FULL TRANSCRIPT

‍

Slava (00:00)

In this episode of Smart Humans, we talk with Sandy Kaul, who's head of digital assets and innovation at Franklin Templeton. At Franklin Templeton, they already have nearly two trillion dollars of assets and over 300 billion of alternative assets under management. And Sandy helps to lead the charge across the board. We talk about her personal portfolio and how she's bullish on crypto, how the organization has been able to use blockchain and innovate and be a total pathfinder as to where the future is headed.

Even so, they've been able to save 99% of costs on some transaction, and she'll explain how. We talk about the economy, predictions for the future, and what she thinks for three years out. You won't want to miss this one.

Slava (01:07)

Hello and welcome to the latest episode of Smart Humans. I am very excited for today's guest. We have Sandy Kaul, who is head of digital assets and innovation at Franklin Templeton. So excited because she has such an important role as such a big company and doing so much innovative work. Let's dive in. Sandy, welcome.

Sandy (01:28)

Thank you so much. Excited to be here.

Slava (01:30)

Absolutely. So we always start in the beginning. Take us as far back as you'd like. How did you get into this role, into this world? Does it go back to school, high school, your first job? When did it become about innovation? Go back as far as you'd like. We'd love to hear about it.

Sandy (01:45)

Yeah, so I started in the commodity markets right out of college. and I was covering the soft commodities, coffee, sugar, cocoa, cotton, and frozen concentrated orange juice, just like in trading places. and I spent the first 15 years of my career, first as a reporter, then as a research analyst, then as a portfolio manager. and after 15 years, I kind of realized that when you cover commodities, you're constantly

hoping for natural disasters because that's what makes prices go up. And I thought that's super bad karma. I can't make that my career. So I really started to look to make a change. And I had seen technology coming in and completely changing the way I did my work throughout my career. Right? When I started, I got the first personal computers they ever gave out at my company. So I inherited 40 years worth of paper files and I started inputting that data.

Using five and a quarter inch floppy disks and Lotus 1, 2, 3. That was in 1985, 1986.

Slava (02:48)

What year is that? What year is that? The first computer? Nice.

Sandy (02:52)

Right? Then I saw when email came out, right? That was absolutely groundbreaking in terms of how that changed, the way we interacted. Then the internet came out.

Right, and so by nineteen ninety-nine, I really wanted to get into something having to do with financial services and technology. And so I joined one of the most well-known internet consulting firms, this firm called Scient that had been established by Bob Howe, who had been heading consulting at IBM.

And it was great. I learned about technology. I learned about user design. I helped to build some of the first generation of trading apps, some of the first websites, some of the first research sites. and so I really got excited about this idea of being able to build and see how the technology changes what we do. and then I started doing continued consulting for a number of years, started getting more and more.

Into my areas of expertise, which was because I understood derivatives, because I understood futures, because I understood markets from my earlier background, I really started building these models that hedge funds were using to be able to launch. This was a big period of hedge fund growth in the early 2000s. Started doing a lot of work in prime brokerage around financing and collateral and lending.

and then finally started doing a whole thought leadership series where I would go out and interview who I thought were some of the smartest people all around the world: asset allocators, intermediaries, asset managers like Franklin Templeton, private firms, fintech firms. I'd interview everyone and I would forecast what was going to happen in the wealth and investment management industries from how their businesses were changing. And I would look at like one.

one

to three years. And we did this from about 2009 to about 2015. And our reports were super accurate. Everybody was really starting to rely more and more on them to be able to kind of put their firm strategy together. And they asked me in 2016, could I look further out? Could I try and think about where disruption in the industry might come from?

and so in 2017 I did a report. and this is when I really learned about blockchain and crypto. and I put out a report at the end. Yeah.

Slava (05:17)

Twenty seventeen is a twenty seventeen is a good moment for blockchain and crypto for sure.

Sandy (05:22)

Exactly. So I put out a report at the end of 2017 that said tokenization is going to replace equities and bonds over time. And people thought I was insane, but I had the bug.

Slava (05:33)

You were what is that, orange pilled? I guess that's Bitcoin, but it in the direction.

Sandy (05:36)

That's right. Red tailed nobody. Yes.

Slava (05:38)

So when is it that you go from doing your own reports that you join Franklin Templeton?

Sandy (05:43)

Yeah, so when I came out with that report in twenty seventeen, one of the we did a big CEO luncheon to launch it from City, and I was sitting next to Jenny Johnson from Franklin Templeton, and Jenny had said that there were folks on her team that were beginning to really talk to her about blockchain and its applications and would I come in and meet her team? So I went in, I met her team, I really watched the work that they did in the early years, and they were so ahead of the market in terms of what they were looking to do.

at that time, that by 2022 I was like, wow, these guys are really, you know, if I went there, I'd have an opportunity to really change the direction of the industry. So I called Jenny and I asked her if I could come work with them and that's when I joined Franklin.

Slava (06:28)

Amazing. And the rest is history. I love it. I love it. So

Sandy (06:30)

I hope.

Slava (06:33)

I think the thread throughout is you're predicting the future, whether it's the one quarter out or the one year out or the three years out or the disruptions further out. Where do you think that ability came from? Was it simply from the work around the commodities for many years?

Or was it somewhere else that it came from and the commodities were one of the first places you applied it to?

Sandy (07:00)

Hmm.

It came from too much reading science fiction as a kid. I love science fiction and I read it all the time. And this idea of being able to take patterns that you see today and extrapolate them and think about what will they mean in the future. If we keep moving in this direction, how is that going to change society? How is that going to change the way that people live? That just it became something that I was fascinated by. And I think my you're right. I think my whole career has kind of been different flavors.

of using that excitement to really think about where things are headed.

Slava (07:35)

What was some of the science fiction that you loved growing up?

Sandy (07:39)

my gosh, the Foundation series by Isaac Asimov was one of my absolute favorites. I loved all the Arthur Clark books. I loved all of the Robert Heinlein books. I was a big fan. I read a lot.

Slava (07:55)

Amazing.

So we're going to tap into some of your prediction capabilities here. Let's talk about the economy. what is your perspective as to where we are at today in the market and the economy? So I suppose say the market as it relates to the stock market and the economy in general. And this is two very open-ended questions. So take it wherever you'd like.

Sandy (08:18)

Yeah, I always think that markets are reflections of how people are feeling about the world, right? And we're at this very odd moment where on some in some ways everything is so optimistic because technology is advancing so quickly. We are seeing, you know, decades of foundational work really coming together in terms of how we're able to compute, how we're able to absorb data, how we're able to build AI, right? And I think

That the emergence of these crypto rails, which is really the end point of all the work that we have been doing around networking, cryptography, compute, right? These are all coming together, these technologies. So, in one sense, we're all very optimistic because there is really a vision that you can easily see now that shows us operating on rails that democratize access, expand inclusion, provide more opportunities.

Opportunity for people to make their money work better, provide more opportunity for people to monetize their own data, which is really the fuel of the new economy. So those are all super positive factors, but we're also at this moment of very, I think, heightened political polarization. I think that there is a lot of debt that people are trying to work through, and what is that going to mean for the economy? And there's a rising sense of concern about affordability. So

You've got these counterposing forces. And I think you're seeing that in markets going in fits and starts, people being a little uncertain, any kind of trend becoming very quickly accelerated because people get nervous that they're going to miss out or that they're being vulnerable. So I think we're in a very tentative moment. And I think that you know things could unfold in a lot of different ways over the coming months. So I'm a little cautious, I guess I would say.

Slava (10:13)

So we're gonna double click on that in just a second, but when you say a little cautious, are you red light, green light, yellow light? Cautious sounds like yellow.

Sandy (10:23)

Yeah, I'd say I'm yellow trending green, but I got my foot near the brake.

Slava (10:28)

Right, you just covered all the bases. So

Sandy (10:31)

I'm going,

but I'm ready to stop at any moment.

Slava (10:34)

Okay, so

gonna be a little bit more specific here. So back to your predictive abilities, not financial advice. We ask all our guests these questions, which is a year from now, this almost goes back to your report days, but not quite. will we have a recession?

Sandy (10:50)

I think yields will be higher. I think that there might be some offsetting forces. I would say no to recession.

Slava (10:57)

So you already went there, which is rates, Fed fund rate, will it be up, down, or flat from today?

Sandy (11:05)

I think they'll be up

Slava (11:06)

And do you have a perspective on how many times is it goes up by the Fed?

Sandy (11:11)

That's getting outside my area of expertise, Slava.

Slava (11:14)

All right, inflation. Will inflation be up, down, or flat a year from now?

Sandy (11:20)

Yeah, I think inflation continues to drive up. I think that, one of the things people haven't factored in yet as much is the impact on food prices because of the disruptions in the shipments of fertilizer that happened because of the Iraq war and the Straits of Hormuz. I think that there's gonna be lower food harvests this year. So I think we're entering into a commodity cycle.

Slava (11:42)

And you know your stuff about commodities.

Sandy (11:45)

Yeah. Yeah. Commodities I'm keeping a real eye on right now.

Slava (11:49)

is that just to spend another moment, is that part of what people are talking about, the K economy, you think, is with those commodity pricing and that kind of impact on kind of like everyday stuff?

Sandy (12:00)

Yeah, I think that's gonna be a really tough pill for a lot of people coming on top of all of the inflation and the higher gas prices we've had. So that's where I think there's gonna be drags on the economy while other parts of the economy are growing super quickly.

Slava (12:14)

you said the Strait of Hormuz a year from now. Are we still talking about it the same way? Or is that done?

Sandy (12:21)

You

know what's so interesting? I was a history major in college and one of my professors told me when we were learning about the Middle East, he said, Look at the Straits of Hormuz. This will be the most important waterway of your entire life. And every time we are seeing this in the news, I think about that. I cannot see a scenario where we do not worry about what's going on in the Strait of Hormuz in a year. We will be worrying about it. Yeah.

Slava (12:44)

wow. So still an issue.

Sandy (12:46)

Yeah.

Slava (12:47)

Okay, that's a big deal. most folks did not say it would still be an issue, but you know, you are the predicting force

Sandy (12:53)

Yeah.

Slava (12:54)

here. So unemployment, up, down, or flat?

Sandy (12:59)

I think I think probably up a little. I don't think a lot. I think that, you know, there's going to be more productivity, but maybe a fewer jobs.

Slava (13:09)

So you don't think AI is going to displace that much that unemployment will go up very significantly?

Sandy (13:15)

I think it's gonna take a lot of time for that to happen. And I'm a big believer that the roles that humans play rotate. We become much more about interpretive roles, behavioral analysis, being able to, you know, be that interface level when people want to communicate and get advice. I think there's still gonna be plenty of roles for humans. I am not at all an AI doomist.

Slava (13:43)

and then all of this packaged together a year from now, the stock market, it's up, down, or flat. And when I say up, is it the traditional eight percent year over year gains? Really ten to twelve percent for the last fifteen years. Where do you see it being a year from now?

Sandy (14:03)

Yeah, I think it's very hard to stop the momentum of the stock market. There's not a lot of other places to put your money. there's not gonna be, I think a lot of companies are gonna continue to do very well with the trends that are coming. So I I'm still a believer that stocks are gonna go up.

Slava (14:21)

Like the typical average, let's call it.

Sandy (14:23)

Yeah, maybe slightly less, but still up on the year. maybe a little slower, but I think we will continue to trend higher.

Slava (14:31)

Okay. and because you know so much about digital, I'll ask this a year from now, where is Bitcoin at? Is it up, down, flat? I guess let's

Sandy (14:42)

Yeah.

Slava (14:42)

call it in the low eighties?

Sandy (14:43)

I think digital assets are

going to yeah, I think they're gonna be up sharply. I think they're going to regain the attention of the marketplace as where you will get outsized returns for each unit of risk. and I think this time what's going to be very interesting, Slava, is that it's not gonna really only be Bitcoin led and everything else follows. I think this is the cycle where you're going to really see the expansion of the investing landscape.

and much more differentiation based on the actual network growth and uptake of these different protocols and networks. I think that we are entering a build area, a build era.

On digital assets and digital technologies, and I think that you're going to see people really looking at it as they would look at any other infrastructure play, right? These are the rails that we are going to be building on, both for the financial system and the payment system. And as we find the winning protocols and networks that are really attracting the most development work.

People are gonna wanna own those protocols and networks. And I think there's going to be a growing interest in having a crypto allocation in everyone's portfolios.

Slava (16:00)

Amazing. So again, to put you a little bit on the spot, not financial advice. the expansion beyond Bitcoin, very interesting. Are we talking the L1s like you're mentioning? So for the sake of the audience, the Ethereum, the Solanas, Avalanches, et cetera? Or are we talking the exchanges, again, the Uniswaps, the hyperliquids, the et cetera? Or is it privacy becomes interesting with Zcash and people are mentioning? So where do you see the expansion beyond Bitcoin?

Sandy (16:29)

Yeah, I think all of the above there and I would add to that, more digital identity protocols, more quantum

Post-quantum computing protocols that are going to be helping to strengthen and harden passwords and wallet protections. I think you know we really are going to see more Oracle networks really attracting, I think, the demand that they are due, right? Because they are really going to be some of the fuel that allows this new ecosystem to work and automation at the contract level.

is really what is gonna be profoundly transformational about the digital asset rails. And so having the data fed into those smart contracts in a real-time manner and able to provide

those certainty of clauses, that's going to be critical. So this is what I'm saying is that there are so many pieces to the infrastructure that is being built. I think lending protocols are going to become very much integrated with traditional Wall Street lending. I think that, you know, we're really on the verge of seeing, you know, a wholesale move away from the old financial technology into and onto all of these crypto protocols and networks.

Slava (17:45)

Amazing. You're so knowledgeable about the space. Are there specific names that you would mention that you like?

Sandy (17:50)

you mentioned

Slava (17:50)

But

Sandy (17:51)

a lot of the ones that we're looking at right now. you know, I am always my futures background, I'm always super interested in like hyperliquid and what it's doing. really, we're looking at a lot of vault companies right now. I think vaults are gonna play a very important role as we kind of rethink how financial products operate. you know, I think that

I don't have a lot of other names in front of me. I our my investment

Slava (18:18)

You mentioned

Sandy (18:19)

team doesn't like me talking about names, so

Slava (18:22)

It's my job

to ask. So post quantum, not everybody really appreciates what that means. And there's even been a little bit recently about this happening. what exactly does that mean for the audience? if you could just share.

Sandy (18:35)

Yeah, if you didn't notice it, there was a pretty historic event that happened a couple weeks ago in that one of these AI models came out and it solved in one week they put out that it had solved 300 of the most intractable math problems that have existed for the last hundred years.

That's a really shocking development, right? that is really when we talked about it with our team, we were like, this is really a moment that we have now seen the intelligence of this AI surpass human intelligence, right? They didn't surpass it with one algorithm or one math issue. They surpassed it with 300. So

That is a real wake-up sign that we are starting to get to a point where we do not have the capacity to build the unbreakable systems that when our only threat vector was coming from humans. So now we have a new threat vector that's coming into the marketplace, and we have to rethink what security looks like? How do you protect passwords? How do you protect keys in this new environment? And this is where the post-quant.

quantum computing is becoming so important is we need to almost be anticipating capabilities that may not exist today but may exist within the next three to four years. Right? And you can't wait for that to happen or else everything is gonna be vulnerable. So I think it's a very critical moment.

This has been one of the big focus areas, this intersection of blockchain, AI, and quantum, that has been one of the big focus areas for our venture capital investing. because we think this is really, as everything moves onto these new rails, as we talked about, we think we're gonna be rebuilding on this infrastructure. We need to make sure that the security layer is absolutely as hardened as possible.

Slava (20:25)

Awesome. Let me ask you one more question about your predictions and we'll move on. So you said rates will be up, inflation will be up, unemployment will be up, her moves would still be an issue, which all those things are directionally, let's call it negative. but there'd be no recession, the stock market would still be up, not quite as much as normal, but still be up, and digital assets up sharply.

Why is it that the let's call it the underlying factors might all be negative, but you're still directionally positive?

Sandy (20:55)

Because there is, we are in this moment of complete replatforming, right? And that replatforming is going to drive so much innovation, so much necessity to bring expertise from multiple sectors in and deploy it, right? So, you know, when you look at big macro trends like unemployment and interest rates and inflation.

They're coming, and we talked a little bit about the K, right? They're coming for people that don't have necessarily the ability to participate in that replatforming, but there's going to be a huge segment of the economy and of the populace that is part of that replatforming. And so I do think that there's gonna be so much happening there at such a rapid pace.

with so much innovation and enhancements in the volume of activity, the ability to bring in broader sets of participants into activity, that that's gonna really help to drive this sense that things are still growing and things are still moving, even though you've got all these headwinds that are affecting it.

Slava (22:01)

Amazing. So moving on, this is gonna be an exciting part, which is how do you like to invest personally? Which is the traditional portfolio is 60% equities, 40% bonds, 0% alternatives. I'm gonna guess that's not your portfolio. So

Sandy (22:20)

No.

Slava (22:20)

if you had only three buckets to start off with, which is out of 100%, how much is your public equities, how much is bonds?

How much is all things alternatives? What would be your three numbers?

Sandy (22:32)

I would say probably fifty percent equities, thirty percent alternatives, probably maybe forty percent alternatives, 'cause there's a lot in that bucket that we can break down, and then ten percent bonds.

Slava (22:44)

Great. no surprise there. even the fact you have 10% bonds is a bit surprising, but of course you need to hedge a bit. But these days bonds are good. You know, it's inflation keeps going up, rates keep going up, bonds are paying well. So inside that 30 to 40 percent bucket, if we made that a hundred percent, meaning it was a hundred percent, how would you slice the hundred percent of alternatives into the major sections? The way we think about it, and you can change it however you want.

But the way we think about it is venture like pre IPO, all things in the private world, crypto, art or collectibles, and then the yield assets like real estate or private credit. So feel free to add any other things like commodities, et cetera. But how would you break up your hundred percent?

Sandy (23:28)

Yeah, I would be doing probably twenty percent to commodities. I as I said, I think we're entering into a commodities cycle. and I would be not only including industrial commodities, but I'd be including food commodities in that.

Right. I think that I would be putting another thirty to forty percent into crypto. As I said, I think these tokens, people are gonna begin to realize that if I want to own the value a company is creating, I own the stock. If I want to own the value a network or a protocol is creating, I need to own the token. So I think you're going to see this growing realization, particularly with agentic AI and micropayments, that if you do not have exposure to blockchains and protocol,

You're not going to be able to really have a full exposure to the agentic AI capabilities and value. And so that was like 40% there, 20% commodities. I'm still a big believer in private credit. I think the private credit is going to become even more important as the economy is struggling and with high interest rates, but people being more cautious in where they loan. And then I think that

you know.

Slava (24:34)

Sorry, what's your private credit number?

Sandy (24:36)

my private credit number would probably be f ten to fifteen percent.

Slava (24:40)

Okay.

Sandy (24:41)

what am I up to? Seventy five?

Slava (24:43)

Yeah, if it's ten if it's twenty plus forty plus fifteen, you're at seventy five.

Sandy (24:47)

Yeah. So then I would say the other 25% I think is coming into a mixture of private equity, right? You didn't really mention private equity. And I think there's a lot of activity happening, particularly in secondaries, where I think there's a lot of people trying to reset and keep some of the more valuable investments invested as long as possible.

real estate, I think real estate is, you know, people are going to want to have more and more tangible assets. And I'm a big believer in collectibles. We're working really hard to think about how to bring new assets like art, like IP, right? How to bring those into investment portfolios. And this is where I think tokenization offers a lot of opportunity. So I would definitely have an allocation there as well.

Slava (25:33)

What are just to to be clear, are these your numbers? Meaning twenty percent commodities, forty percent crypto, fifteen private

Sandy (25:39)

Yeah.

Slava (25:39)

credit.

Sandy (25:40)

Yeah, that's on me.

Slava (25:41)

Right.

And then the twenty-five that you sprinkled across private equity,

Sandy (25:44)

Yeah.

Slava (25:45)

real estate, and RN collectibles, was it kind of like equal or okay,

Sandy (25:47)

So yeah, ten five, right?

Slava (25:50)

perfect. so really interesting. The

Sandy (25:54)

Very different portfolio, right? Not sixty forty.

Slava (25:56)

I love it. I love it. Crypto is

so strong, right? Forty percent and private equity and real estate is comparatively quite small. And that's usually where a lot of people are putting their stuff, which is in the, real estate.

Sandy (26:07)

Those are pretty mature

trends. we're twenty-five years into the private equity trend. We're fifteen years into the private credit trend. you're at the point where you're seeing a lot of very mature funds having to work out of investment. So those are pretty mature trends at this point.

Slava (26:24)

So if I was somebody who's less of a risk taker and I wanted to counter you with Well, you know, Sandy, you're forty percent in alts, forty percent in crypto. Inside of that, you're almost twenty percent in crypto across your entire portfolio. That's very scary for me. What do you say?

Sandy (26:41)

I would say learn about how crypto actually operates and what is being built on these rails and why and you'll probably come back and tell me you're being a little conservative.

Slava (26:52)

All right. I love it. and give me another second here on twenty percent commodities. we don't always hear that. Obviously that's partially

Sandy (26:59)

Yeah.

Slava (26:59)

with your background, but is this all about the inflation and rates and kind of what's happening there?

Sandy (27:06)

a little bit that it goes back to a couple other things, right? So one of the things people don't think about as much is growing cycles, right? And they're everything grows on a certain cycle, particularly when you're talking about food crops. And you know, we missed a key fertilization window in many key breadbasket economies because of the disruptions from the Iraq war.

and on top of it, we're in a super El Nino cycle, right? Which is from a weather perspective very disruptive to normal weather patterns. So you have this kind of combination of you didn't get as much protection into the ground when the crops were being planted.

which leaves them a little bit more vulnerable to lower yields. And then on top of it you have these weather patterns that have been coming in. that, you know, we already this is going to be a very severe cycle. I mean, you're seeing houses falling into the ocean on the edge of California, right? So, you know, we're just at the beginning of the Super El Nino cycle. So I do think that a lot of it is the macro environment, but some of it is pure crop related growing cycle related factors.

Slava (28:19)

So are you picking a specific commodity one at a time and how are you getting access to that?

Sandy (28:23)

I think you've got to

just make a broad commodity exposure.

Slava (28:27)

bad okay, yeah. So how are you getting that exposure?

Sandy (28:29)

Probably through an ETF or an index. There they there's lots of good commodity indexes, but you know, I'd probably also want to hold a little gold as part of that. I consider gold part of my commodity allocation.

Slava (28:39)

Great. And in your crypto, are you again, are you stock picking? Are you token picking? Are you taking indexes or baskets?

Sandy (28:47)

well, I I'm very lucky in that I have one of the best crypto investing teams in the world working right in-house for me. So I'm allocating to our portfolio managers.

Slava (28:56)

Got it. awesome. So give us another second here on real estate. If it's not quote unquote important to you at ten percent of your forty percent, which is only four percent, why do it at all? And how are you thinking about that?

Sandy (29:11)

Think it's a diversification play, right? As I said,

There's not a lot of places to put your money other than in the stock market. And one of the few places that people will regularly put money if they don't want to put so much money in the stock market is real estate. And people are looking for more and more opportunities to diversify a real estate portfolio. So I think that, you know, you will see people wanting to have that real estate exposure for quite some time, particularly people who are having trouble getting onto the housing ladder that gives them an exposure to real estate, even if it's not their direct holding.

Slava (29:45)

And is that through public reads or some other approach?

Sandy (29:47)

Yeah, through REITs and through other that's why I think a lot of the public will get into that or through private investments into real estate.

Slava (29:54)

Amazing. So I started the show. Thank you for sharing all that. Very open. That was awesome. So interesting. So I started the show with the fact

Sandy (30:01)

I don't know how

right I'll be. take that advice for what it's worth.

Slava (30:05)

no,

not financial advice. This is everybody just sharing and everybody being nice and open. So thank you. That's really interesting. I love the bullishness on crypto, not because it's right or wrong, but we love unique perspectives, right? That's the whole point of the show is to educate our listeners about all the various approaches that are out there from lots of different smart people. So, you know, are leading up digital assets and innovation, which is very interesting at a massive company.

Tell us what is it like for well first give the audience some perspective on the size of Franklin Templeton. So isn't it like I believe like over three hundred billion of alternatives under management and like on the verge of like two trillion dollars of assets? I mean, I'd love to hear from you just in terms of like the size and the breadth of the company.

Sandy (30:55)

Yeah, those are the exact right numbers, right? We are, almost two trillion in total assets. We're a big global player. We've been global since the 1980s. So we were one of the first firms to really establish a global footprint. we're over we're almost 80 years old now. So we are a firm who has really been able to adapt through many cycles and innovate through many cycles. and as you said, we have been building out our alternatives present. We're now one of the top 10 firms globally in terms of alternatives.

alternatives

assets. And we are probably one of the top two to three firms globally in terms of digital assets in crypto. So you know we really have focused on where is growth coming from.

and really position the firm to be able to succeed there. And then in our traditional investments, we've really put a lot of investing into being able to use our investment expertise as building blocks, not to create standardized funds and standardized products, but to truly create solutions that are very targeted to the individual investors' need, be that an institutional investor or a wealth investor. So we really are very focused on this idea of.

a personalization and we are trying to drive our whole organization to being able to deliver portfolios of one so that every person and every institution we deal with is being dealt with on their own terms, their own goals, their own desired outcomes.

Slava (32:25)

So top 10 across all of alts, top couple, two, three in digital, becoming top two or three of digital is not an accident. So when did that when was that kind of direction, committed to and how did that happen? And what is it that products and the features that

Sandy (32:42)

So we Yeah.

Slava (32:45)

allow for that to happen?

Sandy (32:47)

So there's this thing called a transfer agent in the fund space. And every fund, like a mutual fund, just to take a mutual fund of the S P 500, there's two ledgers associated with every one of those funds. One of them is a ledger of the underlying investments. So in that case, that would be the 500 stocks that make up the S P 500. The other ledger is the shareholders who owns shares of the fund. And the transfer agent

keeps the shareholder record of who keeps who owns shares of the fund.

And we were doing our own transfer agent work at Franklin Templeton. We have thousands of funds we were doing this across every day. Jenny Johnson, our CEO, had run Tech and Ops at the firm for many years, so she really understood the challenge that this posed. And when she heard about the distributed ledger aspects of the blockchain, she said, let's experiment with blockchain and see if we can find some efficiencies in our record keeping. And so we built an on-chain digital transfer agent because.

was nobody institutional in the space at the time we had to build our own wallet solution, we had to build our own node operations, we had to build our own staking operations. And we launched our first tokenized money market fund in April of 2021.

And we have been running that fund 24 hours a day, seven days a week on blockchain since that time. So, really, this was years before anyone else even looked at the space. And so we have been able to build that platform out. We now operate that platform across 12 different blockchains.

we compile our shareholder record second by second across all 12 chains over a 24-hour period.

And this has enabled us to create all new types of functionality in a money market fund that have never existed before. We're able to calculate yield intra-day. So if you own the money market fund for 12 of the 24 hours, you're entitled to half the day's interest. Whereas today that's just not possible with the way that traditional money market funds work. You have to own the fund at the close.

And it doesn't matter if you bought it one minute before the close or if you owned it all day, you get exactly the same treatment. we able to pay out yield every single day, including Saturdays, Sundays, and holidays. Traditional money market funds only pay out yield once monthly.

Right, so we've been able to really enhance the way this very basic product operates. And now what we have begun to do is expand into a growing suite of tokenized products. We have a whole set of tokenized ETFs. We are launching more short-duration products, and we are looking at some really unique offerings that will be coming to market, including tokenized model portfolios. So we really have been expanding rapidly in the digital asset space.

Slava (35:45)

The

tokenized money market sounds absolutely incredible. So going back to twenty one, it's five years old now, let's call it. the fact you're on twelve chains is incredible. Is the reason that you're on twelve chains is just to get access to all those customers in terms of the various users? Is that the reason? Or is it for redundancy?

Sandy (36:00)

That's

bad.

It's for redundancy. Each chain has different benefits and weaknesses, right? Certain chains are better for people who are gonna have a high turnover strategy, smaller positions, other chains are better for people who really are going to be holding positions for quite a long period and they want absolute security. So, you know, each chain has its own profile, and we have a pretty sophisticated methodology for allocating trades across the different chains.

but we found, having a variety is really helpful and it gives us lots of backup and back opportunities to make sure that we always have one hundred percent resiliency in our records.

Slava (36:38)

It sounds like the tokenization gives you a lot of new features, i.e. the paying on the weekend or paying midday, which all sounds awesome. One of the first questions people have when they want to move or not move to a new technology, is it five years later, is it more expensive than the previous version, the same cost of running the previous version, or is it cheaper?

Sandy (37:01)

So I'll give you a great analogy, right? When we did a side-by-side pilot for the SEC, we ran 50,000 transactions in the traditional way and on the blockchain. The traditional way cost $1.50 per transaction. So the 50,000 transactions cost us $75,000. The same 50,000 transactions on blockchain cost us $1.13. So

Slava (37:24)

That's amazing.

Sandy (37:25)

That's a huge savings and that went directly into our expense ratio on the fund. So we have one of the lowest expense ratios of a money market fund out there because we're able to pass those savings on to our underlying customers.

Slava (37:40)

What was it for the tokenized? It was a dollar and a half, you said a dollar thirteen.

Sandy (37:42)

A dollar thirteen.

Slava (37:45)

I don't wanna be too far off there. so 75,000 to $1.13. Now, obviously there is some upfront investment, but should the assumption be that everybody's gonna be doing this? You're just way ahead.

Sandy (37:57)

Yeah.

That's exactly

right. we're already starting to see it. We see the New York Stock Exchange announcing they're going on to tokenize Rails, NASDAQ announcing they're going on to tokenize Rails, the DTC announcing that they are going to tokenize up to 100 trillion of US securities, the CFTC, the Commodities Futures Trading Commission, announcing that you can use tokenized money market funds and stable coins as collateral on derivative positions. It's already happening, right? People are already beginning the move onto these rails.

Slava (38:28)

You mentioned next on the roadmap is short duration, ETFs, et cetera. I'm hearing a lot of talk about tokenized equity, tokenized real estate, toc when is that in your future?

Sandy (38:41)

Well, tokenized equity, we don't we're not an issuer, so we might be buying tokenized equities into our our funds, but we are not going to be issuing equities, right? but we will be tokenizing the funds that invest into equities, such as we've already done with some of our ETFs. and then tokenized real estate, it's a little tougher than people think because of the underlying need to have daily pricing, which is not something that you typically do with a real estate transaction. we have a

We're looking into tokenizing some of our real estate investment funds. And I think that will probably be the first entree into those asset classes. And yeah, we're looking at tokenizing some of our alternatives as well. I should have mentioned those along with my other list.

Slava (39:26)

So you mentioned the New York stock exchange, et cetera, everybody's following. Right now you're ahead, which is showing up in your returns and your expense ratio, which obviously you have an advantage right now. How long, again with your predictive hat, how long do you think it's gonna take the rest of the market to catch up to turn this into, let's call it directionally a commodity, in regards to same, just like back in the day.

When you were at Science, people didn't really think the internet mattered. And some people were going digital and everybody else was still selling up across the desk. And then it took time for them to catch up. now people are more commoditized in regards to using the internet. Took a while. Sears obviously didn't make it. So how long do you think we have here? Do we have one quarter, one year, one decade? How long is this going to take?

Sandy (40:16)

Going take two to three years, two to three years, and you'll start to see wholesale migration, everyone getting a wallet strategy into place, everybody beginning to offer tokenized alongside of traditional investments, and then you'll have a probably a decade of having all these products on the shelf, and then slowly seeing more and more of the new launches and the new products moving into the tokenized realm.

Slava (40:40)

Do you think that my mother is seventy-five, she doesn't know what a token is, she doesn't know what any of this stuff is, but she has some, you know, assets that are being managed, et cetera, et cetera. Are we gonna use words like tokenization, crypto? Like are these words gonna be used five years from now, or is it just gonna be the infrastructure and it's just gonna be into the fabric of how it's done and the actual user won't actually know or care?

Sandy (41:07)

100%. No one's gonna care what the technology is that's enabling it. They're just gonna care that they're getting better service and faster service.

Slava (41:14)

And do you think there's gonna need to be let's call it, the user is gonna have to understand better how to use the meta masks or the crypto wallets of the world, or is it gonna be ingrained or pulled into today's apps and user experience and again they won't have to change anything?

Sandy (41:33)

It's gonna be the web two app experience with the web three underpinning and technology. So things are gonna be better, but it's gonna be simple to use and you're not gonna care whether it's a wallet and an account. You're just not gonna even know.

Slava (41:46)

Amazing. Amazing. how is it that, and obviously you're gonna say, you know, Jenny's amazing, you have great CEO, but it's more than just one human. And you, how is it that Franklin Templeton is so innovative and being able to like talk the talk, walk the walk, actually do it, get a dollar thirteen for fifty thousand transactions versus seventy-five thousand and prove that it's happening while others are much slower.

What is what is the reason that's able to happen in Franklin Templeton?

Sandy (42:18)

Yeah, I I'd say two reasons, right? One, I think that, our we're headquartered in Silicon Valley. So there is that culture that permeates of this idea that there is constant innovation and you need to be thinking about where innovation is emerging from and what it could mean for your business. And then I think it's also the nature of Franklin Templeton and the Johnson family, right? So we are a public company, but in many ways we're also like a family office because Jenny is the third generation of her.

of her family to run Franklin Templeton.

and so she therefore thinks a little differently than your typical asset manager CEO. She, of course, has to worry about next quarter's earnings and you know what the analysts are thinking day to day, but she is also feels a great responsibility to ensure that she's leaving a stronger and more well-positioned company for the next generation of her family. And that I think brings a different mindset to where you are going to make investments and how important you think is.

innovation is to your company's future.

Slava (43:22)

Speaking of the future, give me one Franklin Templeton prediction that the market will be surprised by three years from now that most people don't see.

Sandy (43:32)

I'll

give you my most controversial prediction, which is I do not think stablecoins are going to grow and be nearly the important financial tool that many in the industry are thinking at this moment in time. I really think that the banks, as they begin to tokenize their deposits, are going to be able to pull back a lot of the transaction volumes that have gone to stable coins early on.

stable coins, don't forget, are privately supported entities. There's private companies behind them, and they manage that equity, they manage that collateral pool on their own.

and even though there's more rules around the transparency into it, you're still putting your risk management for your cash into the hands of those stablecoin providers. Whereas with a bank, if they're tokenizing my deposit, my cash is backed by a hundred percent cash. And I think people are going to be more comfortable with that model.

Slava (44:33)

I love it. That was a hot take. So stable coins not as hot as people think, which in the reverse, you're saying I would guess the money market approach and the cash approach that Franklin Templeton is taking will stay. Yeah, yeah. And the banks, yeah. Just to double click

Sandy (44:45)

We're not just Frank and Templeton because we're doing the tokenized money market funds. I'm actually talking banks doing tokenized cash deposits.

Slava (44:52)

on stable coins there for a second, not to get too far off track. What about like cross-border transactions and the efficiencies there related to stable coins? You think the banks will be able to capture that?

Sandy (45:00)

Yeah, but you get those same

efficiencies with the tokenized deposits and that's why

Slava (45:03)

Right, that's what I was gonna say. You think that's gonna captured in that?

give us your predictions for three years out, which is just we always put everybody in a hot seat, which is one public markets pick and why, and one private markets pick, which I imagine will be crypto for you, but I'm not sure. and why.

Sandy (45:19)

Yeah.

so my public market pick would be Robinhood. I think Robinhood has been one of the most innovative and adaptive companies that I've seen. And I think that their strategy is dead on and they have created intense consumer loyalty and their consumers are growing with them. so I really have been super impressed with what they've been able to accomplish. and then in the crypto world,

I'm gonna go with Chainlink. I think Chainlink is super interesting. I think that they as an Oracle network are weaving themselves into the infrastructure that's being built in a very smart way.

Slava (46:00)

Amazing. We have covered so much ground from prediction market sorry from commodities being your foundation to the first computer at the job in eighty five, which I think is amazing, science and then going to Franklin Templeton. You told us the way you predict the future has a lot to do with how you navigate as a kid, science fiction and trying to think about where it's all headed. You told us no recession a year from now, rates are up, inflation is up, unemployment is up, Hormuz is still an issue, stock markets up, but not as much as we thought, but

Digital assets in quotes sharply up, which is exciting. it's really interesting. You gave us some perspective on digital identities, post-quantum, which we talked about. 300 of the world's most difficult math problems, all solved a couple weeks ago. Something you might want to take a look into. Lending protocols, Oracle networks, all interesting. You were very open about how you like to invest. 50% equities, 40% alts, 10% bonds, really interesting. Sub below that, which is 20% commodities via ETF, 40% crypto, which is huge.

15% private credit, a sprinkling across the REITs, the private credit, real estate art and collectibles. We had a really interesting conversation about tokenization at Franklin Templeton. You guys are so ahead of it. The fact that you were able to become the number two, three in digital and soon potentially go up, I'm saying, to number one. The fact that you're already doing nearly two trillion of assets. And this needs to be understood. 50,000 transactions went from $75,000 of cost to a dollar and thirteen. And this was all done under SEC guy up view.

So this is all kosher, very interesting. The fact that this will be all layered below, the customer, not having to be stressed out, thinking about all this stuff, and it will be seamless. That's our future. I'm excited for your helping to lead that up. And you give us a hot take. Stable coins are not that cool. I don't know if I agree, but it's a hot take. And finally, you gave us for three years out. Robin Hood is your pick and Chainlink. Sandy, we covered a lot of ground. Thank you. And you're gonna get to your important call.

Sandy (47:52)

Okay. Thank you so much, love. I really enjoyed it. Thank you for the conversation.

‍