Blockchain technology will open up illiquid assets, like real estate, to new investors in what could be the greatest disruption ahead. Franklin Templeton’s Jenny Johnson explains how the asset manager is ensuring it taps the new opportunity.
Prepare for a new tokenised economy where assets are fractionalised, divided up amongst potentially millions of investors into tiny portions of ownership on a blockchain. It will enhance liquidity, price discovery and accessibility to high value, illiquid assets like real estate at a fraction of current transaction costs. For example, it could lead to multiple owners of a single piece of prime real estate via tokens and programmed smart contracts that allow every single investor to safely collect their one-millionth of the rent.
Speaking at FIS Digital Jenny Johnson president of Franklin Templeton explained that it was this belief in a blockchain-led disruption ahead that is driving the firm’s keen focus on how distributed ledger technology will impact asset management and private markets in the future.
Blockchain is already well known for transforming companies’ back-office data reconciliation. Now investors should prepare for further change ahead.
“Real estate is an obvious one. It makes me excited about the opportunities in the industry,” she said.
Franklin Templeton’s investment in the tokenisation space includes incubator investment in a tech-enabled farmland platform that fractionalises ownership, helping farmers sell off portions of their business. Elsewhere, the firm is working on an AI project to value art.
“We are trying to understand the space,” she said. “It is quickly evolving and there are lots of dead ends, but if we are not focused, we will miss out.”
Johnson voiced her determination to bring creativity, innovation and the entrepreneurial spirit to Franklin Templeton as the 4th industrial revolution gathers steam. She warned investors that incumbents rarely fair well during periods of innovation since they have to focus on doing their day-to-day job alongside keeping up with the future. Her strategy is to cultivate small groups of expert teams, carved out of existing teams where their focus on innovation was often seen as distracting.
Johnson urged delegates not to confuse Ethereum, the decentralized blockchain network powered by Ether coins, with Bitcoin which she called “niche”.
She said the programming language on the blockchain will lead to proliferation of other applications in financial services and gaming.
Franklin Templeton recently announced its purchase of private equity investment specialist Lexington Partners for $1.75 billion building its presence in private equity secondary funds and co-investments. The announcement follows on from other recent acquisitions of private credit manager Benefit Street Partners, real estate investor Clarion Partners and hedge fund K2 Advisors. Franklin Templeton’s highest-profile acquisition came in February 2020 when it bought rival Legg Mason for $6.5 billion
Johnson told delegates that the acquisitions fill product gaps at the firm and enable Franklin Templeton to provide asset owners with solutions, not just products.
“We want to partner with thought leadership,” she said.
It’s led the firm to establish an Academy to help train and educate partners and an Institute that draws on expertise across the business. In-house experts offer insights on how investors should position for the evolution of the vaccines, to expertise on water risk. She said that acquisitions have also been shaped to fill specific niche capabilities at the firm. For example, it now aims to offer Separately Managed Accounts to institutional and retail clients that overlay quant data analysis.
Johnson, renown for her championing of diversity, pleaded with asset owners to view diversity in their employees as importantly as they do in the portfolios.
“We don’t put together portfolios that aren’t diverse,” she said. “Different views to solve a problem produce better outcomes.”
Asset owners with long term investment horizons, coupled with legislation, will increasingly hold asset managers accountable. Asset owners are demanding more of their managers and asset managers should be driven by what their clients are looking for, said Johnson, the fourth member of the family over three generations to lead the fund manager since it was founded by her grandfather in 1947.
“My father always used to say, take care of the client and the business will takes care of itself.”