sorcery. Let's talk about the modernization of asset management. One of these, I think, key part was Lexington. I don't know if you remember, but I certainly remember when the markets were down and I was working at a VC fund and no one had a DPI and we were all trying to make ourselves feel better. Lexington had swooped in and bought up like 10% of our portfolio and gave liquidity to our LPs, which was fantastic. They did a good job, and I'm sure they're happy about it. Another part of that is tokenization. We haven't talked about tokenization yet. I know you've talked about this a bunch. So what did you see with tokenization? Again, having run technology and operations, I think I