Welcome to the Insightful Investor podcast, a weekly series that seeks to share industry, investment, and market insights. Learn more about our show at insightfulinvestor.org. I'm delighted to welcome Jenny Johnson, CEO of Franklin Templeton. Jenny joined the firm in 1988 and has held leadership roles across all major divisions before becoming CEO in February 2020. She spearheaded the landmark acquisition of Legg Mason that same year and has been recognized on Barron's list of the 100 most influential women in US finance every year from 2020 through 2025. Jenny, thank you for joining us.
It's great to be here. Thanks for having me. We've had some great conversations in the past and I've been looking forward to this one as well.
So, let's go back. Your grandfather, Rupert Johnson, founded Franklin Templeton in 1947 and your father, Charles, worked in the business. What drew you in?
My grandfather started it. My father took over, I think, in like 1957, and it was $2.5 million in assets and $10,000 in revenue. So, he's the one who really grew the business. And I don't know, for whatever reason, I'm one of seven kids and all of us at some point worked in the business but not all of us were passionate about it. A couple of us were passionate about it and I just loved what the business did and there's an element of kind of family legacy associated to it that I think was appealing. I did see the business through a lot of struggles. I mean, I remember it wasn't until the 1980s that we hit our first billion dollars in assets. So, you know, a lot of tough times in those 30 plus years that my dad was trying to grow the business and so, you know, it just was kind of always part of the family and I feel incredibly honored to be leading it today.
So, you talked about passion. Tell us why you're so passionate about your work, what your firm does, and how it helps people.
I love to tell the story because I think it kind of summarizes, you know, when I was talking, I have five kids and so when I was talking to my kids about would any of them follow me in the business, my daughter says, 'No mom, I want to do something that helps people.' And I'm like, 'Are you kidding me? That is exactly what this business does.' I mean, and I realize we actually as an industry don't always do a great job at describing it that way, but we are a business that helps people achieve the most important goals of their lives and to me that absolutely resonates. I get fired up by that every day. And you know, I think the culture that my dad instilled and I think the culture that we carry today at Franklin Templeton is we all carry this responsibility of helping our clients, and in some cases it's them directly, some cases it's their clients, to achieve their most important financial milestones of their lives. And as I reminded my daughter, you know, a lot of our goals have a financial component to be able to achieve them. So, it's really important that that be done well.
Obviously the business has grown massively. You're about $1.6 trillion dollars as of the end of September. How do you feel the culture has changed as, or maybe it hasn't changed, as the business has scaled up?
A lot of people ask me that, how, you know, has it changed? I say one thing that hasn't changed is the mission of helping clients achieve their most important financial goals. Like that was honestly the mission when my grandfather got into the business. And then I think what's changed is that we're actually a lot better at doing it. We're better because there's more financial vehicles that you can leverage. We're better because there's technology that allows much greater personalization. You know, you can build portfolios that are really driven by individual goals. And that's because we have the tools now that have advanced the business to be able to deliver that. From a cultural standpoint, you know, my dad always said, and his advice to me when I took over as CEO was, 'Take care of the client, the business takes care of itself.' Like really focus. And I truly believe that at Franklin Templeton, we are focused on trying to do what's right for the clients.
In my experience, everybody says that. Everybody says they do what's right for the clients, but what I often find important is to look at the evidence of their actions. And I think that's such an important aspect what you just described. Do what's in the best interest of the client because it is what has built this business from, you know, a hundred years ago and the reality is many people actually don't do that. So would you talk about that a little bit more?
Yeah. Well, I actually think that having the family, you know, so we're a public company but the family still owns a significant portion of the stock. And I think with that attitude, like I absolutely think generationally. I think about ensuring that this business is positioned so the next generation, whether they lead it or not or be involved, have a great business. Well, that doesn't happen unless over the long run unless you're achieving what your client's goals are. You know, I think one of the challenges sometimes when you have shorter tenured CEOs is that decisions that they make today, they're not actually there when you have to live with those decisions. And so sometimes you can benefit the business in the short run, but it's a bad decision in the long run. And so I think having that perspective of generational thinking allows one to think and always keep that client because if you burn the client, the client's gone, right? You know, and you can win in the short run, but you're not going to win in the long run. And so I think that mentality of longevity of the business is really important to ensuring. And then the second thing is like, when people talk about, first of all, I always say when we do acquisitions, one of the first things that's really telling is how quickly as you're doing due diligence, do they talk about the client, right? That kind of tells you how much it's focused, but also what are the incentives in the business? You know, are the incentives in line with what is good for the client? Because people will do what they're incented to do. And so, I think that's a really important component and informs you a lot about how a company approaches it.
Do you feel that your leadership approach has shifted as the business has grown?
Certainly, as my job responsibilities have changed, you know, I think that there's parts of the leadership that my style maybe has had to evolve. I like to say actually, leadership, if I just step back and say how do I think about it, I always say it's the four Ps: people, passion, purpose, and persistence. So as a leader, the number one absolute most important decision you make is what's the team that you surround yourself with because you can't run a business without a great team. You can't do everything yourself. And so it's all about the number one decision you're making is do you have the right people and are they in the right positions and are they working well together as a team. So that's the people part. Passion. Love what you do and it doesn't feel like work. You know, to run a company of this size, you have to spend a lot of time working. A lot more than probably the average job takes. And so if you don't love what you do, you're not going to be great at it. And then I always say, you know, if you're passionate, describe what you do in a purposeful way. So that's why we talk about that we help people achieve the most important financial milestones of their lives because that is a purposeful thing that actually people can rally around, like your employees can get excited about coming into work because they go, 'I'm doing something that's really important.' So that's the purpose point of it. And then finally, persistence. Look, you're not going to get it right all the time. You're going to trip up. Sometimes it's going to be because of actions on your own. Sometimes it's going to be because things you couldn't control. It's all about, you know, sticking to it and being persistent. And I always say, you know, in a lot of ways, you can tell whether a person's going to be really successful more from how they respond to failure. Do they get back up, dust themselves off, and get back into the game, or do they blame other people, and there's always an excuse for it? And so to me that persistence of just staying at it to prevail I think is really, really important. So that's kind of how I think about leadership. And I have to say, as I mentioned, I think as my job has changed, how I've had to approach that is more around how do I spend my time. I'm surprised by how much of my time is spent with clients or spent, you know, sort of talking about the firm as opposed to kind of the internal. And I recently named three co-presidents. And a lot of that was the recognition that a lot of the internal stuff has to be done day-to-day with people on the ground. And as the CEO, you're really expected to be much more sort of publicly focused and with your clients. And that's honestly where you're going to learn what the best strategy is because you're going to hear what your client's needs are. And so that's surprised me is how much time I spent doing that.
And the four Ps that you just described, I would assume that culture underlies all of that where you have the right culture. It positively influences all those, the four Ps.
For sure. And as a matter of fact, I always like to say, listen, I know it's a little kitschy, but I got the P's for the leadership and I got the C's for culture. And I always say that, you know, we think about culture in three things. One is are you client focused? And so as I mentioned, like we've done these acquisitions, we've done like 10 or 11 acquisitions in the last 5 years, you had to understand are they focused on the client. The second thing is are they collaborative? And often times you can kind of tell on a management team, do they like each other, do they work together, because if they don't like each other it is not going to work when they come in your organization. And so, you know, getting that sort of, do they have a natural collaborative spirit upon themselves. And in our case, we're bolting on capabilities, but we don't want just to have the capabilities. We actually want to find opportunities and synergies in the business where they can kind of help each other. And, you know, we've launched products that came out of two different acquisitions that we did that were talking to each other and sort of found a dislocation in the market that became an opportunity. So that's that kind of collaborative spirit. And the final C is continuous improvement. We are living in, my 30 plus years in being in this business, I have never felt the kind of pressure from a technological change on the industry as I feel now. And if you don't have a mindset of, okay, how are we thinking about changing and evolving and improving this business, then I think you're not going to survive. And honestly, I look at us saying we've made it, you know, we've thrived for almost 80 years now. Well, why? Because we had this mindset of constantly improving what we can do for our clients.
And I guess there is this balance between a longstanding heritage with a builder's mindset and keeping innovation alive when you have a, you know, a 78-year-old organization.
Yeah. And like, I don't, we wouldn't have made it here 78 years had we not innovated at different times. I mean, you know, if you look at our industry, what have been some of the innovations? I mean, ETFs were an innovation, separately managed accounts, direct indexing is an innovation, Ginnie Maes back when they first came out were innovation, mortgage-backed security products were innovations. Like there's a lot of different innovations that have happened as you've evolved the business. And now private markets is, and bringing private markets through the wealth channels with new kinds of vehicles. Those are all really important innovations that are happening. Tokenization is going to be an innovation. How you think about leveraging AI. So to me having that mindset of, okay, I'm trying to do the best job, you know, we as a company are trying to do the best job at delivering on our clients' goals. What are all the tools around us to be able to do that? And some are new, some are old. How do we deliver that in the best way?
So obviously the industry, you just touched on it, has evolved quite a bit from the time the firm was founded, you know, almost 80 years ago and it's evolved even since you first got there. How would you describe that evolution and where do you see it going over the coming decade or two?
Yeah. So if I look at the big trends, and interestingly, I actually think we're at an interesting kind of pivot point that like my grandfather faced when he first got into this business. At the time, the average person didn't really have access to the equity markets because, you know, you couldn't afford to buy a single stock, work to get diversification, whatever. And somebody innovated and said, 'Hey, what if we pull a bunch of smaller investors' accounts and we give them professional management and they get pooled investment with professional management?' That was what the mutual fund was. Today, a similar thing is happening with private markets, which is, you know, something like, I think it's 87% of companies that earn over $100 million of revenue in the United States are private. And if you can't access the private markets, you're left out of a huge, huge portion of the American entrepreneurship. And so, you know, that's a moment that's evolving. And so, thinking about how do you responsibly, because private markets are illiquid, how do you responsibly bring that depending on people's liquidity needs and their risk levels of clients? So, that's kind of a current innovation that has to happen in the industry. I think some other interesting trends is you do see a lot of, you know, we're big through supporting financial advisors. We fundamentally believe that the tip of the spear of really understanding what an individual client's needs are has to be that one-on-one conversation between advisor and their client. Like there's no way for us to scale and bring that tip of the spear. We can bring the rest of the spear, but that tip's really important. And so as advisors are sitting there talking to clients and they're trying to build a full financial plan, right? So that the advisor's role has changed dramatically where they no longer just provide investment advice. They are true financial planners because they're leveraging these tools to scale their business more. Like that's been an innovation that's happened and what we've seen is a lot of advisors are saying, 'I want to work with fewer managers and I'm demanding more from those managers.' So that's kind of another big trend that we see in the industry.
And it is fascinating how if you go back 30, 40 years it was about picking stocks and it's evolved into full financial advice, you know, much more sophisticated, more tools, much more efficient in some ways. It's really fascinating how that has evolved actually relatively quickly.
I think part of that was the innovation to fee-based where now there's a lot of transparency on the advice fee and so clients are getting billed every month and they're like, 'Okay, advisor, what have you done for me lately?' You know, and I think this is one of the challenges with passive, makes people undervalue sort of that active strategy that you're trying to overlay from a risk-management, you know, risk-adjusted return. And so, you know, client's like, 'Well, what else are you doing for me?' And so the advisor now is like, 'Okay, I'm creating a sophisticated financial plan that's aligned with your goals. I might do generational education.' I mean, I talked to an advisor who had to negotiate the prenup for their client's child's, you know, fiance. They were like, 'All right, you go deal. I don't want to deal with it.' Right? So, you know, what an advisor is being asked to do used to only be available to the ultra high net worth. And now that has been brought down to the mass markets because technology has enabled advisors to scale their business and offer those types of services. So actually the interesting thing is I think everybody has benefited from this evolution.
For me personally I divide it up into two categories. There's all the planning, all the advice, and then there's the investment side and the investment side can be less appreciated during raging bull markets and vice versa. So you have that going as well.
Yeah. I mean I always say like everybody's a brilliant investor in a momentum market. The problem is when's the real pain felt? It's when there's a market adjustment and people go, 'Wait a second. I adjusted my wealth because I thought I had this. I didn't realize I was so concentrated.' And that's where to me that risk-adjusted approach is so important because it's, even today, you look at it, we see the concentration in the market right now with the, you know, the Mag 6 or 7 right now. I always say one of the things that worries me in the industry is nobody talks about market beta and how its risk profile changes over time. So sometimes market beta is a well diversified, you know, you're starting a momentum cycle, it's going to be really good. It's actually low risk. I would say the day that Tesla entered the S&P 500, the S&P 500 became riskier, but nobody talked about that beta risk becoming riskier. As the market gets more concentrated, that becomes riskier. And so that's one of the big things that I think I have a little bit of a concern of a lack of appreciation. Momentum markets makes everybody a little bit potentially lackadaisical about doing those fundamentals: diversification, concentration, duration, how do you think about it, liquidity, all those types of things that you have to think about in a portfolio.
And in the end everybody learns the lessons and the question is do you learn the lessons before the pain hits or after.
Yeah. You know, John Templeton had a great saying. He always said, you know, I think it was like the four most dangerous words: 'This time it's different.' And it's not different, right? Because the reality is all those things, all those tenets about investing remain true. And you got to, you know, it's one, get in the market, be in the market, start investing early because compounding really, really matters. Diversify because you never know. I mean, would you have thought we'd have had a COVID pandemic and we'd all locked down? Remember the two-week flatten the curve that turned into two years? You look at, you know, even right now, would you have thought that we would have arrested the president of Venezuela? Like, you just never know what's going to happen. And so, diversification is probably your greatest and most important friend when it comes to a portfolio. At the end of the day, if you really want to simplify it, you just want to invest so you benefit from compounding and you diversify so you don't happen to be in the wrong thing at the wrong time. And if that's all you did, you would win the game.
Totally. Absolutely. I mean, what I love to tell the story because I think it's like that this compounding point I think is so underappreciated. So if you invest for 10 years starting at age 20, okay, and you put $5,000 away for a year and get a 7% return, you will have more money when you turn 60 than the person who starts at age 30, invests $5,000 a year for 30 years with a 7% return simply because of the power of compounding. Like that to me is one of the most important messages we can get to anybody is like just get in the market. You got 20 bucks. Here's the beauty of it. There are ways to invest even $20 in the market. Like, get in there and then build that, you know, consistent contribution discipline of continuing to put money away and save. And then don't worry about the fluctuations up and down because over, I can't remember the number is, but it's something like 75 to 80 something percent of the years the market tends to go up. So, just let it ride.
Yeah. And then I guess the last advice in terms of invest, diversify, is just don't mess it up, right? Meaning, you know, emotion gets in the way, fear and greed. There's all this pressure to do the wrong thing at the wrong time. So just avoid those things and do the first two and you should be good.
Exactly. Leave the emotion out of the investing portion. That's great advice.
For sure. So you talked about some of the acquisitions and you've been filling out some product gaps and building distribution through acquisitions like you mentioned, like Legg Mason and Putnam. Would you talk about the strategy and describe any gaps that may remain?
Yeah. So I mean, we started in, actually in 2018 was when we bought our first private credit manager and it was a recognition that private markets were becoming more significant and it really came out of two things in my opinion. The financial crisis had regulators changing the capital requirements around banks. So banks were just not able to lend like they used to lend. So that created this huge opportunity in the private credit market because it was filling in for what were traditional bank lendings. Interest rates as it evolved stayed really low that kind of fueled some of the private equity markets. Regulation changed such that it became less desirable to be public. So all these kind of trends came around and we looked at it and said, look, our job is to provide all the tools for the advisor to be able to pull together the right portfolio. And so we want to have both public and private for any of our clients including institutions. So any of our clients, our job is to ensure that they have those tools. So we need these capabilities today. The only one that we, so we're a top 10 alternatives manager. We have about 270 billion in alternatives and that's across secondary private equity with Lexington Partners, Clarion Partners is our real estate manager and Benefit Street Partners is our private credit manager and so, and then we have a little bit of venture. We looked at that and said, okay, so we actually now are pretty full and then we have obviously all of our traditional business. The only area that we felt like was still left out was infrastructure and infrastructure, you need scale and it was really expensive, right? So it's trading at big premiums. So we actually kind of created this deal with three infrastructure managers that don't have any access to the wealth channel to say, let us be your wealth arm. We'll be able to pick which deals we want. So we'll do the portfolio construction and we get to participate and then we'll distribute that product in the wealth channel. So I have to be honest, Alex, we feel really good with the breadth of capability we have. I don't think there's anything that we would add to that. What we might do is a little bit of a bolt-on transactions like we did with our private credit manager. We bought Alcentra, which was a European private credit manager. So geographically, or we also bought one that had a particular expertise in certain types of mortgages or asset-backed securities, like bolt-on capabilities. But the broad category, I think we're covering all the broad categories. The one thing we don't have is private equity. We like the private equity space through the secondaries as opposed to being in primary private equity today.
