In a conversation with Franklin Templeton CEO Jenny Johnston in 2017, Roger Bayston, then senior vice president and Fixed Income Group director, encouraged her to “be attentive” to the term “distributed ledger technology.”
That’s blockchain for short, and because recordkeeping ledgers “are so pervasive inside of capital markets and asset management,” Bayston noted in an interview, “it felt like this was going to be something that was going to impact our business.” He urged Johnston to “explore that and be on the front side of whatever that impact might be.”
As time went on, Bayston – now executive vice president of digital assets – and his CEO observed the impact of blockchain and the growth of cryptocurrencies, stablecoins and tokenization. They saw in these developments ways of mitigating the risk of investing in a “less mature” and high-risk asset class. The result was a strategic decision to build infrastructure to support a suite of bitcoin exchange-traded funds and a tokenized money market fund.
As Bayston explains it, “we see these blockchain ecosystems as a big improvement” on the technology underpinng capital markets and asset management. “Perhaps we’re derisking a whole series of counterparty risks that currently may exist within the ecosystem.”
With that comfort level, the $1.645 trillion-in-assets, San Mateo, California-based Franklin Templeton’s crypto strategy was two-pronged: investment advisory, and the supporting infrastructure.
The advice business includes spot bitcoin ETFs developed in-house, starting with the January 2024 launch of the Franklin Bitcoin ETF (EZBC), with $707 million in assets as of October 7; and a series of tokenized money market funds in the U.S., Luxembourg and Singapore, starting in April 2021 with the Franklin OnChain U.S. Government Money Fund (FOBX), at $744.5 million in assets.
Representing the infrastructure is Benji, a blockchain-integrated platform that enables tokenization of investment products. A U.S. patent is pending for a feature called Interdate Yield.
Roger Bayston
“We've taken the 24-hour clock and broken it down into one-second resolution,” Bayston says, explaining that this is the first money market fund to pay interest for microscopic periods of time – minutes and seconds in some transactions – rather than on a daily basis. “In the current macroeconomic environment where there's 4% annual yield, this is kind of interesting for individuals, but it's massively interesting for institutions.”
Crypto advice is growing across several institutional channels including private markets, which Bayston believes is at the beginning of “a multi-year cycle” of blockchain-enabled digital-asset growth. The company also offers defined-contribution products and services to companies that have only just started offering crypto investments to plan participants, though Bayston acknowledges that institutional adoption has been “very scant” thus far.
In addition, the company offers collateral management services for stablecoins.
At the retail level, Franklin is seeking to grow market share with slick tickers like EZPZ, for Franklin Crypto Index ETF, that cater to low-risk appetites. Developed with an index provider, this $6.4 million passive fund tracks an index of cryptocurrencies. Bayston calls it “a low-cost beta approach to the crypto markets,” and literally “easy-peasy.”
In September came an announced collaboration with Binance. The international crypto exchange will work with Franklin on new products and initiatives, “further[ing] our commitment to bridge crypto with traditional capital markets and open up greater possibilities,” said Catherine Chen, Binance’s head of VIP & Institutional.
Neither granular details of that deal, nor how much Franklin has invested in the crypto business overall, are disclosed. “We expect there to be higher growth rates in this business than some of the legacy businesses,” Bayston says.
“Like many asset managers, Franklin was an early adopter of spot bitcoin and ethereum ETFs,” says Morningstar manager research analyst Max Curtin.
Franklin trails spot bitcoin ETF leader BlackRock (IBIT) and several others in assets under management.
The leading spot bitcoin ETFs in assets under management are offered by, from left, BlackRock, Fidelity, Grayscale, Grayscale and ARK 21Shares. Source: The Block.
Bayston contends that Franklin’s in-house-developed infrastructure will make it more marketable as an advice provider as digital assets become more mainstream.
“It would be rare to find any other asset manager, including BlackRock, that has built a level of actual infrastructure in blockchain environments, rather than using a third-party service,” says Bayston. That brings “unique insights about blockchains that maybe others don't have yet, and, we think, that make us a provider of choice” for people seeking advice.
“We expect that as risk management tools like derivatives continue to be developed, the volatility of those assets will actually move to a lower place,” Bayston continues.
A salient risk, in his view, is a lack of trusted custodians on a par with institutions such as State Street and Northern Trust in traditional finance. But that gap is closing through technological innovation and regulatory revisions, and Bayston is anticipating “much faster adoption” as a result.
Franklin has come a long way from its origins as a bond fund manager that, over time, earned a reputation for testing some of the markets riskier fringes, such as emerging markets with the 1992 acquisition of Templeton, Galbraith & Hansberger, which had pioneered investing in emerging markets, in 1992. For a technology edge, it bought Random Forest Capital, which used machine learning, in 2018, and Canvas, a custom indexing platform, in 2021.
The firm is not fazed by volatility in the $4 trillion cryptocurrency market. “Quite frankly, we don't see those volatility returns to be that much different than early-stage tech stocks,” says Bayston. “Once they get into the public markets, the volatility and the returns actually look pretty similar.”