The big trends of demographics, digitisation and de-globalisation are throwing up plenty of opportunities for investors in spite of a risky international environment, according to the president of Franklin Templeton Investments.
Jenny Johnson, who has led the US$1.37 trillion global investment firm as CEO since 2020, told the Fiduciary Investors Symposium at Stanford that it is not possible to predict geopolitical risks, so figuring out the big trends that bring opportunities is important.
“The key is to recognize you’re not going to be able to call in advance the risks that are out there. They’re going to pop up unexpectedly and make sure that you’re prepared with a diversified portfolio,” Johnson said. “But where you are making those investments and bets, make sure that you’re doing it in places where there is a natural trend.”
Johnson was in a conversation with Dr. Condoleezza Rice, 66th US Secretary of State, and Tad and Dianne Taube director of the Hoover Institution at the Top1000finds.com Fiduciary Investors Symposium.
Johnson highlighted the massive opportunity from the younger population in the global south, where a billion people are entering the middle class. Other big opportunities that investors can take advantage of will come up with the ongoing technological innovation, despite the accompanying pitfalls.
Rising de-globalisation and the split between US and China after COVID is also prompting companies to diversify their supply chain.
“You look at the FDI investment in places like Vietnam, the Philippines, Indonesia – places that probably were historically somewhat overlooked, other than kind of for commodities, and you see real investment opportunities,” Johnson said.
Geopolitical Risks
Despite ongoing tensions between the US and China, the world’s second largest economy continues to hold attraction for investors across the globe, thanks to its huge domestic consumer opportunity for growth.
The challenge is going to lie in finding those investment opportunities, Johnson says. For example, making tech investments may be difficult because there will be this bifurcation with the US.
“But there are other places in China, and it’s still a huge market that has opportunity. I just look at it and say, as a global company, you can’t ignore the second largest economy in the world. And I do tend to think that the politicians will ultimately try to be practical.”
The discussion also covered another major global geopolitical risk – the Russia- Ukraine conflict.
Secretary Rice believes Ukraine would ultimately have to consider the importance of territorial integrity to resolve the long-drawn conflict. She cited the erstwhile West Germany as well as South Korea, which prospered economically despite the lack of territorial security, as examples of one of the pathways the current dispute could take.
“Understanding how important territory is or is not to a prosperous, united and secure Ukraine, I think the Ukrainians will have to determine that,” Rice said. She noted, though, that both South Korea and West Germany had received an American security guarantee.
Optimism on AI
Franklin Templeton has expanded rapidly in recent years, helped by a string of acquisitions including Legg Mason, Lexington Partners, and Putnam Investments. Johnson says the asset manager has been really careful about keeping the integrity of its investment teams and tries to integrate other things that are external.
“The first step is, you make sure the investment teams feel comfortable, that they remain independent. And the second piece is you provide them opportunities to see the benefit of being part of a bigger firm. AI is obviously one, but other things we do, these CIO forums and conversations that folks have from different perspectives, that has been really valuable.”
As one of the largest investment managers globally, it is also focusing on innovation to ensure that it keeps up with clients demands.
Earlier this year, Franklin Templeton announced a partnership with Microsoft to build an advanced financial AI platform that will help its distribution team. It is working on another partnership with a different tech firm for its investment teams.
Johnson says these AI models have to be trained on data, which will make it harder for smaller asset management companies to compete, because data is really expensive, and they will be limited in the data they have internally,
“We are leading in areas like blockchain and digital assets; you couldn’t do that if you didn’t have scale. And I do think it’s going to be harder and harder for smaller managers as AI becomes more important to actually be able to compete,” she said.
