Monday, January 02, 2006

Business: Financial Times, Sir John Templeton

Sir John's wealth of experience
By Julie Earle-Levine
Mar 28, 2004

Sir John Templeton, a heavyweight of the fund management industry, has some advice for disillusioned equity investors in a possible fourth consecutive year of falling equity markets. Think long term, he says - about stocks and about life.

Sir John, a spritely 90, set up shop on Wall Street 65 years ago, when there were only a handful of mutual funds. There are now 10,000 listed funds in the US.

Sir John says the escalating war in Iraq and corporate scandals that have sent shares lower are short-term events investors need to move past. "In my 90 years, I have seen so many wars, not just American wars. The problem of war is not gone. It may never be. But there were fewer people killed in war in the past 50 years than in any other 50 years in the history of humanity."

In an interview at the Yale Club of New York, a tanned Sir John - he made Bermuda his home 40 years ago - predicted that investor confidence in equities would return soon. By the end of this century, he said, the amount of money invested in all types of securities could be 100 times as large as it is now. "It sounds terrific, but that is what happened last century."

Sir John, who graduated from Yale in 1934, points out that half of all families in the US now own shares. "Even when I was growing up in a little farming town in Tennessee I didn't meet anyone who even owned a share."

Sir John started Canada-based Templeton Growth Fund, a worldwide mutual fund, in 1954, and went on to build a business with assets under management of more than $20bn. He sold Templeton to the Franklin group in 1992.
Today, he focuses on building what he calls "the world's spiritual wealth". He acknowledges that scandals such as Enron and WorldCom are discouraging for investors. "There is a flaw in human nature that makes you want to read this bad news," he says. "But there are less shocking things now than 50 or 100 years ago - because of transparency."
Sir John says this transparency, especially in mutual funds, is helping keep the industry scandal-free.
But there are some who might not agree with him. The Securities and Exchange Commission, Wall Street's watchdog, has raised concerns that the $6,300bn fund industry is not transparent enough about its fees, compensation and "soft dollar commissions".
Sir John believes mutual funds are actually very good at revealing every detail of what they buy and sell. "As long as profit is greater than expenses, investors don't complain," he says. "Expenses have always been there."
Sir John says transparency lets competitors - rather than regulators - draw attention to problems. He believes the current system is working well.
While Sir John has officially left the business, he does manage the John
Templeton Foundation's $250m endowment, which supports the study of a connection between science and religion, and his own personal wealth, which he estimates is $700m. The foundation donates $40m a year.
Sir John suggests that anyone with $10m or more should do most of their investing through mutual funds. He does not much like hedge funds. "The difference in a good result and bad result in mutual funds is only 2 per cent," he says, "whereas hedge funds charge fees that are much higher than that."
In the long run, he says, hedge funds - which have been scandal-prone - will have poorer results than mainstream mutual funds.
Mutual funds have had their public spats, however. Last week, Harvard University and Franklin Templeton, the group created from Franklin's acquisition of the Templeton funds, settled a very public and bitter dispute over changes the college wanted to make at two of its closed-end funds.

Sir John believes Harvard was correct to question the funds' performance. But he insists that Mark Mobius, an emerging markets guru who he hired many years ago, should not have been singled out over the Templeton China fund he manages. Harvard had accused Mr Mobius of not acting in shareholders' interests because he allowed the fund to trade at a discount to net asset value.

Mr Mobius is "a brilliant manager" and "travels on airplanes five times as much as I ever did", Sir John says.

He says the best fund managers need to go to countries in which they are investing, and spend time researching. Sir John's philanthropic duties mean he has little spare time. But in the time he does have, he studiously ignores television, even the round-the-clock war coverage.
"I don't want to spend my time on negative things. I try to fill my mind with what is going to be best for humanity in the long run, and with unlimited love.

"Saddam Hussein? Yes, I love him too," says Sir John, who was knighted by Queen Elizabeth in 1987 for his philanthropic efforts. "Everyone has some lovable things about them. People who appear most evil usually don't intend to do evil."

Sir John says he is the most enthusiastic and joyful he has been in years and remains excited about his foundation. After a lifetime on Wall Street, he recommends not spending time on temporary events suchas war. These are factors that, as he puts it, "will disappear in a few years".

© Copyright The Financial Times Ltd