Having a star fund manager is an easy way for an asset management firm to attract client money. But for Franklin Resources’s CEO, it’s not worth the disruption when they leave.
“Clients get nervous by a star manager, if you appoint one, because then it becomes a succession issue,” Jenny Johnson said.
Franklin should know. The firm’s Franklin Templeton fund business was once synonymous with Mark Mobius, the investment guru who introduced emerging markets to a generation of investors. Mobius retired from Templeton in 2018 only to start his own firm a few months later. But, said Johnson, it’s rarely about one person making all the investment decisions. “The reality is they were always supported by a large team.”
And it’s not just at Franklin, which was founded by Johnson’s grandfather in New York in 1947. The difficulty of outperforming the market consistently over a long period of time, compounded by the rise of low-cost index funds, has left few managers in today’s mutual fund industry whose status ranks with one-time giants such as Peter Lynch at Fidelity Investments, Bill Gross at Pimco, or Bill Miller at Legg Mason. In a sign of the times, Miller left Legg in 2016 to start a hedge fund and his former firm was bought by Franklin earlier this year.
More than half of these funds have fees higher than 75 basis points.
“You’re going to have to show value,” Johnson, 56, said. “People like to understand the strength of the team versus a single individual making all the decisions.”
Johnson spoke with Bloomberg News in a wide-ranging interview. Here are some highlights.
Racial Discrimination
In May, a video went viral of Franklin Templeton executive Amy Cooper having a confrontation with a Black man in New York’s Central Park. Cooper, who called the police and said “an African American man” was threatening her, was almost immediately fired.
Johnson is sure it was the right decision. “You have to, from the very top of the firm, behave in a certain way and just show zero tolerance for any kind of racism or discrimination,” she said.
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Two other groups of MML Investors financial advisors have boarded what the expanded firm’s CEO calls a “big boat” under Coastal Wealth.
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The firm expects a second wave of opportunities, particularly in commercial mortgage-backed securities and collateralized loan obligations.
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The $1.8 billion deal is expected to close in mid-2020.
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Active Versus Passive Investing
The past decade has seen investors increasingly choose passive funds over active managers, as stocks steadily rose, in part due to central bank policies. That has led to questions about the prospects of fund managers such as San Mateo, California-based Franklin.
Johnson, however, is bullish about the future — seeing the opportunity for active managers to add value in areas that require deeper expertise, such as biotech, and incorporate data into security selection.
“There’s no buy bid on the passive model on the way down,” she said. “Active is going to shine as the next decade is going to look very different from the last.”
Remote Work
The COVID-19 pandemic forced much of corporate America to leave their offices and work from home for most of the year — a previously unthinkable arrangement. Given the apparent success of remote work, many companies are weighing whether it will become more of a norm even after there’s a vaccine.
“I don’t know quite what the world’s going to look like — it’s a debate we have — but I think it’s going to look different,” Johnson said.
“In many ways, it will play to the strength of women. I also think that men have been a little bit disadvantaged,” she added. “I know a lot of men that would love to coach their kids’ sports teams and yet they weren’t sure that was OK. This environment’s actually going to allow both parties to do more of this integration between home and work. That’s better for everybody.”
