Franklin Resources, Inc. (BEN) Earnings Call Transcript & Summary

The Milken Institute is completely committed to fostering deep and meaningful conversations, connecting leaders any way we can and to move forward with our time. So we hope that this is going to pave the way for events, not only for the Milken Institute, but from other organizations as well for 2021. Before I introduce our moderator, I would like to thank our sponsors for their support of the 2020 Milken Asia Summit. We appreciate them sticking with us through a rough year of uncertainties, and I'd like to thank them for their willingness to adapt to a new world. [Presentation]

Thank you so much again for joining us. And now, Haslinda, please come to stage.

Good morning. It's pretty surreal to be on stage. It's my first time on stage in 10 months, and I feel really nervous because I haven't done this in a long time. But I'm glad to see that we're inching closer to normality. Now speaking of surreal, here comes Mike via a hologram. Mike, hello from the Lion City. We're missing you here in Singapore.

Well, I'm so disappointed. I can't see you the first time in person when you've been on stage.

Mike, it's 50 years ago that Dennis Gabor won the Nobel Prize for his invention of the hologram. Now 50 years on, it took this pandemic for us to revisit this technology. And I think this is where we should start our conversation. If this pandemic had happened just 5 years ago, even like 10 years ago, the world wouldn't have been able to respond in such a successful way because it was the progress that we made over the last few years in technology that's allowed us to respond this way. I mean what's your take 10 months on? What have been your key observations?

I think, Haslinda, what you're addressing is what is working. So let's start with vaccines. The technology of the vaccines approved in the U.K. and going to be approved this week in the United States from Pfizer, that technology, RNA technology, did not exist at the start of the century. The sequencing of the genome had not existed at the start of the century. And so in many ways, what we've been able to do with the antiviral, antibodies over the last 10 months, where we've taken what would have been 8 to 10 years and made it 8 months has -- due to technology. Let's start with communication. Computer is 1 million times faster. Data storage costs $1 billion. What has it done for the world? It's allowed us to have telemedicine, 100 to 1,000-fold increase in people visiting, talking, getting care online. Education. Parts of the world where education was shut down showed they've been going to school online. Media, entertainment, finance, et cetera. And so I think as you pointed out here, we have coped this year primarily because of the development of the technology that was laid in place over the past 20 years. Now this disaster, this pandemic that's taken millions of lives and destroyed families and businesses has been mitigated by technology today, and we've accelerated this technology. And so yes, technology is bringing me to you today, and I assume someday, students and classrooms around the world, if they want to talk to someone, if they want to talk to the person that's headed, the effort in warp speed, the Operation Warp Speed that I interviewed today in the United States, they can be in there in the classroom and ask some questions. So yes, technology has promised us a number of things, including something we were all so concerned about, and that was food security. Could we distribute food to the world? And so tracking it -- and if you look at what Pfizer has done, they've created what we might call a suitcase packaging that allows you to keep the temperature well below 0, monitor the temperature, track that package as it goes from Point A to Point B.

What's allowed us to be here today as well is the fact that it's been all hands on deck. I mean the world had to come together to look for this vaccine. What have we learned in the '70s, '80s, '90s that's allowed us -- that's helped us come to this stage?

Well, I think the commitment to invest in life sciences. You've heard me tell you it more times, I think, than you want to hear it again. But more than 50% of all economic growth in the last 2 centuries has come from public health improvements and medical research, a doubling of life expectancy in South Asia and a couple of generations, this has brought maybe the greatest benefit of humankind. It's not only lengthening lifespans but improving the quality of lifespans. And I think one of the things you've said, I've heard time and time again by CEOs of large pharma, biotech companies is the singular focus on a goal, a world goal of creating vaccines, creating antivirals, creating antibodies, focus the attention like a laser beam on what we needed to do from the life science effort.

I want to touch on the vaccine, Mike. I mean when we saw the first person to get a vaccine in the U.K., Margaret Keenan, 90-year-old, followed by, I think, it was Bill Shakespeare, 80-year old, I mean that vision of man and a woman getting the vaccine done was -- I guess, in a way, gave a lot of hope, touching as well because of the difficulties they've had to endure. How confident are you that, I guess, in the months ahead, we will see the end of this pandemic with this vaccine?

I think we have to be realistic. There are more than 200 vaccines, more than 30 vaccines that have gone into human veins. So yes, we saw 2 people receive the vaccines. But to date, hundreds of thousands of people have received various vaccines in clinical trials. And one of the things that's been so interesting, when I was speaking to Alex Gorsky, the CEO of J&J, I called him and asked would he like help in recruiting people to enter the clinical trial to take the vaccine. He told me, "I appreciate it, but there's more than 200,000 people that have offered to enter the clinical trial," and that has been what's occurred around the world, whether it's Morocco or the UAE or Singapore or China or Brazil or the United States or Europe, et cetera, or South Africa or Nigeria. We've seen tremendous willingness of people to make a contribution towards this future by being in clinical trials. Now what about production? Pfizer estimates that they can produce 1.3 billion doses this year of their vaccine. If you need 2 vaccinations, that's 650 million people. Moderna, which we expect to be approved in the next week, they estimate they can produce, with their partners, 1 billion vaccines. That's another 500 million to 600 million people. AstraZeneca, J&J, which hopefully will be approved, their efforts in the vector vaccines, different strategy, billions of vaccines. So as it relates to the world, you'll have the potential to produce, I assume, 4 billion to 7 billion vaccines. But it's going to take a while to get them into distribution. And unfortunately, in the meantime, millions of people will be diagnosed with COVID. So what is the solution there? It's companies like Regeneron that shut down their factories in the United States making their products, shifted that production to Europe and cleaned out the factories so that they could manufacture their antivirals before they knew they worked. Roche/Genentech has signed up to make the Regeneron antivirals, and they'll be up and operating after 6 months in January. But at the moment, they're making 200,000 to 400,000 a day. With 200,000 people just in the United States being diagnosed, These antivirals or the Eli Lilly antibodies will lessen the effect of COVID. But still, we're going to have millions of people who will be diagnosed with COVID in the interim. We know much better how to treat. And yes, the vaccines will go to people that are not only the most vulnerable, but those that have shown by their DNA, their age, their makeup, other factors to be at risk. But I am very hopeful that we will turn the corner sometime in this late second quarter, third quarter of 2021.

Mike, the question is about the efficacy of these vaccines. I mean we're seeing how China, Russia have vaccinated their people months ago despite, I guess, inconclusive trials being done. What's the sense -- I mean how do you view how it's being done in China, in Russia?

Well, let's start with the world as a whole. China released the DNA of the vaccine in January. 11 days later, Moderna went to work on a vaccine against that DNA. 9 weeks from the release of that, Moderna put their vaccine in a human being in March of this year. Now when you ask the word of safety, as Moncef, who runs Operation Warp Speed, pointed out in an early discussion today, when you look back at vaccines, the side effects normally occur within the first 40 days. So the Moderna vaccine has been in human beings, Haslinda, since March, a lot longer than 40 days. And so it looks like these RNA vaccines of Pfizer and Moderna appear to be very safe. The anecdotal information, which we've received on the Chinese vaccine, whether it be in the UAE, Morocco, Indonesia, at the moment, the Sinovac also appears to be reasonably effective, and many of the leaders of these countries have taken that vaccine. But with more than 200 vaccines and more than 30 vaccines that have gone into humans, I think we will see numerous vaccines between now and March that are approved. And so there is significant hope. AstraZeneca's vaccine, J&J's vaccine will probably be a lot easier to distribute to Africa and other emerging parts of the world than the Moderna or the Pfizer vaccine. So it's a combination of those. But in the meantime, I cannot stress strong enough the importance of antivirals and antibodies to lessen the effect of COVID for people that get it.

You talked about how the side effects can be seen in weeks. But how about the long-term effects? I mean we've not done this before. What concerns might there be for the longer term?

I think as much study has gone on, particularly on the Moderna and Pfizer technologies, the RNA, these are new technologies. But once again, it wasn't that we saw the effects shortly after. When we look back at other vaccines in history, most of the effects, if they had side effects occurred in the first 40 days. So these vaccines have been in human beings longer than 40 days. And so initially, we would have expected to see the side effects of these vaccines already occur. So from a standpoint of safety, it appears that this RNA technology of the first 2 vaccines, Pfizer and Moderna, appeared to be extremely safe, Haslinda. The next series of vaccines, AstraZeneca and the Johnson & Johnson vaccine, are different technology, vector technology. And so they are different vaccines, and they're similar to how vaccines have been created in the past.

Okay, Mike, you talked about how there are possibly 200 vaccines out there. Which one are you comfortable taking? Because I'm taking what you're taking.

Well, I think as Tal Zaks, the Chief Medical Officer of Moderna, said, "If they're approved, you will take the vaccine that's available to you once it's approved," and so this decision. And I think one of the points I really want to stress to you today, as we have diverted all 10 centers, including our Asia center, to work on this pandemic over the last 10 months, the decisions on other types of things that can stop the virus from going to your lungs. In the interim, they will be extremely important, getting people to continue to go to clinical trials for these other viruses, for the antivirus, for the antibodies is very important for our overall success in this effort. And I think when we look back at this period of time, the humanity of the world of not just worrying about a vaccine for your country but the organizations that are focused on a vaccine for the world, this pandemic has affected every country on our small planet. And we will not be safe until every country is safe. Yes, countries like Singapore have done an excellent job of controlling the virus. A small country, significant discipline from that standpoint. But ultimately, Singapore is a country for the world. People fly here from all over the world. And so for Singapore to be truly safe, all countries have to have access to the antivirals, antibodies and the vaccines.

I'd like to invite on stage with me Ilfryn Carstairs, co-CEO and CIO of Partner -- Värde Partners. He's here in the ballroom. Also joining us, Heenam Choi, CEO of KIC; and Jenny Johnson, President and CEO of Franklin Templeton, both joining us via Zoom. Jenny, Heenam, good to have you both with us. We talk about how 2020 has been pretty unprecedented, and that includes the capital markets. And the recovery that we've seen has been pretty phenomenal. Just last night, we had the S&P at yet another record, and that's on the back, of course -- on the back of central banks pumping in trillions of dollars, promising whatever it takes. But here we are with a vast amount of debt, on even recovery, and perhaps concerns about inflated asset classes. Jenny, I want to bring you in this discussion. For you, what's been -- what's changed profoundly in the last 10 months where capital markets are concerned?

Well, I think -- I mean, actually, I think Mike hit on a couple of those key points. I mean I think that the effort that has gone into developing this vaccine, I mean, just think about the public-private partnerships that have been created, the global cooperation that was created in this process and, actually, the acceleration of traditional bureaucracy in any kind of research to get these vaccines out are going to have benefits in medicine for a very long time. And I think we're just seeing the tip of the iceberg with this vaccine on what those changes are going to be. I'd say second thing that's happened is, really, this pandemic was an accelerant of technology trends that were already existing. And I don't think they ever go back. The genie doesn't go back in the bottle on e-commerce. People who weren't so comfortable with it are now very, very comfortable saying, "I can get my groceries delivered to me same day." That's very convenient. I think that telemedicine, as Mike said -- and think about the implication of that. You can get good doctors and scale them out. And historically, it's existed. It's just the structure of insurance paying for it, people being comfortable with it didn't exist. That's going to be a real benefit. I think it's here to stay, education, online education, scaling that. And then I would probably say, which Mike pinpointed, was just the work from home. You are not going to have people coming to the office 5 days a week. I know the extroverts think everybody is coming back to the office, and the introverts think nobody needs to ever come back to the office. But the reality is it's going to be a hybrid. And the talent pool, people, companies are going to have to compete for talent with people they never considered in the past because employees are going to be working wherever they want to work, and employers are going to be more flexible. And so I think that, that is a permanent change.

I think that the catalyst for change in this financial market there -- we have to think about 2 perspective. First one is the market perspective as you all know [ practitioner or the managers ], our concern is that how to adjust our traditional portfolio in this new normal environment. If you consider the projection of future policies and the economy and the market environment, it will be much more with the new normal. Low interest rate will cause an overall decline in returns across asset classes, including the traditional portfolios, say, the typical [ makeup of the hit ] could be 60% of the stock and 40% of the bonds. In an environment with limited bond price increase, it has been hard to maintain portfolio performance amid increasing stock volatility. And with the bonds becomes -- becoming less attractive, we are seeing a shift toward the risky assets, especially [ hedge funds ]. More allocation to risky assets and more leverage due to low rates can raise the price of risky assets, which can mean more volatility. So we needed to change our strategy accordingly. From the perspective of the financial environment, it is changing rapidly. For, say, retail investors, we call it Robinhooders actively participating in the market, their base is growing as with their influence. We are also seeing new management strategy based on AI, artificial intelligence, and big data, like robo-advisor. And the funding and lending techniques mainly led by fintech and digitalization are changing by the day. A good example is the increasing transaction with our brokers. I think this kind of financial market environment will be catalyst for change in existing capital markets.

Ilfryn, what's coming through as well is this overreliance on central banks. No matter what happens, central banks will be there to catch you.

Your question around profound change, I think you really get to the heart of it there. To me, when I think about that, and Jenny, I share your view on all of those industrial and societal changes. But one of the big things from the perspective of this panel, global capital markets, is that point. I'd almost summarize it by saying, did we put the last nail in the coffin of people's worry about risk -- the worry that we carried over from the GFC, perhaps? And I think that is a pretty profound change because it coincides with now a period of time where rates have gone to even a level that is lower than an already very low rate that we had before. And so you have this massive cost-to-income problem in markets where risk premiums have come down. There's this almost undying view, I think, that central banks and governments will bail you out if risk starts to occur. Yields are very low, and so there's no fixed income cornerstone to the portfolio, as Heenam pointed out there. And I think that's subtle in a way. But I think it's a pretty profound change. And I think we're going to see the effects of that very significantly next year. I mean it almost leads you to an asset shortage because everybody needs assets to generate income, to generate yield, to generate return. And when we look across markets now, obviously, to your point in your introduction, and there's not a lot of return, there's not a lot of yield. And so at Värde, as we think about that, we think, well, how do we generate that yield, how do we generate that return in scale for our investors. I think that's the problem that we need to solve, all of us, in our portfolios and for our LPs.

Mike, is it disconcerting that people are not really thinking about risk? I mean I spoke to my doctor and he says, "Just put your money in the stock market. You'll make money no matter what."

Always a good sign.

If the doctor is saying that, the common man is saying that, I mean the concept of risk is gone.

Well, the goal of driving down interest rates is to drive you and force you to go search for alternative investments, particularly equity. And one of the things, I would say, if we look at the creation, let's talk about Franklin Templeton. The creation of the today's money managers that we know about, it was really an outgrowth of the failure of the Nifty 50 investing of the '60s and the '70s and the fact that the trust banks lost as much of 70% or 80% of your money, Haslinda, in stocks. And many of them, which were great companies, but they were buying them at levels in the early '70s or '60s that they never returned to. And so if you could lose 70% of your money with a trust bank, there had to be better alternatives and Franklin Templeton and hundreds of others sort of money managers we create. The change in this market has been those that have invested in technology, have been the major winners. And whether that technology was bioscience or life science or other forms of technology, in almost all cases, the most valuable companies in the world are young and have been focused in technology. On the other hand, all markets are not the same. And so, yes, risk premiums have narrowed. But there is great risk in just interest rates itself. At another point in time, in the early '80s, we had U.S. government bonds trading at $0.50 on the dollar, not because of credit risk but the dramatic changes in the level of interest rates. And so movements in interest rates have -- can have an enormous effect on asset prices, both debt and equity. On the other side of the coin, I think what Ilfryn has pointed out here is the enormous wealth that's been created. In many countries in the world, there was no mortgage markets. People's owned assets, they had to have 100% down. Now with modern technology and other things and financing assets, there's a lot more search for assets. And if we just look at the Korea Investment Corp., and by the way, Heenam, thank you for joining us and the efforts that you made to go in person to be on the stage only to have a person on your plane be diagnosed with the coronavirus, and you're now quarantined here in Singapore. So you almost made it to the stage. Next year, we'll make sure you do. But I think the growth of just the assets in Korea, where you're looking at these pension funds that might have, someday, USD 1 trillion in them, what are they going to invest in? Where can they deploy capital? How can they generate a rate of return? And it's that search for rate of return defined in an ESG world, but as Ilfryn, who's one of the leading world experts in the subject can tell you, whereas India's had relatively efficient equity markets, their credit markets have left a lot to be desired. And so for you to finance a company in India requires significant spread and significant yield. And so this isn't the same throughout the world today.

We'll pick up on some of those points slightly later. For now, the low rate environment, Jenny, when the lower rate environment unwinds, what will we see? And when will that be?

Not very soon.

Well, I think -- yes. Let me get my crystal ball out here. So -- I mean, actually, I think the interesting thing is the IMF came out and talked about countries that have the debt pandemic. And I actually think that there is this continued need to pump money in, but they're -- but not every country has the ability to keep up with it. And so I think we're going to continue to see disparity between those, particularly in emerging markets that had a lot of debt going in and didn't have the ability to really -- they're going to be very slow to bounce back. I think companies -- or countries where they can reengage industry and still get a certain amount of government support for a period of time, I mean, I think they're going to do okay. Anybody managing equities who is not taking a macro view to understand the fundamentals around -- particularly if you're investing in emerging markets, around how countries are doing as they're coming out of this, I think, is going to miss the opportunity. And then we all know when rates come back up, as Michael said, there's a huge amount of risk in a fixed income portfolio that's not yielding a lot of rates if rates come back. I think everybody is trying to manage to have that delay as long as it possibly can.

Heenam?

Sorry, I'm slow adapting to technology. Obviously, as we just mentioned, the low interest, the low returns is the -- our top priority how to deviate [ the management ] strategy. As you see, the -- even though we are a little bit optimistic about the equity markets. But on the other hand, we have to worry about kind of market shock, which may come end of next year. So the other [ micro view ], we were working very hard to achieve better existing returns with the asset classes. And we are also, as someone has suggested, that steadily increasing our portfolio of alternative assets are currently 16%, maybe up to 20%. We also [ got ] strong -- strengthened socially responsible and sustainable long-term investment. We will continue to apply ESG standards across our portfolio of securities and processes. And we will better communicate our ESG-related standards to make a difference through sustainable investing.

The market's flush with cash, of course, inflated asset classes, Ilfryn?

Look, I think the premise of your question about central banks and rights is a really good one. I think if we get our crystal ball out, I think we'd probably all say you shouldn't expect central banks to pull back from this type of policy willingly or at least quickly. And so when we get the crystal ball out, I would say it is a fundamental premise of the market that central banks' support will be there and that rates, therefore, will stay low. And to your question, I think the missing link will be inflation. Inflation will ultimately be the thing when it comes along that -- of course, if they can...

Although the central banks have said that they'll be more tolerant via inflation.

They will be more tolerant. As you get to -- if you look at historical episodes, it's when inflation starts to really move -- that central bank hands get a little bit tighter. I don't pretend to know when that will be. I think, actually, the more important question is what do you do about it. And we can wring our hands a little bit about where markets or where accessible markets are, where average markets are. I think all of us would tell you that what we try and do is find the places where those averages deceive, to Mike's point, about places like India. Because we're not trying to just replicate the S&P 500 or we're not trying at Värde to own generic credit spreads. We're saying, "Well, how can we do better than that? How can we do a lot better than that?" And so one of the big things that we're very focused on is origination of credit and getting credit to those places where it's not flowing freely. And that can be a real win-win because those are places in the market where you can still earn quality absolute returns. Those are places in the market where the demand for credit or the demand for capital outweighs the supply of it. And those are places, therefore, where I think you can earn really interesting risk-adjusted returns. And that doesn't just mean going to really difficult places. I think one of the big features of capital markets and credit markets is still how, in many different places, they're bank-dependent. And we all know that in a crisis or when there's a shock at markets, like we've had in the past 12 months, traditional lenders, banking markets tend to pull back. So you can even find pockets of places, I think, very deep pockets of places in things like commercial real estate or consumer finance, where you can originate credit still at pre-COVID absolute rates of return. And of course, we all can benefit from what's going on in the froth of the rates market, should we call it. Because then when you originate that product and you originate it and scale, of course, you can use those capital markets, securitization markets or leverage markets to create even a more interesting rate of return for your investors. And I think one of the things that we find across our origination platform, and we built a very significant origination platform globally, is that we're still able, in those places, to originate at the same absolute yield. And of course, we're able to use those leverage markets to create an even more interesting return for LPs.

Mike, we often talk about how a crisis -- sorry, were you going to say something? I was just going to say that...

I would...

Go ahead.

I just wanted to point out, you asked this question of -- and I thought when we talk about debt, we have to understand what we're talking about. If I'm in Japan and I can borrow for 30 years at a 0 interest rate, is that debt? Or is that equity? If I'm in Austria, and I can sell 100-year debt that then is going to trade at less than 1%, is that debt? Or is that equity? So we need to understand the maturity structure. We need to understand the interest rate structure. In addition to that, we need to understand the currency. The lessons of 200 years of credit history for "emerging countries" or developing countries, and the United States fell into that category in the 1800s, is that they risk when they borrow in another country's currency. And so one of the keys and lessons is, are you borrowing in your own currency or are you borrowing in another country's currency. And I think this is one of the points that Jenny was making. And this was the challenge of the 1980s, when the currencies depreciated and they borrowed in U.S. dollars, they owed twice as much as they had borrowed. And so I think these things, we don't factor in enough when we talk. We gloss over and say debt. And the definition of noninvestment-grade debt, at least that I tried to create in the late 1960s, was it was a debt that traded more on the underlying characteristics of the organization than U.S. governments. And so it's based on the credit or the understanding. So the point I want to make, with $15 trillion to $20 trillion in debt out there that yields 0 or negative, is it debt in Denmark? Will they loan you money at a minus interest rate if you buy a house? So whatever you borrow, you have to pay back less. And so I think this is a very important factor to think about when we talk about debt levels. Because as interest rates go down, the differential in interest rates flows to the equity holders, and that cash flow increases their cash flow. And so I just wanted to make that point, and I'm ready for your question.

No. I want Jenny's reaction now. What's your take on it, Jenny? I mean like -- so effectively, this huge amount of debt, but perhaps coming from what Mike has just said, perhaps it's going to sort itself out.

Well, I'm not sure any of us have ever seen this experiment before, so I don't know that we can predict, that it sorts itself out. But Mike's exactly right in the point I was trying to make around you really do have to understand all of the components. And in some of these markets -- look, you take a market like India where it isn't quite as mature, and you have to deal with kind of the environment of the instruments that you're doing. As Mike said, you have to be aware of the currency. All of those things are going to be a factor. And we just have never seen this kind of central bank debt out there flushed into a system without translating into inflation. And I'm not sure we all know what that looks like. I think we know, over the next year, at least, there's still going to be support. And I think we're going to -- you're also going to have the benefit of economies coming back out of the pandemic. And so I think over the next year or 2 even, support post that. I'm not sure we know.

What I wanted to ask you earlier, Mike, was that the pandemic presents a unique opportunity for change. What role do money managers play? Or do you see them playing in driving this change going forward?

Well, I think one of them is technology. So Ilfryn, myself, Franklin, Korean Investment Corp., all grew up with fundamental analysis, where we were analyzing, if we're talking credit, what is the fundamental analysis. And what has occurred in the last few years has been people going online, the data that they've gotten online, what they know, particularly in consumer loans, et cetera, that they aren't even focused on fundamental analysis. They're getting this data and they're making a decision based on data. Where did you go to school? Who are your friends? Where do you live? What is your pattern of buying goods and services and getting paid? And so the question in many ways is what role is technology going to play in the future in investment management and investment decision making, whether it's equities or potentially debt. And so I think the deployment of technology is going to play a larger role in finance. And the same opportunity that we're seeing for the small investor anywhere in the world to be able to invest at little to no friction cost by going online and buying and selling stock. And so as you look at different financial markets, if you're talking about real estate, traditionally, huge transaction costs, could be 5%, could be 10%, could be 15% if you have to fix it up and sell it. If I wanted to sell a house for $1 million. To buy or sell $1 million of Apple takes a second, and there's little transaction costs from that standpoint. And so the entry to the world market -- the area that I see when we come to our Asian Summit, and when I'm looking at the world from Singapore, the world looks different than if I'm looking from other parts of the world. And what you see in Singapore, when we have these gatherings, is the largest percentage of people in family offices, family wealth, throughout all of Asia. And it's not just China or Korea or Japan, more mature markets. It's Indonesia, even Myanmar, Thailand, et cetera. And I see these individuals coming into the financial markets and using modern techniques. And as Ilfryn pointed out, if you look at Europe today, it's still a bank-dominated market. If you looked at the Asian crisis in the late 1990s, it was because banks in Thailand at the beginning got in trouble, and they were financing the entire country. If the financial markets, public and private, using technology, are the financer of financial markets, we might have a lot less volatility where we're not depending. If I looked at the Korean -- Korea in 1998, people in the United States were looking at Indonesia and Korea as if they were same. It would be like in the United States if I told you New Jersey and Mississippi were the same. They're not. And therefore, the enormous opportunity to invest, particularly in Korea, with such a highly educated population was created by a misunderstanding of what was Korea, the town in Korea, the technology in Korea. And in many ways, if you want to see the future of 5G, you just go to Korea and you can see what the rest of the world will be introduced to in the next few years. So I think this issue cannot be judged universally. It has to be judged with the deployment of technology and how money managers and how investors are going to use technology in the coming decade.

Ilfryn?

I mean the point that I would pick up on -- in there really is everywhere we go, I mean we've talked in so many formats today about what's happening in the most accessible markets. And really, I think the spirit of your question is how do we generate return and how do we get capital to places where it's lacking in markets. And I think this point Mike just made about Asia and the evolution of capital markets out here is incredibly important. Because when we look at this market, and we've been on the ground here in Asia now for over a decade and built out our presence in a number of countries to originate credit, it's a place where still the capital markets aren't providing it efficiently. The banking markets aren't providing it efficiently, and the shadow banking market hasn't established that -- hasn't established itself yet. And so there is this wonderful win-win to be created out here. And it's a win-win of providing capital into places that's really looking for it against high-quality projects, high-quality companies in order to finance growth because that capital market is not there to provide it. And if I look at what's happening in India at the moment, on one side of it, the credit markets there have been decimated. You had a very significant NPL problem in the state banking system. You had a large collapse of the shadow banking, the in-country shadow banking system, and you don't have a high-yield market developed there. And so when we think about what we can do and where we can generate that win-win in markets, it's really -- I think we're all only going to get paid properly for our investors by solving a problem. Accessible markets are tight, spreads are tight, but there's lots of places in the world where we can move capital and solve problems with it. And I think that will be the heart of the answer to your question.

We have about 5 minutes to our discussion. I want to do a round robin on what the investment themes will be for 2021. Heenam, perhaps we can start with you.

Okay. Thank you, Haslinda. People make comments on our investment themes. I really appreciate Mike's comment on Korea. Especially, the 1997, I remember that I was part of the IMF negotiation team. So I had very tough and difficult times. It also reminded me that difficult times. Also, I'd like to highlight that not only the high technology but also K cultures, I mean including drama, film and KPop, something like it, the BTS. That shows the different -- quite different change of Korea's development. Let me briefly -- about in terms of the investment themes. I think in our companies, we summarize this -- is to A to H. Say, A stands for the antiglobalization. So we will watch for weather, antiglobalization, watch growth through measures like travel restriction and protectionism. B is big government. Then, Mike, our question, will we see a rise in this due to government response to larger-scale risk and fiscal policy. We have to see. The next is C, connecting without contact. We are monitoring how to put your life. Like today, we will continue to be, whether it is for commerce, education or medical care, for example. D is digital infrastructure. We watch for developments in things like the cloud, big data and remote connections. E, definitely ESG investing, which I've already touched on. We will be expanding this. F stands for Fourth Industrial Revolution technology. We will follow the [ events ]. G is the global supply chain and how stable it will be Finally, H, health care. Mike mentioned in the beginning, we will keep a close eye on development in this health care industry, like medical field, biotechnology at the center. Yes.

Jenny?

I'm going to have to agree on the technology side. I -- believe me, I see some of these M&A deals, and I can't imagine that they sell for what they sell. But on the other hand, we are experiencing a data revolution. And I think that there are some really great companies out there, particularly ones that management was able to pivot during this time and really do well. And I think you're going to still see opportunities there. I agree with Heenam around ESG. I think that there's an expectation of really understanding the risks in portfolios and actually trying to improve on things and have somewhat more of an impact investing. I think, particularly, you see the regulatory environment in Europe, that is going to continue. And I actually think there's a great opportunity for underserved -- for capital, people who manage capital, to deploy it to traditionally underserved markets or people. And I'll give you one example that we've looked at. We just did come out with a female entrepreneur fund. Only 2.9% of venture capital money in the U.S. goes to women entrepreneurs. And yet, the KPMG did a study and said, "By the way, the IRR on female entrepreneur companies is 112% versus the average VC fund of 48%." It is an overlooked group. Because one of the things that women described is that the VCs, and only 12% of VCs are women, don't understand their business model, right? They're pitching something to people who don't understand the model. So I think there's going to be this opportunity -- and there's groups of these people who have just not been able to get capital, where you're going to get -- provided we adjust the screen, those deploying capital, where you're getting both excellent returns as well as being able to deploy, and that becomes a benefit, obviously, from a societal standpoint. So I think we're going to see more of those types of things, and that's an opportunity.

Yes. I couldn't agree more with Jenny. I mean it's not so much an answer to the question of investment themes, but the focus on how we operate as firms, how we get capital to the underserved parts of the market, and then how we operate ourselves as a business and enhance these aims like ESG, like our D&I practices, like philanthropy, it's an enormous focus of ours as a firm. And I think as an industry, we need to go beyond talking about it and going to a place where we're putting it in action, both in terms of where we put capital, but also, even as importantly, how we run our institution. And so for us, that focus on education internally, but then really tangible action around those themes that Jenny just raised, is an enormous focus point for us and something that we're devoting a lot of resources to, both monetary resources and also staffing and internal resources around those issues.

And Mike?

I think the first issue is that the free enterprise system was underchallenged before COVID-19. Is it meeting the needs of society? Is it meeting the needs of people? Does it present upward mobility? And I think that is the theme to me for the future. The need to create over time 1 billion jobs in Sub-Sahara Africa as this population grows. What are the jobs? What are the industries? What are they going to be doing? There are millions of young, optimistic entrepreneurs in Africa. But what are the financial markets? And is Franklin Templeton and Värde and the KIC going to come there and search for rates of return? If we don't create those opportunities, I don't believe that's going to make that much difference what you do in the rest of the world. You'll have 1 billion people on the move. Now India. India had 10 million more children born than any other country in the world last year, and they have it every year. You're going to have to create tens of millions of jobs in India. And so stability on our planet, sustainability on the planet means that you have it everywhere on the planet. And we fully understand where we have these growing populations. The working force of China, because of the aging of the population, has already peaked. So China doesn't have the challenges of India or Sub-Sahara Africa or South America, et cetera. And I think as Jenny said, if the free enterprise system is going to meet its goals, it's going to have to be color blind, it's going to have to be race blind, it's going to have to be sex blind, it's going to have to be religion blind. And until everyone feels that they at least had a chance, not that they won, but they at least had a chance, we will continue to be challenged in the free enterprise system. And I think that is what we need to meet. This excess capital that exists in the world that has driven interest rates to 0 or driven multiples to levels never seen before needs to find a way to deploy capital. As we discovered in the United States, there are not only "food deserts," communities that didn't have a grocery store, there were communities that didn't have a bank. There were communities that didn't have a medical facility. And so these are our challenges. Technology has a potential answer for us. And Haslinda, I would say I want to come back to something that Jenny said. And that is there is a disconnect necessarily between what actually is the rate of return and where capital is flowing. And so supporting women businesses doesn't mean you're taking a lower rate of return. Supporting minority businesses doesn't mean you're taking a lower rate of return from that standpoint. And going back to that crisis in Korea, back in the late 1990s, we sat and we looked, and the net worth of Korean Americans exceeded the debt of Korea. All we had to do was convince Korean Americans, Haslinda, to invest in Korea. So today, Korea is an exporter of capital, not an importer of capital. So I am optimistic, and I believe that whether it's Ilfryn, whether it's the KIC, whether it's Franklin Templeton, that they all are fully aware of their responsibility today, whether it's ESG, but to develop new funds, new structures to provide capital. And to me, that's the challenge of 2021.

Well said.

And on that note, Mike, Ilfryn, Heenam and Jenny, thank you so much for your insights today. And thank you all for joining us.

Thank you.

Hopefully in person next year.

Thank you.

Yes. Thank you.

Thank you.