To kick off our fourth season of the Alternative Allocations podcast series, I sat down with John Bowman, CEO of CAIA Association, to explore the massive changes underway across our industry. John and I discussed CAIA’s seminal paper “The World Rewired,” and the implications for private markets. The paper was a compilation of key findings from eight global leadership roundtables with CEOs of asset management firms, CIOs of limited partnership (LPs), and Managing Directors of general partnerships.
I asked John to summarize the takeaways from his listening tour. He noted that there were three primary areas of focus.
“One was a macro push and a macro shift, as we called it. The other was a kind of industry shift, product architecture related, and finally was an organizational shift, which had to do with talent and a brand new radical to thinking about building a talent map. So it was basically geopolitics, structure of product set and taxonomy within the industry, and then ultimately the types of people on the org chart, and perhaps even a combination of humans and agents on the org chart.”
I was curious if there were differences in the regional roundtables. John noted, “I would say in Asia in particular, there was greater adoption and anxiety around AI [artificial intelligence] in the org chart. The conversation about AI's invasion and tension with the human came up everywhere to be clear, but I think it was most acute and most consistent in Asia.”
John discussed the growing opportunity and interest in the Middle East, an area that Franklin Templeton is partnering with CAIA to develop specific programs. John referred to the Middle East as the “new capital of private capital.”
Since the roundtables focused on product evolution, and even the tokenization of private markets, I asked John about the current concerns about redemptions in evergreen funds. I had suggested that the industry needs to do a better job explaining the illiquid nature of private markets, and that the evergreen fund structure has worked as designed—meeting 5% quarterly redemption requests.
“I agree with you that the majority of this is misunderstanding. It is the way that we, as an industry, have articulated this to advisors and Main Street—that these are long-term assets, but if you want your money back, you can kind of have it.”
The reality is private markets are long-term investments. The evergreen structure provides liquidity provisions for changes in client circumstances, but in order to capture the long-term illiquidity premium, advisors and investors should view them as patient capital.
In the roundtables, CEOs and CIOs discussed tokenization and leveraging blockchain more effectively. “The specific application of tokenization and blockchain rails was about perhaps we're having the wrong conversation. We're debating the merits, the struggles, the poor communication, the need for more education on these 5% liquidity mechanisms. Is that really the best we've got? Aren't there other ways to have a continuous window that are peer-to-peer that are not as maybe psychologically alarmist in their nature? And there's price discovery that can happen a little bit more real time.”
While the geopolitical discussions took up the most time in John’s global roundtables, he noted the most passion was about the changing impact of AI, and the implications for staffing. John stated that “I had an Indian CEO put it this way at the Mumbai round table. He said the era of skills training is over. It's time for systems thinking.”
“So systems thinking, if you've got this kind of collision of public and private, if you've got geopolitics and kind of the balkanization of the world, and you've got AI, which is what your question was, amongst other themes all coming together, then what you need is somebody that can think laterally. That's what a Toronto LP said. We need lateral thinkers that are multidisciplinary, that are flexible, that are nimble in the way that they think.”
John and I discussed the large initial public offerings that are reshaping the investing landscape (SpaceX, OpenAI, and Anthropic), private markets in 401(k) plans, and the convergence of public and private markets. It is both a challenging and exciting time for our industry.
I would encourage everyone to check out the full episode Alternative Allocations Podcast, and please subscribe so you never miss an episode.
WHAT ARE THE RISKS?
All investments involve risks, including possible loss of principal. The value of investments can go down as well as up, and investors may not get back the full amount invested.
Investment strategies involving Private Markets (such as Private Credit, Private Equity and Real Estate) are complex and speculative, entail significant risk and should not be considered a complete investment program. Such investments viewed as illiquid and may require a long-term commitment with no certainty of return. Depending on the product invested in, such investments and strategies may provide for only limited liquidity and are suitable only for persons who can afford to lose the entire amount of their investment. Private investments present certain challenges and involve incremental risks as opposed to investments in public companies, such as dealing with the lack of available information about these companies as well as their general lack of liquidity. There also can be no assurance that companies will list their securities on a securities exchange, as such, the lack of an established, liquid secondary market for some investments may have an adverse effect on the market value of those investments and on an investor's ability to dispose of them at a favorable time or price.
Diversification does not guarantee a profit or protect against a loss. Past performance does not guarantee future results.
Any companies and/or case studies referenced herein are used solely for illustrative purposes; any investment may or may not be currently held by any portfolio advised by Franklin Templeton. The information provided is not a recommendation or individual investment advice for any particular security, strategy, or investment product and is not an indication of the trading intent of any Franklin Templeton managed portfolio.
WF: 12173808
IMPORTANT LEGAL INFORMATION
This material is intended to be of general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy. It does not constitute legal or tax advice. This material may not be reproduced, distributed or published without prior written permission from Franklin Templeton.
The views expressed are those of the investment manager and the comments, opinions and analyses are rendered as at publication date and may change without notice. The underlying assumptions and these views are subject to change based on market and other conditions and may differ from other portfolio managers or of the firm as a whole. The information provided in this material is not intended as a complete analysis of every material fact regarding any country, region or market. There is no assurance that any prediction, projection or forecast on the economy, stock market, bond market or the economic trends of the markets will be realized. The value of investments and the income from them can go down as well as up and you may not get back the full amount that you invested. Past performance is not necessarily indicative nor a guarantee of future performance. All investments involve risks, including possible loss of principal.
Any research and analysis contained in this material has been procured by Franklin Templeton for its own purposes and may be acted upon in that connection and, as such, is provided to you incidentally. Data from third party sources may have been used in the preparation of this material and Franklin Templeton ("FT") has not independently verified, validated or audited such data. Although information has been obtained from sources that Franklin Templeton believes to be reliable, no guarantee can be given as to its accuracy and such information may be incomplete or condensed and may be subject to change at any time without notice. The mention of any individual securities should neither constitute nor be construed as a recommendation to purchase, hold or sell any securities, and the information provided regarding such individual securities (if any) is not a sufficient basis upon which to make an investment decision. FT accepts no liability whatsoever for any loss arising from use of this information and reliance upon the comments, opinions and analyses in the material is at the sole discretion of the user.
Franklin Templeton has environmental, social and governance (ESG) capabilities; however, not all strategies or products for a strategy consider “ESG” as part of their investment process.
Products, services and information may not be available in all jurisdictions and are offered outside the U.S. by other FT affiliates and/or their distributors as local laws and regulation permits. Please consult your own financial professional or Franklin Templeton institutional contact for further information on availability of products and services in your jurisdiction.
Issued in the U.S. by Franklin Templeton, One Franklin Parkway, San Mateo, California 94403-1906, (800) DIAL BEN/342-5236, franklintempleton.com. Investments are not FDIC insured; may lose value; and are not bank guaranteed.
