Franklin Templeton CEO on SpaceX, Anthropic, Circular Deals & the State of the Market

Is AI in a bubble? What happens to circular AI financing deals, and why is one of the world's largest asset managers investing in SpaceX and Anthropic? I sat down with Jenny Johnson, CEO of Franklin Templeton ($1.8T AUM), at the firm's NYC headquarters to discuss today's market conditions, AI valuations, private markets, and the future of investing. We cover: AI Bubble & Circular Deals: AI infrastructure spending, revenue recognition, chip depreciation, and risks in long-term data center financing. SpaceX & Anthropic: Franklin Templeton's late-stage venture investments, the SpaceX IPO, and Elon Musk's ambitions. Market Conditions: Inflation, interest rates, geopolitical risks, and where Jenny sees opportunities. Building a $1.8T Asset Manager: 17 acquisitions in six years, the $4.5B Legg Mason deal, and Franklin's expansion into private markets. AI & Tokenization: 1,000+ AI agents, an 11% sales uplift, and why blockchain could transform financial infrastructure. Jenny also shares how she went from Franklin Templeton's mailroom to CEO, and why she believes Elon Musk is the modern-day Benjamin Franklin. Jenny Johnson: https://www.linkedin.com/in/jennyjohnsonfranklintempleton Molly O’Shea: https://x.com/MollySOShea Sourcery: ⁠https://x.com/sourceryy 𝐄𝐏𝐈𝐒𝐎𝐃𝐄 𝐋𝐈𝐍𝐊 YouTube: https://youtu.be/VmCKksLNmsM 𝐒𝐏𝐎𝐍𝐒𝐎𝐑𝐒 • Brex https://brex.com/sourcery—The modern finance platform, combining the world’s smartest corporate card with integrated expense management, banking, bill pay, & travel. https://brex.com/sourcery • Harvey http://www.harvey.ai?utm_medium=paid-partner&utm_source=sourcery&utm_campaign=2026-10-brand-sourcery-partnership—The AI platform built for legal work, is helping the best firms and companies close deals faster. More than 200,000 lawyers, 80% of the Am Law 100, and over 20% of the Fortune 500 build with Harvey. Visit: http://harvey.ai/ • Zone https://zonefrontier.com/—develops next-generation data center campuses, partnering with AI companies, site developers and technology leaders to bring compute online faster and at scale. Visit: https://zonefrontier.com https://zonefrontier.com/ • Mercor http://mercor.com/sourcery—The human intelligence behind frontier AI. Frontier labs and leading enterprises use Mercor to turn the knowledge of 5M+ experts into the data, evals and benchmarks that make AI better at real work. Visit:http://mercor.com/sourcery • VCX https://fundrise.com/vcx—VCX is the public ticker for private tech, allowing investors of all sizes to invest in venture capital. View The Portfolio at http://GetVCX.com http://getvcx.com • Deel https://www.deel.com/sourcery—Deel is the global people platform that helps startups hire, manage, pay, and equip anyone, anywhere. Trusted by more than 35,000 fast-growing companies, Deel is the people platform that just works, so teams can scale without the chaos. Visit: https://www.deel.com/sourcery • Public http://public.com/sourcery–Investing platform Public just launched Generated Assets https://public.com/generated-asset, which lets you turn any idea into an investable index with AI. With Generated Assets, you can build, backtest, refine, and invest in any thesis with AI. Gone are the days of one-size-fits-all ETFs. https://public.com/sourcery Follow Sourcery for the latest updates! https://www.sourcery.vc https://www.sourcery.vc/ Disclosure: Paid Ad. Agents are an experimental AI tool. Its output may be inaccurate and is not investment advice. Public Holding’s, Inc. makes no guarantees about its accuracy or reliability—verify independently before use. Brokerage accounts and services provided by Open to the Public Investing, Inc. See additional disclosures at https://public.com/disclosures/agenticdisclosures. 𝐓𝐈𝐌𝐄𝐒𝐓𝐀𝐌𝐏𝐒 (00:00) Jenny Johnson, CEO at Franklin Templeton (01:08) Where is the market really headed? (05:34) Why AI is the biggest growth lever (08:10) Are we in an AI bubble? (11:28) How Franklin Templeton got into SpaceX and Anthropic (18:28) Closing a $4.5B deal in the middle of COVID (21:39) The strategy behind 17 acquisitions in 6 years (24:11) How Canvas grew from $2.5B to $30B (28:43) Why blockchain will rebuild finance (32:50) Will companies stop paying for top AI models? (37:08) Franklin Templeton’s 70-year climb (40:21) Who is the modern day Ben Franklin?

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Molly O'Shea?

  Your grandfather started in 1947, managing 2.5 million in AUM to now 1.8 trillion in AUM. Done 17 acquisitions in the last six years.

• 0:10Speaker 01

  I think the Canvas application was about 2.5 billion when we acquired them, and it's now 30 billion.

• 0:15Molly O'Shea?

  I found out that you guys had exposure to SpaceX.

• 0:18Speaker 01

  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 had more significant impact on really where we are in the technological advances today than Elon has.

• 0:34Molly O'Shea?

  Ken Griffin was just onstage for the Citadel Securities Conference, and of course, they asked him about the AI bubble. Maybe this is a bubble.

• 0:42Speaker 02

  There's almost certainly bubbles within this moment in time.

• 0:44Speaker 01

  It happens over and over. New technology, this is the greatest thing ever. It's going to 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?

• 1:08Molly O'Shea?

  Jenny Johnson, welcome to Sorcery.

• 1:11Speaker 01

  Thanks for having me. It's great to be here.

• 1:12Molly O'Shea?

  Well, thanks for having me in your super fancy, gorgeous new New York City office.

• 1:18Speaker 01

  We're very excited. And you're in the Heritage Room, which is all about our history.

• 1:21Molly O'Shea?

  I know, you guys like Benjamin Franklin, huh?

• 1:23Speaker 01

  We do kind of like him. He was a stud. He was a pretty cool guy.

• 1:27Molly O'Shea?

  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 now, you went from managing 2.5 million in AUM to now 1.8 trillion in AUM, which is crazy.

• 1:48Speaker 01

  Yeah.

• 1:48Molly O'Shea?

  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 I want 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 kind of consider this?

• 2:14Speaker 01

  Yeah, I think you have to kind of 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's 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 25 years. But actually, in history, it's not that unusual. You're young, so you don't remember those days of mortgages being much more expensive and, you know, and it still functioned. You know, the rate environment, I think it's definitely higher.

• 2:58Speaker 01

  So 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's up, you know, is 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.

• 3:42Speaker 01

  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 going to take a while before you really see it being meaningful to companies' earnings. So that's the upside that I think we're going to see happen. And so back to kind of the market. If you look outside 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, you know, we're still seeing good tailwinds around that. Now, what are the headwinds? Well, the headwinds are obviously that it looks like it's going to be tough for this war in the Middle East to end anytime soon.

• 4:22Speaker 01

  Right, you can have a $20,000 drone essentially ground to a halt, a tanker. And effectively, if that happens, it's hard to get insurance, and it effectively, you know, 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

• 5:07Speaker 01

  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. US is going to head our direction. But there's also, we need each other. And 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.

• 5:34Molly O'Shea?

  What are the growth levers that you're watching?

• 5:37Speaker 01

  Well, I think the biggest growth lever is AI. It is such a massive disruptor. Now, having said that, I'm a student of history, and I, you know, 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, you know, the prediction of the demise of all the jobs, right? In 1997, the cover of Business Week said the broker, the internet was going to eliminate the 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.

• 6:22Speaker 01

  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'll come out. And I was using Meta glasses recently, right?

• 6:50Molly O'Shea?

  Oh, yeah. Did you have the Kylie ones?

• 6:52Speaker 01

  Are those the one with the screen?

• 6:54Molly O'Shea?

  I don't know.

• 6:54Speaker 01

  Oh, yeah. 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 Meta glasses find my golf ball? Right, you know, why, right? So I said to my son, hey, because he's a programmer, you know, could you make it? So he's working on an app to say, right? Now, did I ever know or think about it? And by the way, my, it 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, right? 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.

• 7:37Speaker 01

  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, the

• 7:47Molly O'Shea?

  Oh, it's major.

• 7:48Speaker 01

  Major, the pipeline of new drugs, the customization of medicines, you know, the material sciences. There's a ton of things that are being done there and innovations. 3D printing, they're not talking about 4D printing, where it actually will, you know, when it gets in the right position, it'll move into place. So, you know, those are all big tailwinds that are the bull case.

• 8:10Molly O'Shea?

  Ken Griffin was just onstage 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 to 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 like, 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 like 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 of bubbles while you're seeing them throughout all these cycles?

• 8:47Speaker 01

  When I was

• 8:52Speaker 01

  Running the technology group, there was something that Gartner had called the, it was kind of the exuberance curve or something. I can't remember exactly. It happens over and over. New technology, this 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? It certainly feels like there is a frothiness in some areas. So personally, if you're betting on the needs for energy based on today's technology, both on the manufacturing as chips, as well as the production of energy, you're assuming

• 9:37Speaker 01

  that for the next 20 or 30 years, it doesn't change dramatically. But that's pretty unusual. When you get a demand, people innovate and you find, you know, tremendous advances. So my instinct is, if I were to finance, I still, we like the financing on the shorter term because these are still big cash flowing companies. These are not internet bubbled companies that didn't have revenue. These companies have significant earnings. So they're going to be able to pay their debt. Would I go on the longer term of the financing on things like data centers? I personally wouldn't because I just think you're betting on today's technology and that we won't inundate quickly. And we see what's happening with

• 10:17Speaker 01

  AI, solving math problems that we've never been able in history to solve. So, you know, I think you have to be a little careful on that. And so I think Ken's probably right on that piece of it. On the other hand, and we've talked a little bit about the accounting side. It's a little unclear on some of these revenue and how is it apples to oranges when you compare companies. So you have to be really careful. Know your stuff as you're making those investments. That's why I'm a big fan of active management. Having said that, just yourself playing and probably preparing for this podcast, you probably leveraged AI. I know when I'm gonna go prepare for something, I literally have a conversation back and forth, which opens up new thoughts for me that would be difficult. And usually

• 11:00Speaker 01

  what I then do is hand it to my team of experts and say, validate these things, right? Because you can't necessarily just take it for what it is, but it can lead you to how you think about stuff. So I think we all get a sense for how incredible this tool is and the opportunity with it. But it will take time. And when it happens in companies and sectors, the leaders could leave behind others in those sectors. I mean, I think that's how quickly this stuff is moving.

• 11:28Molly O'Shea?

  It seems to be the, you know, quote unquote, whatever kind of metric you want to use for revenue that we're seeing from Anthropic and from OpenAI are unseating a lot of incumbents and people that you'd think would be kind of winning in this day and age. Now their IPOs are getting delayed and, you know, who knows why and all these kinds of reasons. Maybe it's because they say things they don't mean, or maybe they do mean them and we should listen. But I think this was really interesting because this, this part, I told you, I did a lot of prep coming into this. I listened to a lot of your interviews on podcasts, like on the news, all over the place. And there was one really interesting one that kind of like opened up this other realm of Franklin Templeton. I didn't really know, but like I kind of knew, right? And it was when you were talking about the upcoming

• 12:12Molly O'Shea?

  SpaceX IPO back in, you know, July or whenever it was. And you were talking about how Franklin Templeton got in to late-stage investments. And so do you want to tell that story? I mean, I think it's just like so, it's like a good kind of encapsulation of how Franklin Templeton runs.

• 12:28Speaker 01

  Yeah. So we're headquartered in Silicon Valley. So we have a growth equity team there. And honestly, as we all know, companies are waiting much longer to go public. And so, you know, some of the PMs said, boy, these IPO kickers we used to get, we're not, that were a kicker to our performance, we're not getting those. We should do some late-stage venture. Because it's really late-stage ventures, what used to be you were underwriting at the IPO level. And so a mutual fund can open or an ETF can hold up to 15% illiquid assets in there. You don't tend to run it at 15% because you'd have a breach if the market moves. But you could do 6, 7, 8%. And so we started to invest in late-stage venture

• 13:10Speaker 01

  deals and then actually had some clients seeing the deals that we're in and said, hey, could you set up a fund? So we actually now have a venture group. But they will often go into investment, both with the venture fund as well as some of the, the traditional portfolio managers who want to have exposure to late-stage venture.

• 13:28Molly O'Shea?

  So I found out that you guys had exposure to SpaceX.

• 13:31Speaker 01

  We did. We did Anthropic. I mean, a bunch of them. Yes, we, exactly. You know, if you're there and you're, you have connections with the entrepreneurs, with the other venture community and being headquartered there, you know, you gotta remember, your kids tend to go to school with these people. You, they're in the neighborhood, they're community people and you get to know them. And, and that allows you to have access to those deals.

• 13:54Molly O'Shea?

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• 14:35Molly O'Shea?

  runs on Brex, so I can spend time on building and not busy work. It's time to get Brex AF. Learn more at brex.com/sorcery. That's B-R-E-X dot com slash S-O-U-R-C-E-R-Y. Bye. From handshake to signature faster. Harvey, the AI platform built for legal work, is trusted by 80% of the Am Law 100 and over 20% of the Fortune 500. Learn more today at harvey.ai. That's harvey.ai. AI needs more than chips. It needs power, land, and infrastructure. Zone develops next-generation data center campuses, partnering with AI companies, site developers, and

• 15:20Molly O'Shea?

  technology leaders to bring compute online faster and at scale. Zone is building the foundation of the AI frontier. Visit zonefrontier.com to learn more. That's zonefrontier.com to learn more. SpaceX is particularly interesting name because they came to the market sooner than anyone else. And they have quite the diversified strategy. And more often than not, they're trying to label themselves as an AI company. And we were talking about this earlier, the makeup of that revenue, whether it was, you know, getting these data center contracts like right before the IPO, the Starlink angle to this, getting to the consumer side of things, and then the launch costs that will then kind of bring down the

• 16:03Molly O'Shea?

  economics of everything else. So for a company like SpaceX, what are you trying to watch out for? Do you think that this one will become, I think, I think Elon tweeted, it will become the most profitable company on earth by an order of magnitude?

• 16:16Speaker 01

  So there's a lot in there. Let me first address one thing. You know, maybe we should in history, every time we, everybody renames their business based on an AI or a dot com. And we, we just changed our parent company name from Franklin Resources to Franklin Templeton. And what I said to my dad, why were we ever called Franklin Resources? He said, oh, boy, in the 1970s, you couldn't sell it. The stock market was terrible. You couldn't sell anything, but you could do gold investing because there was high inflation. And, and so if you had resources next to your name, that helped you in the stock market. So there you go. Right? So this is a trend that people do all the time. They'll grab it. So what I always say is, you know, stick to your knitting and say what you are. Having

• 17:00Speaker 01

  said that, look, I've used Starlink for, I have a place in Montana, and I gotta tell you, it was a game changer for me because I could never get good high-speed internet. And the portable Starlink is amazing. And so I think that everybody I've talked to who uses Starlink is a huge fan. So Starlink's in there. We've seen, and if you read Walter Isaacson's book on, on Elon, you'd recognize how much he has actually changed space, investment, and travel, and really fought the system that was sort of gumming itself up. So all about innovation, cost efficiency. I honestly believe that, and Elon seems so focused on

• 17:44Speaker 01

  getting to Mars. Like, the thing is, he makes these statements and we all say, oh, that's ridiculous. And then, and maybe he doesn't get there right on time, but he often delivers them. So

• 17:53Molly O'Shea?

  Like flying cars.

• 17:54Speaker 01

  Exactly. Exactly. Although I saw a very funny flying car company who said, welcome to the, welcome to the race or whatever. So, you know, and the work he's doing in robotics is amazing. You know, all of which are needed to his vision to colonize Mars. So, you know, I, I think it's quite possible. I think your only risk there is you have a lot of key man risk with Elon. We all gotta hope he stays healthy and, you know, can continue to innovate.

• 18:26Molly O'Shea?

  He's a man of mystery. So I want to shift a little over to more of your career and coming into the seat as CEO. So you came into the seat as CEO and immediately were leading one of the firm's largest deals. This was the Legg Mason deal for $4.5 billion and this also doubled your AUM. So walk me through that process and why you had the conviction and what the reasoning was with that. And then I definitely want to talk through your acquisition strategy because I heard and I saw that you guys have done 17 acquisitions in the last six years.

• 18:58Speaker 01

  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. So 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'd bought a private credit manager. They had Clarion Partners, which is an outstanding real estate manager. So that got us into the private markets. And at the time Franklin was 75% 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.

• 19:43Speaker 01

  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 and it was really interesting because it never occurred to me to think, well, oh, that's too bad. We, we got this deal and we locked in this deal and 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 sort of ups and downs and we knew it was an important strategic fit. And frankly, asset managers in down markets don't tend to transact because they're a great

• 20:26Speaker 01

  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, you have a lot of overlap in your corporate services, finance, HR, legal. So you're trying to pick, you know, 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. You really want to 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.

• 21:10Speaker 01

  Fortunately for us, we, 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 60 days early, which was, you know, kind of amazing at the time. And I, and I don't think we ever lost faith in, you know, that it was the right deal for us and it's turned out to be an amazing deal for us.

• 21:39Molly O'Shea?

  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 you talk through that and then the higher goal.

• 21:51Speaker 01

  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 manager has 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.

• 22:35Speaker 01

  So maybe it was a technology tool, Canvas, O'Shaughnessy Asset Management, right? So 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 was, 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 a SMA. So, so that's an example of kind of that distribution capabilities.

• 23:16Speaker 01

  We, we bought a couple of wealth managers to bolt on to Fiduciary Trust, our wealth manager and, you know, Lexington Partners. So that brought us additional capabilities in the private markets. So there's 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. Crazy thing is happening in private credit is everybody talks about private credit like it's one big, you know, asset class. But you talk about fixed income, you'd say, I got high yield, I got mortgage backed, asset backed, you know, investment grade. Well, private credit's the same. You have to have those capabilities, which means you have to be able to originate.

• 23:58Speaker 01

  Our most recent announcement was buying a team that does asset backed, right? 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 this.

• 24:11Molly O'Shea?

  And so how do they grow once you acquire them? You mentioned with OSM, Patrick O'Shaughnessy's asset management. What, what happened with that after you acquired it?

• 24:20Speaker 01

  So I think the Canvas application was about two and a half billion when we acquired them and it's now 30 billion. I think that's probably four, four years later.

• 24:29Molly O'Shea?

  Wow.

• 24:29Speaker 01

  And so that one's done very well. The Lexington is more than doubled since we acquired them. Clarion Partners, the real estate manager has more than doubled. The, the private credit, I think when we bought BSP, they were 26 billion. Again, we, we bought a couple of other ones, but we have just under a hundred billion in private credit now. So 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. Obviously very different compensation structures and things, but that has actually worked really well for us. And our expertise in the wealth channel, as these guys are looking to expand into that wealth channel, has been really helpful because that is a very different sale than an institutional sale.

• 25:12Molly O'Shea?

  And so 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?

• 25:26Speaker 01

  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, 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 the fully priced for the size of assets that they were. You know, I think that what has lost sense of people is that the mechanism of paying somebody in the private markets with carry and carry is embedded and doesn't get paid

• 26:10Speaker 01

  for years is you have a unbelievably good natural retention that you don't have in traditional, when you buy a traditional asset manager, right? You don't have a natural retention where they have multiple years that they're waiting to get paid out for investments they made, you know, five years earlier, 10 years earlier. To answer the question, we, 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 scale, big scale manager in order to get on these platforms, that they could see the consolidation.

• 26:53Speaker 01

  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, the total assets there from like 136 billion to over 220 billion. 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. And so we did that with stock.

• 27:33Molly O'Shea?

  How good is AI at real professional work? Merckor's AI Productivity Index, or APEX, tracks it with every major frontier model release. Built with partners like Harvey and Cognition, see where the frontier actually stands at mercor.com/apeX. Today's episode is sponsored by V C X 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,

• 28:16Molly O'Shea?

  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 Deal. 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 D E E L dot com slash sorcery. Let's talk about the modernization of asset management. So 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.

• 28:59Molly O'Shea?

  Lexington had swooped in and bought up like 10% of our portfolio and gave liquidity to our LPs, which was fantastic. And it was, 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?

• 29:18Speaker 01

  Again, having run technology and operations, I think had an advantage in the seat on understanding why blockchain was so important. And I genuinely believe it will replace the rails in financial services. It'll, it'll be slow because it forces the change of a bunch of business models and the toll takers who, who take a fee on a transaction. But it basically does three things really well. It has a source of truth and anybody who runs a back office or tech department understands we're still running, well, we're not, but a lot of big financial services firms still run mainframes, which means you have batch processing at night, which means your data's not updated until sometime in the middle of the night. With blockchain, it's immediate. And so there's a huge cost in firms to reconcile data between systems.

• 30:03Speaker 01

  And then you have to go reconcile the transaction with your counterparty. That all goes away with blockchain. There's just one source of truth, updated immediately that everybody goes to. The second thing, it has the ability to program the smart contracts. So whatever terms you and I agree, if this threshold meets, you have to pay me collateral or this one, I have to pay you collateral, all of that gets programmed in. Whereas pre-blockchain, that is sitting in a document somewhere or you have to go and, you know, try to build it into the transaction, but it's really hard to do. So it tends to be in a document that somebody's following and they'll say, oh, let me go collect collateral you owe to me. That goes away. Immediately it's paid. And the third thing is the ability to make a payment. So I looked at that and said, well, this is a no brainer.

• 30:48Speaker 01

  This is what we do in this business in the back office. And so this is hugely efficient. And when we came out with the first tokenized, natively on-chain tokenized money market fund that the SEC approved, they had us parallel process on our old transfer agency system, our old shareholder record keeping system and our blockchain system. And a couple of things, we were still one of the few firms, I think there were only two of us still running the old system in-house. And so we were able to look at the parallel processing and we were astonished by how much more cost effective it was to run it on-chain. And we looked at that, like if you open one of our traditional money market funds, you need $500 to open an account because anything below that, the other shareholders are subsidizing

• 31:33Speaker 01

  your servicing fees. Whereas we did it on the blockchain system and you can open an account for $20. We probably can go down to $5 because it's just that much more efficient to run. So we look at it and think that the financial innovation that's going to happen is going to be really interesting and significant. One is you're going to have 24 by seven trading. It's going to be atomic settlement and you're going to have a lot of innovation that's going to happen because of the ability to program and now add AI to that. And you can build your logic of a trading pattern in there. And so we just, we're, we're big fans. Our tokenized money market fund, to give you an idea, it calculates interest every second. If you're a hedge fund and you use it as collateral and you hold, hold it for four

• 32:17Speaker 01

  hours, 22 minutes and 32 seconds, we'll pay you that interest. Your cash that you earn that day is paid in your account at the end of the day. On a traditional money market fund, it's accrued all month, but you can't get to that cash until the end of the month. And you know, if you're a corporate treasurer, that's kind of significant, the ability to access that cash or even an investor, like a portfolio manager and you're using that as secondary cash and as the cash comes in, you can actually move it and use it in a portfolio. So it just gives you a little glimpse in the innovation that's going to come because of tokenization.

• 32:50Molly O'Shea?

  I mean, you embraced this super early and like really embraced it. I know you're also embracing AI and AI agents. You have over a thousand AI agents for 800 plus investment professionals. Are there any areas where you're looking for AI to create more efficiencies internally? Like where are the pain points for you?

• 33:08Speaker 01

  So I bucket AI in a, in a few places. So first of all, on the investment side, like the, the real win is making us better investors, right? So analysts more efficient, so they're not spending as much time on admin. So they're actually spending time talking to companies, doing more research, maybe even covering more companies. And so it is all about improving investment performance. Any cost savings there is insignificant to the benefit of just improving investment for, investment performance. With respect to distribution, it is actually about growth, right? So we had a partnership with Microsoft that they were excited to do. They actually gave us free resources because it was such a sophisticated challenge and solution from a technical standpoint. Simple problem, right?

• 33:52Speaker 01

  What is, what is your issue in sales? I want to meet the right clients and have the right conversations. That's essentially what you're trying to achieve. But it's actually a really difficult technical solution because it requires you to have multiple AI agents that talk to each other and are coordinating with each other. And then it requires you to go out and get a bunch of different systems. So to, to pull in data. So you might need your product system. You might want a system that shows you a holding of say a financial advisor. So that firm may give us a feed on that. So I'll look at what the holdings are. I'll view our products. I might go to social media to make sure that I can talk to that, you know, client about whatever's important to them. So I'm updated on it. I'm going to go to some of the rating agencies on there, you know, the, the, the morning

• 34:37Speaker 01

  stars and others to understand as part of the products, what are the best opportunities? And so Microsoft was excited about it. And what we've seen in the early results is 23% uplift in number of clients that, that one of our market leaders is visiting and an 11% uptake in, or increase in sales. So we think that's just going to get better and better. So that's distribution. Now where's the cost savings part? The cost savings part comes in the back office. It doesn't actually mean you have that much less people. I think you just do more. And in the case of technology, what's exciting is you have AI writing the code. There is, I've never talked to a CIO who runs a technology department that doesn't say, yeah, we got all the projects the business wanted done this year. It's all about prioritization.

• 35:21Speaker 01

  So if you can get more through the pipeline, that's an amazing thing. You're not trying to save money or just trying to get more things through the pipeline. And so that's kind of how we bucket the various, you know, how we bucket the, our approach to AI. And then back to the initial question on what do you think about all these hyperscalers and their revenue models? I think there's a couple of things that we haven't yet seen. Number one, the first thing you do is you give your employees the tool, the AI tool, go run, go do these things, write agents, that's all good. And then over time it starts costing you money, right? And so now you go, you know what? Do all these agents need to run? And do they need to run as frequently as you set them up to run?

• 36:05Speaker 01

  And that governance of the discipline, we don't know what that ultimately impacts these hyperscalers. And then the second thing is there are probably a whole bunch of queries that an employee needs to do leveraging AI that probably could be achieved with free, these free models, right? And so that governance layer of evaluating the requests and saying, you know what? This is a request that we're going to pay for the top model. This is one we're just going to send to the free model. All of those things will impact ultimately what the revenue looks, looks like with these hyperscalers.

• 36:39Molly O'Shea?

  I'm seeing that in a lot of our conversations with these emerging companies. They would rely on the frontier models and then they'd have 14 trillion tokens and they'd be overloaded. And then they've shifted their model and now they're totally efficient and they're running 99% on these open weight, open source models.

• 36:56Speaker 01

  Yeah.

• 36:56Molly O'Shea?

  And so I think that was probably going to, you know, make a big difference and, but maybe, you know, we continue to use these frontier models for the biosciences and for these like actual frontier.

• 37:06Speaker 01

  Yeah.

• 37:07Molly O'Shea?

  Kind of projects. So I know at the beginning I wanted to tie this back to kind of the multi-generational nod to, I was going to say Benjamin Franklin Templeton, but Franklin Templeton. So your grandfather started the firm.

• 37:20Speaker 01

  Well, since we're Ben is our stock, you can say that Ben Franklin Templeton.

• 37:24Molly O'Shea?

  Ben Franklin Templeton. Hashtag, well, it's not hashtag, it's cash tag, right? Your, your ticker is Ben.

• 37:31Speaker 01

  Yes.

• 37:32Molly O'Shea?

  B E N on New York Stock Exchange. We love that. So I'd love to go through a little bit of the history of the firm to today.

• 37:39Speaker 01

  My grandfather actually had a brokerage business and he was a huge fan of Ben Franklin and he decided to create a subsidiary. So he decided to name it after Ben Franklin. And so it was Franklin Funds. My father served some time in the military, came out, he was 24, 25 years old. And he said, his older brother took over the brokerage business and he said, you know, I really want to do my own thing. Can I talk to my grandfather and said, I'd like, I'd like to, to take over this subsidiary. So it was two and a half million dollars in assets, AUM and $10,000 in revenue. And he said, you know, I was making two to $300, I think it was a month. He goes, but that wasn't a bad salary for a new, you know, he kind of looked at himself,

• 38:23Speaker 01

  even though he'd done four years in the army. He goes, but that wasn't a bad salary, salary coming out. So that was 1955. I was in college, I think it was probably 1983 or 84 that I attended our first billion dollar party. So it took that long.

• 38:43Molly O'Shea?

  Wow.

• 38:44Speaker 01

  To get to a billion dollars. We acquired a company in California. That's why we moved out in California. And it was, I think Franklin was like 60 million in AUM in 1973. And the company that we acquired was maybe 120 million or something like that. And then the market tanked the next year. And so I think that we eked out a $5,000, $5,000 profit for the entire year. And I think 1973 or 1974.

• 39:15Speaker 01

  But you know, you just, it's still a good business and you just keep at it. And I actually think a lot of things that, as to why my grandfather set up the business, which was, at the time, the average person couldn't get access to the excess returns of the equity markets. And so this innovation was created, why don't we pool people's money, we'll give them expert advice, we'll make it at a reasonable price, and they'll get diversification that they could never get if they were on their own. And that was kind of the concept. And I do think we're at a similar thing on the private markets now. Companies waiting so much longer, you know, credit being, a lot of the debt goes into private credit. We got to make sure it's fair and democratized for people to get access while recognizing

• 40:00Speaker 01

  these are absolutely illiquid vehicles. But they can get an excess return because of the illiquidity.

• 40:07Molly O'Shea?

  We've been seeing that publicly listed, closed funds, all of that kind of thing. V C X is one of my sponsors. And, you know, they created a vehicle of all these pre-IPO companies so you can get democratized access to these, these assets. As we wrap up, I have one final question. This is the hardest question I'll ask you today. Are you ready?

• 40:28Speaker 01

  Yeah, I'm ready.

• 40:29Molly O'Shea?

  Who is the modern day Benjamin Franklin?

• 40:31Speaker 01

  I have to say, and this is, because I one time asked my team to do a, because our logo is, everybody thinks it looks so old. And I was like, oh, are you kidding me? Ben Franklin was a rock star. You've got to understand, this guy was like, I mean, not only was he an inventor, a politician, a philanthropist, you know, he, such an amazing, really, really well-liked. The ladies loved him in France, kind of thing, right? So I said, so we should do something like, who would Ben Franklin be today? And I have to say, the one I'd say most comes close is Elon Musk. And there's, and what comes back, well, people say, oh, but Elon isn't as much of a philanthropist, or Elon isn't, you know, this or that, whatever. I mean, look, there's no perfect match.

• 41:16Speaker 01

  A lot of times, a person is made a little bit by their time. But I think that there is no person who's had more significant impact on really where we are in the technological advances today than Elon has.

• 41:32Molly O'Shea?

  He did say he's going to give one SpaceX share to all of the children in America.

• 41:38Speaker 01

  I love that. That's awesome. Which, like, there you go. So he's getting that. Ben Franklin probably had to make his money too, before he actually was able to do the philanthropy side. So I'm going with Elon.

• 41:51Molly O'Shea?

  Great answer. All right. Well, Jenny Johnson, thank you so much. I really appreciate it.

• 41:55Speaker 01

  No, thank you.

• 41:56Molly O'Shea?

  So much fun. Hey, it's Molly. If you enjoy our interviews, check out our newsletter, sorcery.vc, where we deliver a once a week top deals and tech headlines email, and also go deeper on our podcast interviews. Subscribe to Sorcery today. And don't forget to subscribe to the podcast on YouTube, Spotify, Apple, or wherever you listen. Link in description to sign up.