Franklin Templeton Looks to Wallets, Tokenization for Sustained Growth

The firm, whose fiscal year ends in September, reported record assets under management of $1.79tn, up 11% year over year, driven by $18.4bn long-term inflows and record assets of $294.2bn in alternatives and $75.6bn in exchange-traded funds (ETFs).

Adjusted operating income was at $508.9mn, up 35% from a year earlier. The company posted adjusted diluted earnings of $0.72 per share, beating analysts expectations of $0.67. Digital assets accounted for $3.2bn of the firm's AUM, around 0.2% of the total. Of that, $2.4bn sat in tokenized funds and $600mn in crypto ETFs. 

Wallet-centred focus

The company highlighted its acquisition of 250 Digital, a crypto investment firm, and partnerships with payments firm MoonPay and Payward, the parent of Kraken, to widen access to tokenized assets - which represent ownership of traditional assets as digital tokens on a blockchain.

According to Johnson, the partnerships support the company's digital-asset strategy across distribution, product development and the infrastructure behind Benji - its onchain platform for tokenized funds. "If you just take the top five crypto exchanges, they have a billion wallets out there," she said. "So the partnerships that we've done with MoonPay and Payward... they want to take Benji and integrate it."

The idea, she explained, centers on bringing yield to idle stablecoin balances. "The only way they could do that if they're in the wallet infrastructure is to have a tokenized money market fund," she said. Franklin Templeton also plans to offer traditional investment products through tokenized ETFs, a move that would drive the company further into tokenization. 

Johnson said conversations with distributors out of the crypto ecosystem are showing a demand for additional wallet infrastructure, as clients increasingly ask to hold crypto assets alongside traditional investments. "The traditional players just don't have a lot of that today," she said. 

Johnson described the acquisition of 250 Digital as giving Franklin Templeton a venture-style platform for digital assets. Institutions that wanted crypto exposure but were "not comfortable with a small shop" are now discussing "much more meaningful investments," she said.

Rails and resistance

Johnson framed tokenization as a cost argument, pointing to the firm's journey with the tokenized money market fund. "When the SEC approved five years ago our tokenized money market fund, they required us to parallel process," she said. "We were astonished by how much more cost effective it was."

The ability for tokenization to cut costs leads her to believe that its just a matter of time before it become standard for financial services, she said. "In an industry where there's constantly pressure to reduce costs and products, we think that ultimately financial services will be run on the rails of blockchain. However, it threatens a lot of business models, so that's going to be slower to roll out."

This belief may be driving another area of focus: blockchain infrastructure. Johnson said the company is considering options for commercialization of the infrastructure behind Benji, including both the platform's wallet and its shareholder recordkeeping system. BNY announced a similar initiative on 29 Jul, unveiling a service that allows tokenized investment funds to record ownership on public blockchains.