Franklin Templeton’s Bayston and Kaul on Embracing Blockchains as “Emerging Digital Nation-States”

Franklin Templeton’s Bayston and Kaul on Embracing Blockchains as “Emerging Digital Nation-States”


Welcome to the Future of Finance, where Fortune asks prominent figures at major companies about their jobs, how their firm fits into the crypto ecosystem, and what this means for how we spend money.

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Our latest edition is a special 2-for-1 interview with Franklin Templeton’s Roger Bayston and Sandy Kaul, who joined me on a video call from Consensus in Austin, Texas, in between a few rounds of panel-hopping and swag-schlepping.

Bayston, a 31-year veteran of the firm, now serves as executive vice president and director of quantitative and fintech strategies, while Kaul is a senior vice president focused on advisory and thought leadership.

Franklin Templeton, which manages about $1.4 trillion, last week announced both a money market fund on Polygon and that its chain-based sovereign asset-focused fund had passed $270 million in AUM.

Deets to follow.

(This interview has been edited for length and clarity.)

Let’s start by each of you just telling me—and the readers—a little more about your jobs. Sandy, if you could start?

SK: I have the best job in the world, Justin. I will be thinking about the future of the investment and wealth management industry, and talking to some of the best people involved in the industry, who are thought leaders around the world. And then I really synthesize from that: What are the trends that are reshaping things? And then I’m able to bring those learnings into Franklin Templeton, where I’m helping us shape our strategy for our digital assets unit.

Roger, to say you are a Franklin Templeton veteran would probably be one slight understatement at this point, but what drew you to the digital asset space?

RB: As an industry veteran, as you point out, and a Franklin Templeton veteran as well, I understood that the management business is full of records. So we’re just approaching it as how we might be able to use these new technologies to deliver improved efficiency and services in our existing industries, and also how it might be disruptive – meaning both challenges and opportunities.

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That leads a bit into my next question: What else can you tell me about the chained sovereign wealth fund, and $270 million in AUM? Why was it so important to get it on-chain versus using a more traditional financial instrument?

RB: When we started exploring blockchain technologies in our core business, we identified what could be a proof of concept. We thought working with a mutual fund would be a good – but difficult – challenge because historically mutual funds have had a higher level of transaction speed. Money has been used in the transactional economy through debit cards and check writing for a long time, and we just thought that if we could [solve] that problem, then we could apply our lessons there across the rest of our businesses.

So the plan is to start with the $270 million and go from there?

SK: Yeah, so when you think about the role that money market funds play in the economy, and in the financial ecosystem in particular, there are a number of liquidity use cases that we want to explore. Corporate treasurers use funds to manage the company’s coffers, investment companies use funds to hold excess cash and dry powder. People use money market funds in different parts of the world as collateral for trades. So these are all use cases that we want to explore, and we also want to think about how we make this product for use globally – how do you expand these use cases to other regions in other parts of the world?

RB: Part of that expansion is what we started in 2021. And, you know, working with our great collaborators at Stellar, and using the Stellar public blockchain as part of that background, we see blockchains as kind of… what is the word choice you like to use—

SK: — emerging digital nation-states—

RB: – Yes, it’s about how we can deliver in these new digital nation-states, and what other kind of benefit there is.

OK, so why polygon? You could have chosen a number of ways to go about it, but what was the deciding factor?

SK: So we were deployed on a layer-1, on the Stellar network, and we really wanted to explore these new layer-2s. And we liked that Polygon is EVM compatible, which makes us experience [the programming language] Solidity that gets us into other chains as well. I think we just thought it was a good fit, and the people at Polygon fit right in with our team, and they really hit it off.

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We’re seeing more and more traditional financial institutions exploring this space, so what are some of the things you might be doing to stay one step ahead of your peers – and help be a leader?

RB: I think it’s about just having some sort of cultural R&D activity. Again we started ours [blockchain] travel because we wanted to understand how these new technologies can help us expand our customer service, our customer service and how we can deliver better – we’ve learned that there are efficiency gains borne by the users of our products. And as a result of that, it really unfolded other insights about how public blockchains can be used by other industries. It gave us confidence that this new opportunity – set with digital nation-state tokens – may be able to be packaged into clients’ and clients’ portfolios as they build the best solutions and outcomes going forward across many asset classes.

SK: We really believe that we can bring our professional investment analysis and advice into this new ecosystem, so we’re doing institutional-grade research on the coins we invest in—we’re thinking about the suite of products that will allow us to serve our wealth clients, our institutional customers. We really think of this as another part of what an asset management business needs to be able to deliver in order to build a holistic portfolio for the future.

How much of this R&D is just your desire to invent and build these products, and how much has customers said, “Hey, I’d really like it if you had this“? And how has the feedback been?

SK: This is a dialogue. Many of our clients rely on asset managers to assess the opportunities available to them and help them interpret them, and we have also listened to them and considered where they are in their journeys. Some people still just want a private vehicle, like a venture capital fund, while others a little further down the road want to experiment with something on the chain. The money market fund is a good chance to experiment with something on the chain. We want to meet the customer where they are, and then help them become more educated and comfortable with the space.

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Same last question for each of you: What does the “future of finance” mean to you?

SK: For me, one of the most exciting things about the future is that I think a lot of assets that have never been part of typical investors’ portfolios—like royalty rights to their favorite artists, like being able to participate in the digital revenue of studios that put out great streaming products, who are able to identify with their favorite sports teams and their favorite sporting events – I think all of these possibilities are opened up as a result of tokenization and smart contracts. I truly believe that as we move forward, the investment portfolio that is going to help me finance my life will also become the vehicle that helps me enjoy my life. And that creates a completely new dynamic around how important and central that portfolio is to my daily experience.

RB: Oh my god, how am I supposed to follow that?

That our a great answer.

RB: [laughs] All I can really say is, if there is one constant in life, it is change. And as Sandy points out, we are expanding the opportunities to improve results for customers. We are singularly focused on customers and putting customers first – and so we only explore things for their future.

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