$1.7T Asset Manager CIO: Tokenization is The Next Major Boom (Here's Why...)

Transcript

All righty, guys. Welcome back to the tokenization tower. We're with Max here of Franklin Templeton Investment Solutions, the deputy CIO. Max, good to have you, man. >> Thanks for having me here. >> Welcome to the Empire State Building. >> Welcome to the nest. >> Nice. >> I heard you had a good interview this morning at the NYC. >> That's right. Yep. Kind of, you know, going from the annals of Trafi straight to the hallowed nest of DeFi. So, you are the deputy chief investment officer of one of the largest uh asset managers in the space. You've been doing this for 22 years, I think I saw on your LinkedIn.

>> That's right. >> Big LinkedIn guy, huh? >> Yep. Yep. >> Nice. Well, um wanted to kind of bring you here to speak about this convergence really between what we're seeing in the digital asset space and with traditional finance. just kind of how you're thinking about this and what this looks like from your from your uh firm's perspective as well as yours on the personal side. Before we get into that, um any disclosures, disclaimers, anything that you would like to say about your role or just Yeah, >> sure. Just general disclosures. You know, don't take anything I say as anything other than my personal opinion and it's not an investment recommendation.

Um exercise caution when investing in things that trade at a high volatility >> like Bitcoin. All right. So, uh, one of the talks of the town here in the digital asset space has been this rise of of 247 trading, right? This kind of war, this oil spike, these things that were happening on the weekend drew a lot of attention to a little exchange called Hyperlid. The Wall Street Journal covered it. A lot of these kind of uh institutional focused mainstream news cover this concept of like oil futures are now being traded on this little exchange called Hyperlquid. Um what is your take on the rise of 247 tokenized commodities trading equities trading?

How do you kind of see this playing out? What's your thoughts here just high level and then we can kind of get into some of the nuance? >> Sure. Yeah. Let's so so high level um you know we used to have this phrase coined here in New York City that money never sleep sleeps and that wasn't actually true. Money took naps and it slept on the weekends and it doesn't anymore. Right. That's actually the real 247 market. Why did we start the war >> on a Saturday? >> Markets were closed. >> Yeah. >> Right. Like that's the reality, right? like uh it's not a coincidence when when this operation kick kicked off um you know you couldn't launch Epic Fury when uh oil futures were were actually trading in the pits and speaking of that we don't really have pit trading anymore

so like like you mentioned I've been around this industry for a while I've gone from seeing like real like actual traders on save and in Chicago moving markets to all of that being electronic this is just the next evolution of that and it makes perfect sense because things happen 24/7 seven. So, as an investor in Trafy assets now, like commodities, like equities, like fixed income, what do I do when something like Epic Fury kicks off? I look at the DeFi space. I look at futures on Hyperlquid. I look at what's going on with the crypto market. I look at other tokenized v uh venues and I look at prediction markets like Kali and Poly to see what the actual sentiment is. Now, what I

think is going to start happening is you're going to see more and more firms move in to that 24/7 market and offer their products there because otherwise they're just missing out on on that additional opportunity for capital. >> Yeah. Yeah. And I mean there's been some resistance and push back from firms due to the infrastructural changes required to kind of shift into a 247 world. you know, whether it be on the market making side, on the kind of um reserve management side, or just kind of a combination of all these factors. What do you anticipate to be the logical transition to get the NYC, the NASDAQ, and and the large exchanges of the world trading 24/7? Obviously, um in the

metals market and in oil, and in some commodities, it's it's closer to like 245 with a little hour break there. Um, what do you anticipate to be that progression? >> So, hopefully this doesn't get my NYC uh admission pulled, but it's a bit of a blockbuster Netflix moment, right? Like, we actually don't need the NYC to do this. This is going to happen regardless. They should be moving to offering tokenized equities. The market is going to go 24/7. The providers of liquidity for that are going to be winners. And it's really going to be up to how we can orchestrate successful multi-enue execution. We've been doing a lot of work at Franklin with things like our Benji platform that can offer cross uh blockchain uh transfers and I think

that's going to be really important like I should be able to trade what I want what when I want how I want full stop the technology for that exists it is not dependent on really a massive entity with physical space anymore right so I think once we've established that it's just a question of who is who's going be the dominant player providing liquidity and and matching buyers and sellers for that. And I think the answer is there's going to be more than one. The technology exists with blockchain and even people who are never going to trade crypto as specific specifically an asset class will still be using blockchain technology to trade whatever it is that they're trading. Now, we need we have one bit here that does need to adjust

and that's regulation. But we've seen just from what happened in March with the SEC CFTC uh joint statement, we're seeing more and more moves towards a more sensible way to govern crypto and onchain transactions. Once that's really established, institutional adoption comes in and then it just becomes a default, right? Like we all like as much as I like taking some time off, the reality is you can't anymore anyways. I'd rather be able to trade things as they happen. Yeah. So, do you think that there's going to be regulatory um issues with some of these per uh exchanges on chain? Right.

>> I I I I think I think there will be I I think there's going to be a lot of questions and and again, there are multiple ways uh if you're an exchange to address that. You can either work with the regulators, you can kind of figure out how to get around the regulators uh in a different jurisdiction or you can sit on your hands. And I think the ones who are going to do the best are the exchanges that really take a regulatory first mentality. Even if they don't agree with the regulations, they follow them. They work with the largest regulatory bodies around the world. That's another key part of it. It's not just the SEC and the CFTC, which you need to get on board. You have to work with other broader regulatory bodies in in Europe and in Asia, but those who take the

effort, time, and money to do that are likely going to be the winners. >> Yeah. So, you have an a lot of experience in kind of like multi-asset, multi-enue alpha generating strategies, right? Like that's been your bread and butter for 20 years. You're sitting here in a lovely pink shirt, great suit. Like this is your this is your expertise. I'm curious if you're seeing a opportunity to generate yield and alpha from like off-chain venue pricing and onchain venue pricing for assets like a tokenized oil or tokenized gold or a tokenized um equity and kind of how you anticipate those strategies to really come to fruition. In crypto

specifically, we had a a kind of a a basis trade for the last two three years in the bull, right? You could generate yield on like effectively a stable coin or a delta neutral strategy by uh doing interesting hedging on per which is obviously a novel instrument in crypto. How do you anticipate kind of this alpha generating strategies with off-chain venues and onchain venues as it pertains to more kind of like trifi assets? >> Sure. It's a great question. Uh so before I came to Franklin, I ran uh a much smaller digital asset uh hedge fund and this was back like preft days. there was a lot of cross exchange arbitrage you could do and honestly like it was easy money like I mean I you know it's

always like fun to say that after the fact but it it was like you if if you were set up a as as a private vehicle that could trade across any number of exchanges you really could ARB um I mean not even just like Trafi assets on and offchain but just like crypto native crypto assets >> and then more bigger players came in and that went away and now we're seeing this with PERPS and it's going to be the same thing. We saw this happen with high frequency trading uh back in the day where once they came in, we saw those mini mispricings go away.

It's actually a good thing. It generates a more efficient market. We want a more efficient market for digital assets. At least when I say we, I mean us like Frank firms like Franklin that want to be able to offer digital asset products to the largest institutions because we want them to know that the market is deep, it's liquid, you're not going to have some mispricing or some major risk event because of the underlying mechanics. Like that's why people get scared. So I think yes, there's still some ARB there. That ARB is going to go away. Like, and by the way, look, for anyone watching this who's thinking about launching a strategy, my my view is always if you see alpha, you should take advantage of it because all alpha decays over time. That's true of every asset class I've ever traded. That's why as an investor, we're always looking at

new ways of generating it. But if there's an ARB, take it because it's not going to be there for very long. >> Yeah. And is it just as simple as the pricing the arbitrage opportunity on pricing from an asset onchain or on a uh on a crypto venue versus a tready venue? Is that just as simple as it is? It it it can be that simple and sometimes it's you know different venues different crypto venues can actually have different pricing and it's really just a question of how quickly can you create a a delta neutral position so that you're not taking on undue risk or you know in some more complex you are taking on some amount of risk and if you know and again like this is where again I'd stress this is not investment advice in any way shape or form but there are strategies

that purposely take on some amount of of of risk knowing that In grand total, these small positions add up to, you know, picking up the proverbial pennies in front of a steamroller and, you know, you're picking them up quick enough with more advanced uh systematic methods, but >> that steamroller is going to start moving a lot faster. And again, like that's where that alpha decays and the market becomes a lot more liquid. >> Yeah. And last thing on this front is is the transition to 247 something that a lot of the you know uh all the market makers in digital assets have been used to for you know 5 10 years is that a source of kind of of alpha still given that the let's say the traditional uh

firms aren't used to having to manage these markets 247 in that same way or is that just not the right way to think about it? I I mean I think it's decaying rapidly. So I really wouldn't focus >> Citadel's in like these large firms are >> exactly. Yeah. Citadel is Kahana. I mean they're you know they're they're in there and whatever is left it's going to be gone very very soon to the extent that there even is anything in there. I mean I can tell you it's not something you know I'm actively looking at. >> Yeah. Okay. Um you guys just announced a partnership. I actually had your colleague Sandy call on the show. Uh she's great. She's a ton of fun. And we talked about this idea of tokenizing Franklin Templeton's ETF products bringing them onchain viao get a lot of distribution via their onchain kind of

uh set of customers users wallets there's you know probably about like 10 million active wallets like actually active on chain and one discrepancy that I'm trying to wrap my head around is a lot of us who have been DeFi native and have done our portfolio management onchain for five eight years, we've been very used to all like honestly operating like it's a minefield. It's smart contract risk. It's it's high velocity, low market cap tokens. It's aggressive leverage. It's borrowing on chain. It's collateralizing assets. It's holding things in self-custody. It's a whole it's a whole operation, right? And the products that a firm like Franklin Templeton offers are much more risk

adjusted, risk averse products. So, I'm just curious in this kind of like tokenization thesis, who do firms like Franklin Templeton actually anticipate the user or the buyer of something like a tokenized treasury or a gold ETF or a commodity ETF? Like do you anticipate that the same users used to high you know tripledigit APY aggressive short-term instant liquidity protocols are going to be the same buyers of a 4% tokenized you know treasury account.

>> So I I think this is where you're going to see actually this become a bit of a two-way on-ramp. Um, so on the one hand, it's going to be the traditional buyers of those ETFs who actually want to trade them 24/7 and they use this as their on-ramp onto the broader DeFi space. And then once they're trading these ETFs, we're like, "Okay, what else can I trade in here?" And they see some of the more uh DeFi native products. You know, something that we'll be looking at is products for that space specifically um in addition to tokenizing our existing funds. But then you also got the other side of it which is yeah like the people who are used to the massive returns but also the massive volatility of those DeFi products actually saying you know

maybe there's something to this diversification idea and I do need some amount of assets that are trappy but I don't want to move to a trady rail to to own that and that's another part of this where I think we're going to see a future state where it's really is about proper risk adjusted returns. And by the way, leverage is something that works, you know, for for any number of products. And so you could, of course, again, not investment advice, but you could leverage an ETF. So even a treasury can be quite uh palatable to a more cryptonative client if it's levered enough. But the broader more much more important point is there's going to be a realization and I think it's actually up

to folks like like myself who straddle the two worlds to explain to both sides on the one hand why the cryptonative people need to own some trady assets whether it's commodities stocks or even trady currencies and then explain to the more traditional investment crowd why they may want move on chain both to trade existing instruments that have been tokenized. So, you know, the whole RWA market and then also some products that are done in a riskmanaged way for them that are DeFi native. I I think that's going to be the great coming together and like we're going to get to this point where we

don't think of Trafi and DeFi. It's just going to be FI like that's like the future is going to be a single >> financial market that I believe is going to be predominantly onchain and 247. Yeah. Yeah. So, it's a it's a two-way thing here, right? It's not just, you know, looking for distribution in these existing users. It's actually bringing some of those other, you know, traditional investors onchain who want to have access 24/7 and then giving other optionality to the onchain existing set of users. >> Exactly.

>> Yeah. Yeah. And you know, you know what? Like people say that this may not get traction or it may not get picked up, but the reality is people who are on chain, they just want to stay on chain. Like the process of of pulling money from the uh onchain world and the crypto world into your bank has been a lot easier as of the last couple years, but for a while it was still it was it it was a bit of a nuisance. And that whole process is to to people who've lived and die on chain, they just want to keep their assets on chain. And then like a time for like the last six months or so, if you could just get access to safer yield generating products in kind of a crypto coldfront, I think there would probably be a lot of appeal there.

>> No, there is. And I feel like that's part of our our view. Like look, we're one of the largest asset managers in the world with over $1.7 trillion under management. We want to be bigger and we think the way we get bigger, one of the ways is going after folks who are onchain natives. We want to offer our products to them. We believe there's value in our products. Some of them are going to need to be modified and more than just putting them purely on chain, but we we feel like that is a market that's deserving of being served by an institutional grade asset manager.

>> Yeah. Yeah. So I'm curious from the firm's kind of view on how the state of blockchains is going to kind of evolve, right? So I think the NYC is getting ready to at least have a blockchain based platform is what they're calling it. Perhaps like an ATS um or you know like a layer one or a set of nodes, right? That is the NYSC's. How do you anticipate the kind of evolution of blockchains as trading venues with the public set versus these more kind of institutional perhaps more uh permissioned set and even Canton is like stirring up the pot right now as a kind of first interpretation of what this

looks like. How is this going to play out from your view and what do you see like the specific use cases for these different types of um execution environments? >> Sure. No, I mean I think the short answer here is we don't know yet and we're going to be figuring it out. And look, that's been the thing that probably scares most people once they get past the initial like, okay, I'm going to be in crypto, they don't realize how complex it is. And it's almost like, you know, when I see people who've gone from a Trafy world and they kind of get over like, I'm not investing in memecoins like yet, but there's a lot more than Dogecoin to crypto. Um, then they go like, holy crap, it's actually incredibly sophisticated and complex.

There's a reason why a lot of people leading these projects had very extensive stratfi derivatives background, right? So, we're figuring it out. I think there are going to be private change which are required for by regulators. We need to figure out how to do KYC with institutional clients and other clients. And then we need public change for broader faster transactions. So, there's probably not going to be a single solution. What we're going to need is a way to move between change in a way that is as frictionless as possible. I think that's where this is heading, but again, really hard to have an opinion when we're this early. The smart thing to do and what we're trying

to do is partner with who we see as leaders and being really nimble. >> So, no plans for a Franklin Templeton blockchain then? >> Um, not to my knowledge. >> Got it. Got it. because it it it just kind of begs you know begs the point of we had a lot of these institutional kind of PC's happen over the last five years kind of get you know getting their toes in but now it's like very firmly in and I actually had uh your colleague Sandy on she was telling me that the 6040 portfolio is done that this is not the right way to think about how to invest now had Jeff Park the former CIO of Procap kind of say the same thing and so it seems like the tides are turning to a

different way of thinking about fundamentally structuring a portfolio in >> absolutely I mean first of all 6040's been you know bread and butter for asset allocators for a really long time but it hasn't really it the it only has one thing going for it it's very simple >> right and it's sort of if we take a mass average of investors it kind of is like that midpoint of of risk where it's predominantly equity risk but you got a bit of diversification from fixed income the reality is most investors have never thought like that and we even without getting into any of the digital asset considerations we've moved into things like goals optimized investing where we

actually you know for retail investors look at what their goals are which could be you know I want to send my kids to school I want to buy a better house I'd love to buy a sports car okay well those are all different goals maybe sending your kids to school is a high priority goal you know, house that'd be really nice. And, you know, a sports car is is a desire. For me personally, it might be reversed, but, you know, that's kind of the point. And so then we build a portfolio that kind of matches those goals to different assets that have the appropriate risk and return stream. So, that really that's the real concept, right? It's about the denominator, which is risk, and the

numerator, which is return. And then diversification comes in in terms of how those return and risk streams of each underlying assets are correlated. So if we can construct a portfolio that actually matches that appropriately to an investor's goals, that's the solution. And that actually works for an institutional player like the largest pensions that have liabilities they need to offset against assets that are going to produce income or for a retail investor who's just trying to to get by. the same underlying concept is the same. What technology allows us to do is bring that fire like Prometheus down to the retail investor. And then what blockchain allows us to do is to make it into

something that's much more portable, much easier to deploy. And then we add in the additional benefit of digital assets into it and that just becomes another tool in our toolbox the same way as commodities, as equities, as fixed income to build the right portfolio. >> Yeah. And is the is the digital assets allocation still around that one to 2%. >> I so I I actually think that that's absolutely the wrong way to think about it. The right digital asset allocation is not some fixed number because you know for you know like a Gen like me maybe it's 10%. because I'm comfortable with the amount of risk and I've got other liquid investments that are much lower risk and you know I'm comfortable

with having the liquid portion of my portfolio move generate around a lot more you know for my my mother it may be 0% because she wants just super steady income but you know could I put her into a stable coin that generates yield probably yeah and she would be very happy with that so I think the bottom line is what is the goal from the goal you derive a benchmark which is your bogey as an as an investor that is my what I'm trying to exceed performance of that benchmark and that benchmark is going to vary dramatically from investor to investor and that benchmark is going to have risk and it's going to have

return expectation and the general rule is I don't want to have any single asset class take more than a fif of risk so if I'm thinking about digital assets more broadly, it's how much digital asset represents about a fif of risk. For a portfolio that's all equities, it could be, you know, 6 7%. For a portfolio that's mostly fixed income, it may be 1% or less. But the point is we got to think beyond that traditional 6040 anchored mindset. >> Yeah. Okay. Then kind of zooming in into the uh space itself of the digital assets, you've got kind of this common frame of thought, Bitcoin being like this digital gold, Ethereum's earned its place as this kind of like uh technology

layer. Um and then you've got all the rest. At least that's kind of how I am thinking about it from the institutional allocator perspective. And there's a ongoing trend right now and it's been going on for a while. I actually called it something silly, the revenue, the revenue meta, which is like we are now in a period where revenue matters in terms of DeFi protocols. And I think I called this out about a year and a half ago, and we were still in this very like narrative driven uh crypto landscape, but it's very very very drastically changed now. And so there's a cohort of leading DeFi protocols that are actually generating significant amount of

revenue, allocating that back to their token in a form of a programmable buyback or some sort of share of that revenue. Obviously, I think the market structure bill and clarity will help to really kind of put this into stone and and so like the the pendulum of investing in the space inside the space has shifted far from like the network effect L1 L2 kind of blockchain trade to like who's making money or who is like very very hard like you know hard store of value. And so there's this cohort that I mentioned and and I'm just curious like within the space, what are you anticipating as far as dispersion of outperformance going forward?

>> Sure. I I think that's one of the things that is really important about this space because yeah, like whenever I talk to, you know, like if I'm on a Trafy show, if I'm on CNBC or Bloomberg and we're talking about crypto in the context of assets, it's almost always just Bitcoin. Um, and maybe Ethereum like you said, but it's not a monolith. And I think we need to look at other tokens. We need to look at utility tokens, at um tokens that are actually backed by RWAS. we need to look at um gaming and defy tokens and they all are actually kind of like different sectors in the stock market right so no one would bring me on to talk about stocks and say okay

>> what's your opinion on equities and really mean just what's your opinion on the max 7 right they would generally want to know about my views on utilities industrials and um you know healthcare etc so it's kind of the same thing like just because the Mac 7 is so dominant. It's not the entirety of the equity market. Just because Bitcoin and Ethereum are so dominant, they're not the entirety of the digital asset market. So, I think as we see more institutions come in and as we see more active players come in, >> that's just what you just described is just one way to value those other tokens. Yeah, >> we've been developing other ways and it they kind of depend based on what the

token is. So, if we're looking at a DeFi token, it's what the volume of transactions. If we're looking at a gaming token, what are the players that are seeing, you know, like those rewards actually getting sold in a secondary market on chain, right? Like if we're looking at a technology platform, who is making commits on GitHub that are that are backed by it? Are they the people making those commits like respectable in the space? Like we're building these valuation methods that are differentiated but ultimately not too different from how we would look at evaluating any business to determine if it has intrinsic value or not. And then if our view of intrinsic value is different from what the market is pricing then that makes it you know a good long or short position.

>> Yeah. Okay. So then you guys are developing then a view specifically for the sectors of the market. >> Correct. And are you guys uh like like overemphasizing or emphasizing strongly on purely just revenue? >> So I wouldn't say purely just revenue but it is a big component. I mean I think you you do need to look at the I would say really especially where we are right now what's the second derivative of revenue like like is the re and by the way same thing if if I look at most tech firms right like >> are we seeing an acceleration in revenue how is that acceleration map out is there like a terminal value where we expect some kind of steady state is it more cyclical where we expect like hurdles where like you know really

strong revenue growth you know whatever percentage terms triple digits until we get to like a leg down, I'll never down and at a steady state. Those are all really important things to consider. But yes, revenue matters, DAUs matter. All of those things together basically build your valuation uh framework. >> Yeah. And you are still excited about gaming in in in crypto. That is >> I I I I I still am. I mean, maybe it's >> that is a hot take, >> you know. Yeah. I mean, I know. And it's been like like a lot of people kind of make fun of the central, right? And I think like, okay, fine. mana that wasn't everything that it it said it would be.

But I think what excites me about that is this kind of concept of how I see the evolution of money as a concept for Gen Z and Gen Alpha, which is it's really like we've gone from like you know people like well older than me um you know would say like you know I have one job maybe two jobs and then like you know millennials we're like you know we we work at a gig for five to seven years but we're flexible and then you kind of have the gig economy that also came about with the younger millennials. I think the newest generation, they're not really looking at things that way.

They're looking at money as something that they receive through any number of things. So, if they're making money gaming, that's that's just part of the way they they make money. if they're getting income, which for older generations, like you know, Gen X boomers would be something you think about just kind of in retirement, like how do I now that I have this nest egg, um, you know, how do I generate enough revenue till I die and leave something to my heirs to now like, no, income is just something I might be getting an airdrop of income from this cultural asset that I own or maybe I owned share of royalties from an artist that I like and also I got airdrops to go see them at a show. So it's like both a utility that's not pecuniary and a utility that is uh money and then yeah

like you have a job that pays you and gives you health insurance etc. But there's a much more fluid approach >> to how you make a quote unquote living. And I think that really syncs up very nicely with a smart contract based world. Like why can't my employment contract be a be actually a smart contract that also has, you know, a smart contract for my health insurance, for my life insurance that adapts as my habits change.

>> Yeah. You know, those are all things that could be done on chain much more efficiently, make it much more portable. And from an asset management perspective, that gets me excited because that's like a whole new way of actually helping people maximize their utility in the world and maximize what they can generate to live the kind of life that they want. So, that's why I'm still excited about gaming tokens. >> Yeah. Um, do you So, Jamie Diamond um came out with something a couple days ago saying that tokenization is going to uh do kind of a lot in the way of disrupting banks and kind of what banks do and we're kind of living in this agentic world where intelligence is

rapidly accelerating. I know you're excited about this and have, you know, have done some investments here and thought about this. Are are you at all worried about AI coming coming for asset managers? >> Um I'm not because I'm building AI if it's going to come for asset managers. That's what Jamie was saying is like banks need to go build tokenized products and blockchains before they are basically, you know, >> Absolutely. And and that's the number benefit of not being a bank, right? Like I mean, yeah, like if if you're thinking about like I started my career as an investment banker, okay, um before I started a a hedge fund and like yeah, all of the work that I did as an investment banking analyst can be done by an offtheshelf model very quickly. So that means that there's not so much of a

need to pay those big banking fees. Then there's a question of like, well, do I really need to do an IPO where I need this whole road show and you know all the bells and whistles or can I just do an ICO? >> Yeah, >> it's another question, right? >> Is it simplify like the whole concept of adding liquidity to private shares? What are private versus public shares? Well, in a tokenized world, that can become much more fluid. So, it's much more easier for me to attract my employ, you know, new employees if they know that they're not tied in to sitting on this paper wealth. >> Yeah.

>> Right. And they can go and like buy that house, that sports car, you know, send their kids to college, whatever. Right. Like that changes things quite a bit. And and that actually really isn't great for banks if they still maintain that, you know, white shoe mentality of we are important because we are an institution in and of itself. And that's that that is why you need us. That is how dinosaurs die. >> Yeah. >> By not looking up and seeing what's what's coming. >> And I think that kind of goes handinhand with the change of way people are thinking about work that you were just talking about as well. It it's all this kind of like progressive evolution. And so then if you're not too kind of worried about the agentic side replacing

asset managers, what are you doing to kind of push that forward on your side? H how does that actually look? >> Sure. I mean, I'll give you one concrete example just to put some meat on it. Um, so we we built >> a aentic analyst and the reason I wanted to build an agentic analyst is because I saw in my investment committee anal like my human analysts weren't disagreeing enough with each other. And I was like, you know, I'm worried about consensus. That's like the worst thing in any investment group is if everyone's sort of like nodding their head. >> Yeah. Yeah. So, I specifically built this agent with with my AI team that is really sassy. He's got an attitude. Um, he calls people out on their BS. He can fact check everything um near real time.

He's got access to everything we've ever said in any of our research meetings. We're working on getting uh this agent data from sellside research, from independent research. Um, and so it's able to synthesize all that and actually move the discussion in ways that are much more productive. So now you've got this human agent hybrid investment committee and it's so much more powerful. >> And if I want to research something real time, I I can just tell my agent like, "Hey, go research this and and then play it back to us." >> Yeah, >> that is how we're adapting and evolving in this world. And I think what you're going to see going forward is more and more agents in the org chart like that.

That is going to fundamentally change the game for investment managers who are at that level and it's just going to leave other folks behind because I'm getting so much more data at my fingertips. I'm not doing too much secondary or desk research work. I'm doing primary research and I'm synthesizing information and where I can offload that work to an agent. I'm doing that and it's giving me answers back much faster. >> Yeah. And are your analysts worried about your agent obsession? >> They're they're they're not because uh one thing I I did is I made sure the entire investment team is upskilled in uh first of all just basic concept of coding. They're now getting um

comfortable writing uh augmented code themselves, building tools and their own agents that can do more work for them. So it's what so actually what gets them excited now is they're not doing the what we call the no joy work. They're doing the really interesting work. And so it's kind of like you create value from your intrinsic humanity and your creativity and and not from being able to stay up, you know, super late compiling a report on what was said at the IMF conference. >> Yeah. Yeah. And so do you think clients would um want to interact more with Agentic Systems in like a clientf facing manner? Um how do you anticipate that

that kind of like relationship part of financial asset management evolving with AI as well? >> So prior to um Franklin a couple steps before that I was an allocator for about seven years. So I actually invested in firms like Franklin um like JP Morgan and and and others. And but traditionally when I wanted something I would have to call my sales rep, >> explain what I want. They would try their best to understand it, call up a client portfolio manager who would then call the portfolio manager and then eventually this game of telephone would get back to me and I would be like that's not quite what I wanted. Try again, you know. Um and so that is not efficient for me. Yeah,

>> what is much more efficient is if I ask a question and get an answer back. So actually one of the things that I I worked on first when I came to Franklin was building a client-f facing system that could answer those questions. >> Um where if one of our institutional clients has a question about say how did you build this capital market expectation which is our 10-year risk and return forecast. Um or how would you look at this manager? it can actually give an answer. And the clients I've talked to so far are really excited about that because it gives them on demand answers that are just as good as if they went through about an entire process. But now if they have a question in the middle of tonight or I don't know, we just bombed another country, >> they can get that answer.

>> Yeah. >> Immediately. So I think clients, especially institutional clients, are going to be really excited about that. >> Yeah. Yeah. Um, on that note, how long do you think it's going to take until we have um advisors pitching their clients on ETF products for crypto assets outside of just kind of like Bitcoin, ETH? Like what's that look like? Because from what I understand, right, like you get this relationship over time, right, with an advisor, you trust them. They slowly start to introduce different ideas to you um based on your risk as you were mentioning. And the whole process of like doing that, getting them educated enough to be able to make a

pitch to their client and then doing the process is is quite a process. Where are we at if you were to say in like the broad spectrum of that process for for crypto assets? >> It really depends on the advisory group is is the short answer. Maybe not like the most, you know, clear answer. And what I've seen is there's advisers who have predominantly um less crypto interested demographics that are they're investors and they feel like they don't need to learn anything about crypto. Of course, what is also happening is >> and look, not to make a blanket statement, but a lot of those demographics are older.

>> As they pass on and pass their wealth to the younger demographics, those demographics care about digital assets by and large. We've just again just seen that in the numbers. um that Gen Z, millennials, even Gen X are much more comfortable with digital assets, uh hold at least some amount of digital assets. So, they're going to ask those questions. It's we saw the same thing, by the way, with sustainability. >> Yeah. >> Um and other concepts. So, those advisers are going to have to learn and I'm seeing now a lot more questions from our advisory channels of, hey, tell us how to invest in digital assets. How do you integrate this with a traditional portfolio? So they're that's where something like the digital asset ETFs

like even the single token ETFs like what we launched or uh multi-token ETFs they're a really easy on-ramp because you don't have to go on chain you don't need to set up a wallet you can just buy it in your brokerage account so an adviser can easily access it but at least it gets them thinking about that and then it move starts moving more towards that you know adviser really as I would say a life coach where they're helping clients think about money from all parts of their life. And that is where I believe we're going to be as that wealth transfer really continues and we get to a predominantly millennial and younger held wealth base. And then it's going to be similar to institutions

and and banks and asset managers. You're either going to understand the space and maintain and increase your client base or you're going to lose it. >> Yeah. Max, kind of a more kind of a personal portfolio thing here. Are you bullish on pers as a category? Are you bullish on hyperlquid? So, Hyperliquid, I think, has some some challenges and and I, you know, I think what happened in October of last year really demonstrated a concept that I've seen a lot in uh platform shops like Citadel um and uh and Millennium where when risk goes above a certain point, you just take an executioner's axe to portfolios, right? And so that kind of blunt

deleveraging is what caused a lot of the dislocation. We saw the collapsing of the debt premiums and things like that. So it's hard for me to get super bullish on that just yet. Personally, I think we need a better risk management framework. I think in general, you never want to have a situation where you could see your positions indiscriminately cut. Like I would never personally be a PM on a platform like that. And I think investors who are playing in that, you know, find out that the the name has a dark irony to it where all of a sudden things were not that liquid >> and positions were in fact liquidated at a hyper speed pace. So that that makes

it harder for me to get bullish on that. >> Yet, you know, it was worse on centralized exchanges actually. >> It's true. It's true. And I think that's the other part of it, right? Like you really have to know how to trade your uh w within your your riskbands. But I think that is something that, you know, we've seen it often enough in Tradfi and I think the DeFi world is kind of getting up to speed on it. But we need to make sure we set up >> exchanges that have deep enough liquidity that they can manage the risk of these much more volatile products, right? And so then anything that has a harder to capture, harder to analyze return stream like a per becomes a more difficult security to manage within your own book. And then if I'm looking at an

exchange level like at the exchange book, right? And I I think that's where if we minimize those kind of mass deleveraging events, >> we maximize broader adoption. >> Yeah. So there's a tokenization company securitized getting ready to go public sometime with a spa. Uh I'm curious if you have any any views on the tokenization market and just generally how you guys are thinking about that kind of sector of of the market. >> So broad broadly tokenization we're we're you know really bullish on. I think in terms of RWAs um we've got a lot of private funds with within Franklin that you know I personally would love to see get a tokenized share class on. I think in

general it's a way once regulation catches up with the technology, a way to get different investors access to private assets, access to assets that don't current currently exist like cultural assets like fine art or collectibles. Um, and what we also will need is to my earlier point, liquidity, right? Like something gets tokenized, that's great. Is it inherently liquid? Like if I'm a a big pension and I now have some share of my private equity exposure tokenized, well, it means I can trade it 24/7, but only if someone's willing to take the other side. So, I think we're going to need also market makers for tokenized assets to come up.

And that's going to be a fundamentally different type of market making than either your traditional equity market making or even your traditional digital asset market making. So that's that's another area that we're really looking into and trying to figure out how to best serve our clients with that. >> I did see a um so in the recent IPOs I've seen some tokenized versions launch on chain uh instantly on the same day on like X stocks on Salana and a couple others. So I think that's an interesting vehicle. I agree on the on the liquidity front on chain for these assets you need market makers. You probably need an order book. I don't know like the AMM model is going to be tested hard.

There's this new kind of concept of prop AMMs that that will um I think be interesting. I think another area where the market's going to need liquidity is for these big IPOs coming up. You've got SpaceX, OpenAI, and Enthropic amidst a macro war time and a bit of a liquidity crunch. How do you anticipate the market reacts to these $3 trillion IPOs this year? Do you think the market can handle that? >> I think the market can if the bankers do their jobs, right, which I think on this one they they will. So this is actually a good example of where the traditional banking model does have some benefits, right? In a traditional IPO model,

right? I I think if you were looking at doing something like this onchain right now, like purely onchain, it wouldn't work at that size. >> Yeah. I think three four years from now that may be very different. So it's a great example because yeah these are massive mass these are going to be you know probably the largest IPOs ever and happening very quickly in succession and there is demand for it. So finding that demand clar you know corraling that demand ensuring that it's you know listed on at the right time with the right buyers ready providing that additional liquidity as banks do for their trading desks. Those are all

things that need to happen for those to be successful. >> Could you do that technologically fully on chain? Yes. But you need the bigger players to already be there. That's that's kind of where we're at. I I feel like we're at this we're like right at the catalyst point but not quite there. >> So you think the market's going to be able to handle it just generally like the traditional market will be able to handle? >> I think it's I I think that their book runners are going to do everything they can to make sure that the market can handle it because flopping an IPO of that size is not something you are going to come back from. I mean these are to your point some of the most talked about names. There's been so much discussion

about when are they going public? How can you know everyone from the biggest institutions to retail investors get you know their hand on any of these companies? So yeah, I mean the bankers are going to be earning their fees on this one. >> Yeah, Max Gman, the deputy chief investment officer at Franklin Temple Investment Solutions. Thank you for spending some time with us here at the nest.