Views from our Chairman Emeritus

Marty Flanagan: You'd probably expect the growth of the firm or some area that's been quite successful. I'm proud about that. But I'm really proud about the culture of the firm. What I can say is the culture is absolutely focused on client success. The culture cares about employees, and it's a place where employees like being here. They're proud about being here. Our clients can feel it. And that is evergreen for this organization.

And I think what's also important about the culture is that it has evolved over the years. So there are key tenets that stay in place, which is client focused, you know, a focus on caring for one another, holding each other accountable, but moving the organization forward. But it has evolved and it needs to evolve and it will continue to evolve. And so change is a good thing. It's uncomfortable, but it's a good thing. And the evolving culture for the success of the organization is something that I'm sure will remain with Andrew's leadership.

Andrew Schlossberg: And Marty, you should be amazingly proud of the culture that's been created and in particular your comment about engagement with one another and people that are proud to be here and also like their colleagues. I mean, that's not typical always in our industry, and I think it's pretty unique about us. What we do with that is critical. And so the core of our culture with collaboration and teamwork and having a global framework of different opinions and diversity of opinions has to stay throughout any environment.

But as you said, times evolve and change, and you've done that through your tenure. How we take it to the next level for time and place today, things like operating with even a greater execution edge, simplifying decision making and accountability so that we can move both with pace and with collaboration is something we're going to be extremely focused on. And that's just an evolution that's not turning the ship left or right hard. It's just evolving to time and place today.

Marty Flanagan: I moved to Atlanta 18 years ago, and like most Americans, all I knew about Atlanta was the airport. What I will tell you after 18 years, it's an amazing city. You know, immediately when you come to town, you realize that it's a community that sort of requires businesses to be involved, to get engaged. And so the business engagement, all the philanthropic activities all come together in such a way to make a great community. And so it's really apparent for Invesco that we can really make a difference.

We want to make a difference. It's good for the community, but it's really great for our organization, and all of our employees just really like to participate. And so we've been very active in things like the Metro Chamber, the Atlanta Committee for Progress and Botanical Gardens, Children's Health care, but also very much involved the community, our employee community to focus on very specific things that are important to them. And it is just a really important part of who we are.

Marty Flanagan: One measure of success of Invesco is 18 years ago there were about $400 billion in assets under management. Today it's 1.5 trillion. And that only happened because the organization's absolute focus on client success. What do clients want? What do clients need? And on the back of that, the organization continues to change to do that. And if you took a snapshot of the organization 18 years ago, five years after that, five years after that, today it is a different company. And it was because it was a focus on what our clients need.

How do we change the organization? How do we measure our success? It's not assets under management, it's client success. And I think that's been a really important, fundamental element of the organization and it will no doubt continue in the future.

Andrew Schlossberg: Yeah, I think that totally agree with that. And the strengths of Invesco being a truly global international organization, being relevant, being on the ground, knowing what those clients’ needs are, and then working backward from them, I think has always helped keep us in front of trends and help keep us relevant with clients. And that absolutely will continue. I mean, that's the DNA of the company. The other thing is, from a cultural standpoint, collaboration, teamwork, building on each other's ideas, that's a hallmark as well.

And so having the global, international and the collaboration and teamwork is a pretty special recipe. How you apply that to clients’ needs, how you take that to different market conditions or economic changes is what we constantly, and you've constantly, done in your leadership. And something I know myself and the leadership team are excited about taking forward and continuing that evolution.

Marty Flanagan: Early on when I got here, it was a recognition of incredible talent within the organization. It was already a global firm and recognized as such. But again, the environment was changing, client needs were changing. And at the time and now Invesco was more holding cup of asset managers. So it was really focused in the mind and the organization on what's best for the clients. How do you create a single integrated global asset manager? Because we had great confidence that's how our clients are going to be better off. And so it was really a mission of beginning this evolution that constantly happens to meet client needs, and that's cultural change, and not everybody likes change, but it's really important to do it.

So that was one. But the other thing that I'd call out, which I think is really, really important, is control what you can control. And you know, some things you can't. And the reality in our business with the markets, markets are volatile. Bull markets, bear markets, they happen all the time. But it's a challenge during those periods, whether it be the financial crisis or whether it be more recently, the pandemic. These are things that are evergreen and being able to manage through that, always having thinking of in those moments, it's clients first take care of the employees and if you do those two things, good things happen.

Andrew Schlossberg: And having been here for the last 20 plus years and had an opportunity to work through many of those challenging environments, what you said, I've seen firsthand and experienced that the financial coming into those periods, though, focusing on your financial strength, focusing on giving yourself the most amount of flexibility to manage through periods of crisis was always something I took away. Also, you mentioned talent, and I think one of the observations about Invesco is over the years we've done a, I think a good job of a mix of people that have been here for a long time and had experiences at Invesco and people that have come from the outside and brought new perspectives.

One of the things I'm excited about for Invesco going forward is that our executive leadership team is a mix of both of those things and how you bring that together and how you get the best for your clients. How do you get the best for employees and shareholders is something we're going to be absolutely focused on.

Marty Flanagan: I can't agree with you more, Andrew. And, you know, sitting here after 18 years, I can't tell you how excited I am for the for the organization. You come in as CEO, the executive leadership, the talent throughout the organization. It's never been a more talented group of people. And the future is really bright for our clients. The future's bright for our employees and for our shareholders.

Marty Flanagan: In challenging times, what do you do? And you've been a part of all of it. And if you look back over the years, this absolute focus on clients has driven us to create change. And we're always going to change. And it's an exciting thing, an important thing. I say that where I know it's uncomfortable for many employees, but in 2006, when we bought the ETF business, a $3 billion business is now almost $500 billion.

The opportunity in China, which we always knew was there. The joint venture is 20 years old today. We're now the largest foreign money manager on the ground in China. Those are really important elements. And there were moments where can you continue with this investment as a right investment? And again, you've driven many of these things and focus on private markets. So it was a combination of where clients evolve and where our clients’ needs evolving to. Can we make the investments behind it and can we stay committed to it during periods of change?

Andrew Schlossberg: Yes, and I think those are important lessons that many of us have learned over lots of years. Have conviction in your ideas, you know, not waver from that unless something materially changes. Be willing to listen to evolve those ideas. You know what we started off thinking in the ETF business in 2006 and how we think about it today are pretty different. But we were we had conviction about the vehicle, for instance. And the same is going to be true today around things like private markets where we have a deep background in private real estate or private credit that we've had great success in.

But how do we now bring those to other markets? How do we continue to challenge ourselves? So this notion of trying to peek around the corners. You can't see the end, but you just stay on the path. I think the other lesson learned through financial crisis and other disruptions that that were major like that is really run a disciplined business, as you said before and have financial strength because you know, when you need it, you need to make sure you have it. And being able to take advantage of opportunities that come from disruption and change is paramount.

Marty Flanagan, President and CEO:

It's hard to imagine we're wrapping up 2022. It was a year of surprises and unexpected developments, which we'll talk about. I'm thrilled to be here with Kristina and Andy, and we'll have a wide-ranging conversation of looking back a little bit, but probably more importantly, looking forward into 2023.

I believe really, all of us coming into 2022, after what was a spectacular market in 2021, we knew that we'd be dealing with inflation in some of the more developed countries. And that was topical, and people were prepared for it. No one saw the invasion into Ukraine. No one would have imagined that China locked down for COVID again and the impact on supply chains. All really harsh developments for inflation.

And then on top of it, the geopolitical challenges that we dealt with, principally between the United States and China. They all made for a really challenging market year, and so it'll be good to wrap up those thoughts as we look into next year.

And let me start with inflation. Needless to say, it's topical, and countries like the United States and the UK and the continent are trying to deal with very high inflation rates that we've not seen in decades, and everybody has a view on it. And let me start with Kristina, who is really thoughtful on the topic. So Kristina, can I ask you to pass on your thoughts?

Kristina Hooper, Global Market Strategist:

Well, Marty, to answer your question, I don't want to embarrass you, but I have to start with saying that you were one of the first to call inflation as being persistently high, when many, including Fed officials, were still calling it transitory. So of course, unfortunately, your prediction came true, and we had a very difficult year when it comes to inflation. However, I believe we have peaked, and we are moving in the right direction.

Now, Jay Powell looks at inflation. I think he did a great job deconstructing it into the three key components: goods inflation, housing inflation, and services inflation. And so what we've already seen is prices going down in goods. Think about used cars. We're seeing housing rollover, which makes sense, given high mortgage rates. But the stubborn component is services, and that's likely to continue to be as we move into 2023, just because such a significant component of it is wages, and labor force participation is relatively low. It's a tight labor market.

So that suggests we'll continue to see inflation moderate through 2023, but I don't think we're going to get to the Fed's inflation target of 2% by the end of 2023, although that's okay if it's moving in the right direction and we see longer-term inflation expectations on the part of consumers continuing to be relatively well-anchored.

Marty Flanagan: Really thoughtful, and I think you're right on the mark, and I think we're all looking forward to 2023, for many different reasons. But let's look at inflation from a different point of view.

So Andy, the US passed the Inflation Reduction Act in 2022, and the whole intent was to drive down cost for individuals, Americans in particular. As you look into next year, what does your crystal ball tell us about impact on officials and quite frankly, also corporations, from the legislation that was passed?

Andy Blocker, Global Head of Public Policy:

Well, Marty, you're welcome. Inflation Reduction Act: We are going to take the bow here in Washington. Actually, I'm really not a fan of the name. I actually think it should probably be the Inflation Mitigation Act. It doesn't roll off the tongue, but it's actually more accurate. And what I mean by that is that the key inflation mitigation points of the legislation are one, that on a macro level, it's that it raises more money, around a trillion dollars, than it actually spends, around 700 billion. So it's not adding to the deficit and just throwing money out there.

And the second thing, on a micro level, is that especially the prescription drug cost parts are mitigating the effects of inflation by basically lowering costs for people in specific sectors. I will say, just to add to that: There's one other key part of the Inflation Reduction Act; it's nowhere in the name. It's probably one of the largest investments in clean energy and to fight climate change we've seen: almost 400 billion dollars, and so we'll see some real effects from that in the future.

Marty Flanagan: Andy, really helpful, and those are some good points that I think people don't really understand on the surface there. Let's talk about global monetary policy. It goes hand-in-hand with inflation, and Kristina, I'm going to start with you again. As we look into 2023, what do you think the possibilities and the likely direction of monetary policy are, with central banks, maybe starting with United States?

Kristina Hooper: What we've seen has just been an extraordinary year of monetary policy tightening. The World Bank has referred to it as the most synchronized monetary policy tightening on the part of central banks in more than five decades, and so I think we're in the final innings of that tightening.

Many of those major central banks felt it important to front-load, because of the very high and persistent levels of inflation, and so they're getting far more satisfied, and what we're likely to see is a downshifting in the size of rate hikes. And I think we're going to be coming to a pause relatively quickly. I would expect the major central banks to all hit the pause button, essentially get to their terminal rate by the end of the first half of 2023. And it could likely happen significantly sooner, if we see inflation moderate enough.

So this is definitely not an ideal environment, but I think 2023 is going to be a lot better, in terms of monetary policy, than what we saw in 2022.

Marty Flanagan: That's great. So Andy, anything you'd like to add, if you don't mind, as you respond? Put on your Washington, DC hat. What you hearing, walking around the streets?

Andy Blocker: Well, it really depends on which side of the aisle that you sit on. If you're Republicans, they're more likely to support the Fed remaining hawkish for longer, to ensure that inflation is fully under control, even it means going into a slight recession. While Democrats, they're more willing to see the Fed ease off the rate increases sooner, to avoid even a milder, deeper recession. I think the Fed is more aligned with the Republican view at this time, but you're going to see a lot of Congressional hearings and a lot of pressure from both sides.

Marty Flanagan: So let's stay on that. So obviously, here in the United States, we just wrapped up our midterm elections. They continue to get more contentious as the years go on. But Andy, with the outcome of the midterms, what are you anticipating happening in Washington, DC? What are the big agenda items, and how might it impact markets and the way people might invest?

Andy Blocker: That's a great question, Marty. I think first, we expect Congress to accomplish actually a lot more in the lame duck session of Congress that we're currently in now, in this two-month period, than we do over the next two years of Congress. Already, we've seen them pass legislation to avoid a rail strike and to protect marriage equality, and they're now working to complete the government funding legislation, as well as the National Defense Authorization Act, along with disaster relief, Ukraine spending. And they're also going to try to get the Electoral College reform and retirement security legislation done, as well, so that's a mouthful right there.

For the next Congress, we really see a lot of noise, with not much getting done, other than must-pass bills. We expect a lot of oversight hearings of the Biden administration and their regulatory actions, a potential government shutdown, which will probably be short-lived, and a potential impeachment of a Biden administration official, if not Biden himself.

But we see none of these as market-movers. However, there is one potential market-mover, and that would be a potential breach of that ceiling, which is scheduled to be reached in the second half of 2023. And we really see that failure as a possibility, because of the current makeup of Congress, with specifically the split government of having a Republican House and a Democratic Senate.

Marty Flanagan: Well, Andy, let's stay in DC, if you don't mind. And lots of discussion, over the last few years, of the future of things like Bitcoin and the like, and very, very disparate views on where it was going and the possibilities. And the collapse of FTX has really been somewhat breathtaking, and from my personal opinion, we're just at the early beginnings of what we might see come out of it. And so the debate around regulation was everybody pointing the other way. What do you think is going to happen now, from a regulatory point of view, in DC, and other thoughts you might have there?

Andy Blocker: So I think the answer to the question on what's going to get done here on Bitcoin and the whole digital asset space is: Something's going to happen, and not much is going to happen. What I mean by that is first of all, you've already seen hearings start, with respect to FTX. You're going to see more of those hearings as we go into the new year. But I do think there's going to be an attempt to get something done in the longer term, especially with respect to dividing the jurisdiction between the SCC and the CFTC: who's going to do what and divvying out the different powers to actually regulate this area. But that's going to take some time.

I think the one area of a potential quick action, maybe legislation regarding Stablecoins, which I think the House had made some progress on last year, and I think the new Chairman of the House Financial Service Committee, Patrick McHenry's, going to spend some time working on.

Marty Flanagan: That's great, and Kristina, over to you. If you don't mind, let's say on the same topic. And put on your investor hat, and what's your sense of the appetite for cryptocurrencies? The people that believed, they really believed, and so do they still believe? What do you think is going to happen in 2023?

Kristina Hooper: Well, I certainly think there's still a very significant portion of investors that still believe. Keep in mind: What FTX was, was a platform issue, not an actual crypto issue. And we've actually seen that before. Mt. Gox was something rather similar. So we tend to see interest go in waves, and in fact, I've seen interest go in waves, in terms of even institutional investors. I think that will continue.

We also have to recognize that there is another macro factor that has, I think, made cryptos less popular in the near term, and that has been the giant liquidity suck that has been created by so many central banks. So I suspect that when we see central banks hit that pause button, especially when we get to the point where some central banks start to cut rates, that could create an environment that's very different and again, drive greater investor interest. But there's always going to be a significant cohort that is dedicated and remains invested in cryptos, no matter what that larger environment is.

So Marty, I have to ask you. We've seen other asset management CEOs say that cryptos are a Ponzi scheme, a scam, and that very few cryptocurrency firms will survive. Can you share your views on cryptocurrency and the potential for digital assets, broadly?

Marty Flanagan: Yeah, happy to, and look, I think what's undeniable is the underlying blockchain technology is meaningful. It's impactful. Really, there's no industry that will not be impacted by it, so that's really the good news. I personally have been a skeptic of cryptocurrencies like Bitcoin, from the standpoint of unregulated claims of money laundering, and some not-so-great things happening with the use of bitcoins. And I also believe, too, that if they ever got to the size where they'd be a challenge to central banks, that they would somehow be regulated. They're not going to let that get in the way of monetary policy. So I remain skeptical of the cryptocurrency element.

That said, very strong believer in digital assets and the way forward there. When you look at our industry, for example, the idea that you can tokenize real estate and put an asset like that and allow a greater group of individuals to access asset classes they can't necessarily get to, because the sheer size of it, that's a really powerful development, and we're going to continue to see that happen. Smart contracts are another area that I'm a very strong believer in. But again, all around the certain digitization element that we speak of, so there are lots and lots of very positive possibilities, and we're in the very early stages of what we're going to see.

Andy Blocker: Well, Marty, while we have you, I was curious. Invesco was early to identify the opportunity in China, and I was wondering how you're thinking about our business in China now, in the context of the global economy, geopolitical tensions, and the long-term outlook.

Marty Flanagan: Yeah, Andy, you're right. I mean, Invesco's been in China, through Invesco Great Wall, the joint venture, since 2003.

We look at China from within asset management as the single greatest opportunity in the global asset management space right now. And you can look at various estimates of net flows in our industry over the next three to five years, and some of the estimates are somewhere between 30 to 40% of all net new money into our industry will come from China. It's a massive opportunity.

So now contrast this, Andy, with the geopolitical tensions between the United States and China. They're real. They're acknowledged by the Chinese. They're acknowledged by the United States. My view is that the two largest economies in the world need to find a way to work together. There's many things we can disagree about, but what we both need is we both need growth. We need growth in China. The Chinese need growth; we need growth here. But if we set our agendas on developing mutual growth in the two countries, it would be good for both our countries and really, for the world.

I think it was a really important development that the President Biden presidency recently, when they met, they took the temperature down with the relationship, and I think that's really important. But it's going to be very noisy, from a geopolitical landscape, over the foreseeable future. But again, I'm just very hopeful that we keep all of our heads on straight and look to create a mutually positive relationship, recognizing we're not going to agree on everything.

So when we talk about investing, you can't talk about investing without thinking about risk and analyzing risk. And so Kristina, let me ask you: What do you think is probably one of the most underappreciated risks in the market right now?

Kristina Hooper: So Marty, I might surprise you by my answer. I really believe the most underappreciated risk is the risk of not participating in the market. What I think is the biggest mistake made by investors during the global financial crisis was getting out at or near the bottom and locking in losses, because they understandably got spooked. But then not participating in what became a very strong bull market, as a result of those fears.

So I think when investors consider all the risks out there, they can get very fearful, and especially if they don't have an investment policy statement or a plan for long-term investing, they can miss out on capital appreciation. They can miss out on exposure to risk assets that can help them meet those long-term goals. So to me, that continues to be the single greatest unappreciated risk for investors.

Marty Flanagan: Kristina, I'm going to pile on. You are so right, and inevitably, it's the individual investor that gets scared, gets out at the bottom, stays out, misses a run-up, and never will be able to accumulate the wealth that they had. And what's amazing: If you pick any index and go look back 100 years, and if you look, it just goes up. But by the way, it doesn't go straight up; it does this.

And so I'm really fond of saying, "Time in the market is more important than timing the market." If you try to time the market, you're going to be wrong all the time. And so your advice is really spot-on, and being very thoughtful about how can you plan your portfolio is essential.

Let me turn to you, Andy. And any thoughts?

Andy Blocker: No, no, I'm going to interrupt you, Marty. You guys are all Pollyanna here. So let me just go to you. You're a CEO. What keeps you up at night? There's got to be something.

Marty Flanagan: You know, Andy, I've been doing this so long, I sleep like a baby every night. The reality is, though, I think if you just think of this conversation, it is really, really important to constantly be challenging yourself about the future. What are the opportunities? What are the real risks in the market? What is the probability of those happening? And really just trying to stay on top of it and really have a broad view of engagements with very smart people with different points of view that you can learn from. And use that as a guide as you're making your decisions.

So that said, I'll put it in the context of the last few years. The notion that we would have had a global pandemic, the notion that the economies would be negatively impacted and shut down for so long, is just unimaginable. It's unimaginable that in this day and age, you see the Russian invasion in Ukraine and the level of inflation that we've seen not for decades. If you look back before all this and say, "Let's use that framework and test our hypothesis of how you would manage through that," you would say, "Oh, that's silly. That all can't happen. It's not going to happen."

Well it did; it has. The good news is we have all found a way to manage forward through it. I recognize some really horrible outcomes along the way, but the world is resilient, individuals are resilient, and 2023 is going to be a much better year than 2022.

Andy Blocker: Okay, so let's look to 2023. I want to look at the market, and I want to look at the industry and where we're going. So Kristina, let's start with you. What's your outlook for 2023? What's your best-case scenario for the year upcoming?

Kristina Hooper: So our outlook for 2023 is dependent upon central bank actions, which are, in turn, dependent upon inflation. Now, I already said our expectation is that inflation will moderate substantially through the course of 2023, and I do believe that will enable the major central banks to hit the pause button by the end of the first half of 2023. And we could actually see it happen even sooner. I think we could certainly very well see the Fed hit the pause button by the end of the first quarter, which would mean a terminal rate for the Fed funds rate of about 4.75 to 5% that band.

So what that does is it triggers an improvement, a rise in the global risk appetite. Now, that doesn't mean that we don't see an economic downturn. I think we will see a brief shallow global economic downturn, because so many of these major developed countries have experienced very aggressive tightening, and there will be lagged effects of that tightening. But markets will be looking ahead, will be anticipating a pretty shallow downturn, a pretty brief downturn, and so we're likely to see that risk appetite rise as we move through 2023.

Andy Blocker: Well, thanks for that, Kristina. That's an excellent market outlook there. Marty, let's turn to you on the industry's perspective. What trends do you see as we head into the new year? You've said in the past that the strong will get stronger and the weak will disappear. Is that still your view?

Marty Flanagan: It is, Andy, and look, it's not really so insightful. It's very reflective of a typical maturing industry, and it's being driven by a simple fact: Every one of our clients around the world, not just ours, but all money managers, are demanding more from their money managers and depth, breadth of capabilities. And they have choice, and the reality is, they are also working, choosing to work with fewer money managers. So the impact is, bottom line, there are too many money managers.

So those firms that have the resources to build capabilities that can meet and serve client demand are going to thrive. And the good news: Invesco happens to be one of those, and we'll just continue to see this development that again, the stronger will get stronger. And the good news is, clients will be better served, so I look at that as a win for all.

Well, Kristina, Andy, thank you very much. Your insights are always so meaningful, and I've learned something every single time we have a conversation. 

Marty Flanagan, Invesco President and CEO

Hi, I'm Marty Flanagan with Invesco. And it's a treat for me to be with Bud Peterson today, president emeritus of Georgia Institute of Technology. Blake Patton, the managing partner of Tech Square Ventures. And we're here to talk about the origins of Engage and really about the how and the why and the importance of it to many constituents. So thank you for joining us.

Like in many cities around the country, there is always an effort to grow the innovation elements with within them. And many cities look to the success of Silicon Valley. It was no different here in Atlanta, and Bud and I were involved with a number of business leaders here in Atlanta, and it was just this topic of how can we accelerate our innovation and startup success in Atlanta? As often happens in these situations, somebody gets tapped with sort of helping organize that. And the conversation was around creating a fund for startups, and that would be the way to success. Where our conversation moved to from what we've seen historically was it's not the capital, it's the ecosystem.

So it is the totality of what is a successful environment. And from our perspective, it was you need a startup success in a city that was happening here in Atlanta. You need a great university like the Georgia Institute of Technology. You really need large multinational corporations that are dedicated to success of the ecosystem. And that was really the foundation of what we wanted to put in place.

As I thought about the first steps, I immediately looked across the room and it was Bud Peterson. We needed Georgia Tech to be a foundational part of the success of what was Engage. Bud and I had initial conversation. We aligned on the way forward. We also needed a very successful executive in the startup space that really knew how to work with large corporations and in startups. That's Blake Patton. And I would say Engage never would have happened but for the combination of the natural ecosystem here and these two leaders.

Bud Peterson, President Emeritus of Georgia Institute of Technology

So yeah, Marty, I think you're right. I think it was the Atlanta Committee for Progress meeting when we were having the conversation. And the conversation kind of centered around what were the advantages that we had here in Atlanta and what are the things that we could leverage the presence of so many Fortune 500 companies, the infrastructure that already existed in kind of the early beginnings of an entrepreneurial and innovation ecosystem. And the real challenge, I think, was how do we bring these large corporations into the mix? I know that one of the things that I said was I was born in Silicon Valley, but I lived there three years and that was in the fifties.

So I don't know how it works, but it seems like a lot of the corporations out there, the folks in the C-suite, are engaged with the innovation and entrepreneur, entrepreneurial community. And how can we create that that here in Atlanta? And I know that your response was to do that, they have to have some skin in the game. And I think that the combination of your experience and some of the things that were available through Georgia Tech and then Blake's expertise and experience, both as a venture capital guy and with Georgia Tech and running the ATDC was just kind of a great marriage that seemed to work really well.

Blake Patton, Managing Partner, Tech Square Ventures

Yeah, I was really excited to get that call. And so when I think back to 2015 and 16 when we were planning for Engage, it was really like launching any other startup. You know, we started out by doing customer discovery and getting out and talking to Atlanta's business leaders and what we heard were sort of three strong themes. They were interested in connecting with the startups that were shaping their enterprises or their industries. They were interested in cross corporate learning and connecting with each other and interested in helping make Atlanta a leading tech hub.

So the three of us got out and we started talking to prospective corporate partners that would be interested in joining Engage. And I think we talked to 11 companies and out of those 11, ten initially came on board. So that was tremendous early-stage success. And so that that early idea evolved into what we built and Engage today. Collaborative network of corporate partners combined with strategic capital and innovation we see in the startup community.

And the heart of our program is this go to market program, this ten week program where we bring startups in. And with the combination of hands-on help and and access to corporate partners to help them really break down the barriers of selling to and partnering with large enterprises.

Marty Flanagan

And it's hard to imagine, you know, we're now five years into it. I think we would say the success is happening much more rapidly than we thought. And beyond us, the board of directors would say that the corporate partners, the entrepreneurs at all levels, and the success really came as all of these different constituents came together, the involvement of the corporates. And I think each CEO would tell you that what they value is the innovation, but also learning from each other. And, you know, working directly with the startups has been really helpful to all of us. And I'd also say the other element that has made it so successful is that the CEOs each picked what we call a quarterback, and it's a highly placed person within the organization that has respect to the organization, they can get around and advance the innovation agenda, connecting with Engage.

And so this would not happen without the totality of the involvement of all these different constituents.

Bud Peterson

So I think another component or element of success was the experience that that the three of us brought. I know, Marty, you and I talked to you, your experience in Silicon Valley and the support that Invesco provided in terms of the legal framework, which was really complicated from my perspective. But you had folks that had done some of this before, had knew how it worked, knew what the structure needed to look like. And then once you and I kind of had that conversation, the big question was, okay, who were you to get to run this? And we were really fortunate to find Blake, who had this combination of experiences as being an entrepreneur himself, starting companies himself, and now an investment firm and familiarity with the resources that were available at Georgia Tech and also here in Atlanta.

Marty Flanagan

I would just say I give a ton of credit to Bud there because, you know, there was a moment of where we're going to find the right person. And when Bud suggested Blake and we had a chance, I got a chance to meet him, you know, the combination of experience, it was just clear that there was something that was going to happen. So it's been a lot of fun.

Blake Patton

It has been a lot of fun. I think the common theme in all this is, you know, we owe so much the success of Engage really to the people that it's brought together. And I think that's kind of the point, the power of the collaboration, you know, and connect and connectivity that it's driven in the ecosystem. When you think about bringing together the executives in these, you know, world leading companies and the, you know, the expertise and innovation of the faculty and researchers at Georgia Tech, with the you know, with the startups and these entrepreneurs.

Right, that's really what's propelled the success. And we've seen that in, you know, in the early results in the in the 75 startups that have gone through the first ten cohorts, we've had 116 contracts between those startups and those corporate partners, and they've raised two and a half billion in capital. And by the way, 40 of those startups are either, you know, headquartered here or have teams based right here in Atlanta.

Marty Flanagan

And the nuance of this is it's designed to, it's really a flywheel of success because the corporates are helping be clear with their innovation agenda, when Engage starts to go to market to identify startups, it's in areas where the corporates need help, want to make investments, want to develop something. So it's logical that we'd have this success, but it's not typical across the country. And I think that's why you continue to see the energy from the entrepreneurs, the corporates, Georgia Tech, and we're always challenging ourselves, how can we be better? How can we help the startup community more? How can we help the corporate partners more? And who knows what it would look like in five years?

Bud Peterson

So I have to confess a little bit that when we first were having these conversations, I had thought of this and the corporate engagement or the involvement of the other corporations. And I know when I had some of the early conversations, Marty, you had some conversations, but I said, I don't think you're going to make a lot of money on this. This can't be a gift, but don't think you're going to make it a lot of money. Invest in the entrepreneurship ecosystem in Atlanta. And I think I was certainly surprised at how successful it was and that the corporations that are involved, the partners that are engaged, their return on their investment is something that they're very pleased with, and I wasn't sure how that was going to work out at the start, quite honestly.

Blake Patton

Yeah, I think I think the early success of the venture fund is has really helped prove out the model both to make it sustainable, but it's also an indicator that we're connecting these corporates with the right startups, to startups that actually are shaping the future of the of these different industries.

Bud Peterson

So I'll ask a question of you two guys, because you're familiar more familiar with probably the answer than I would be. But what is it that unique about this activity that has helped make it so successful? I mean, I have some thoughts, but I yeah.

Marty Flanagan

Look, as you mentioned, when I live in San Francisco, as you said, Bud, it's just a natural act that this ecosystem works. It's not a natural actor around the country, but I think the attributes of Atlanta are unique where, as I said, a leader like you at an institution like Georgia Tech is imperative. The way Atlanta generally engages in the community is like something I’ve never seen before. You apply that to this situation where you have multinational CEOs of multinational companies engaged in saying, I want this to happen.

Along with a leader like Blake. Very seldom does it come together that way. And I think that's really the secret sauce of engage vis a vis some of the other efforts in different parts of the country.

Blake Patton

Yeah, I think that's right. One thing I'd add, Bud, is it's these what's different in some of these other regions, too, is these leading corporations are from a diverse set of industries. You know, it's everything from financial services to manufacturing to retail, food and beverage. And that gives us this really unique set of insights. And so when we take those insights and then we go out and seek startups that are solving the challenges across that diverse group of industries, it really gives us this much more unique innovation lens and advantage. And I think that's a lot of why we're seeing the success for the corporate partners, seeing success for the startups and connecting with them, and then and then also the success and the results.

Bud Peterson

I know that one of the things that impressed me when I first came to Atlanta, I'd been in Houston, in Denver, in outside New York, New York, but I was really impressed with how engaged the corporate community was through the Atlanta Committee for Progress, the Metro Atlanta Chamber. I mean, you go to these meetings and the CEOs from all these Fortune 500 companies are actually they're not sending somebody else. They're there, they're involved, and they're involved today. And I thought that was something that I hadn't seen before, but certainly is something that makes Atlanta very unique and I think has added to the success of this venture.

Marty Flanagan

I think there's no question about it. And we've talked about it. I had the same observation when I came here almost obligated to participate in a serious way. And it helps Atlanta in many different ways, as you said, Bud, but clearly, it's been a really important element here in Engage. I mean, it has benefited from that sort of corporate commitment to the success of the community.

Blake Patton

And the other way, you know, what was missing from that? That's that that table is the startup community. Right, and Engage has really helped bring that bring that together and bring that connectivity together.

Bud Peterson

So I Marty, I know and you may want to respond to this. I know I pressed early on both you and Blake, because we started with ten or 11 corporations and had a lot of early success. And I'm thinking, okay, let's go to 20, 30, 40, how fast can we grow this? And there was a lot of resistance on your part to make sure that we did what we did right initially.

Marty Flanagan

And I think that's right. And it was like, it's all judgment's right. But from personal experience, when you do something like that, it's so reliant on different constituents that have not naturally worked together at this level. Getting it right really mattered. And it really was the closeness of the corporations that rely on each other for success. And I'd say any one of us get the rest of the corporates here and not just has this been helpful for the innovation agendas, but every one of the corporates would tell you, the CEOs, the people on the board, that each of our corporations learned from a different corporation, Delta learning from Home Depot, from UPS. And that's a really powerful thing in addition to what Engage is doing. And so I think, you know, having that proving out the model and early successes is the difference.

Blake Patton

I can't help but look at it from the entrepreneur standpoint in building something from nothing and having that that initial focus. And I think as we look forward, there's unlimited opportunities. But what's really important is that we get this virtuous cycle right that we get really good at. Understand deeply understanding the innovation needs of these corporate partners so that we can go out and find and invest in and bring in the startups that are solving those challenges. So I think that I think that initial group had a while it wasn't 20 companies. Again, it represented a broad range of industries. And so we really had a great, great launching point. And that's something that's real that I think is unique about this region. We have that and we have that at that scale. And so, you know, where a Silicon Valley has that organic connectivity that you're talking about, Marty. You know, their big companies are tech companies. So we have this diversity in industries. We have it at scale. And so this was really, you know, an ideal you know, an ideal launching point to create that type connectivity.

Bud Peterson

So in kind of coming back to my wanting to grow too early to cast, I mean, we're five years into it, so where are we going? What's next?

Marty Flanagan

And now you're saying, hurry up.

Bud Peterson

Well, you convinced me that we didn't want to go too fast, and I'm convinced, but. But it is five years. What have we learned? But we've got companies now that have started and been successful. And how can we leverage them to try to help the new the newcomers?

Marty Flanagan

So Bud it is five years, right. And, you know, the success we're all proud of. But where do we go from here and what have you seen the initial benefits?

Bud Peterson

Well, I think certainly benefits to Atlanta and the greater community. I mean, there are a lot of components in this ecosystem that we've created here in Atlanta, particularly in midtown, But Atlanta Tech Village, Tech's Square ventures, you know, a lot of groups, a lot of individuals that are contributing to that.

One of the roles and responsibilities of Georgia Tech as a public institution in the state of Georgia is to try to build and expand the economy. And this idea that we can help with the creation of new businesses, attract existing large corporations to come, but also create new businesses. Most of the new jobs that are being created in the company are from companies that are in the startup. And so this has helped facilitate Georgia Tech's effort in that area and actually propelled it way beyond what I think our original expectations and aspirations were.

Marty Flanagan

That's a great point. And I think we've been talking about engage. But what I also learned was I thought this was somewhat of our original idea. And what I learned was there are lots of successful elements that have already been sort of growing in Atlanta. And I do think that the more the merrier. And this is one that, you know, we continue to see the future. And I would say from Invesco’s perspective, it's made Invesco better. You know, I value the time we spend there. I value what it does for Invesco. And I suggest you hear that from all the corporates.

And I think one of the elements that we wanted to have out of this was, selfishly, having Atlanta become stronger, drive employment higher, keep the talent here from Georgia Tech, don't have them go out to California, stay here, grow here and make a difference. And you know, that's really happened.

Blake Patton

Yeah, Yeah. Look, you've seen it. We've seen it with your team at Invesco. You know, you've engaged in pilots or opportunities with 11, you know, of the startups so far. And I think you have ongoing relationships with three of them. And we see that kind of engagement across the corporate partners. And, you know, when I think about looking forward, we've we when we got started, we really focused on proving out the value proposition to the entrepreneurs. Can we connect them with the large enterprises? Can we shorten that distance and break down those barriers to them getting partnerships and customer opportunities with you and do? And in doing so, you know, we've learned a lot about the strategic focus areas and innovation roadmaps of our corporate partners are investing in our other corporate partners.

And so I think looking forward what the big opportunity is, is to kind of complete that virtuous cycle and really, you know, leveraging Georgia Tech and their capabilities of helping us with understanding those innovation needs and going out and finding and investing in those startups and connect them with the with the corporate partners.

Bud Peterson

So, you know, prior to Engage there, there were and still are a lot of other entities are that are involved in this ecosystem, this entrepreneurial ecosystem. I think the thing that Engage it that was really kind of the unique aspect of it is that it brought it, figured we figured out a way or you figured out a way or Engage figured out a way to get the corporate leadership involved with the innovation and entrepreneurship community. There were a lot of those activities going on, but how do we link the major corporations so that they can benefit directly from this and interact directly with this entrepreneurial venture ecosystem?

Marty Flanagan

I think you're exactly right. I mean, that is the difference, right? And you can feel the energy and. You know, from my mind. That's why more startups are coming here, want to stay here and the corporates are acting in a different way, which enables the success of the startup. So as Blake just said, we're honing the ecosystem and more to go, but so far so good.

Bud Patterson

So Blake, you've started companies invested in companies. How valuable is it to these startups to be able to get direct access? I mean, one of the things that we talked about was a lot of these startups, there's no way they could bid. They could submit a bid to Coca-Cola and be successful. They got three people. They don't have a legal department, they haven't got a HR, they haven't got a whole group of people that develop proposals. How does that work with Engage?

Blake Patton

Yeah, you know, look, I mean, what entrepreneurs need even more than money is access to markets and customers. But what I think what makes Engage special is it's not just introductions, you know, the potential to pitch or get through that procurement department. It's the working together, it's the feedback. Then those are just as valuable as the yeses. In the early stages of these of these startups, you're really trying to find that product market fit. You're trying to find, you know, limited resources, you're trying to figure out where to focus. And so the structured way to gauge that we connect these companies and the startups are really a competitive advantage for the startups.

Bud Peterson

So I'm going to ask Marty the same question. So I mean, you've got a lot of time and energy and invested in this, Marty. I mean, Invesco was there's no way we could have done this without the legal support that you guys provided. But why Invesco? I mean, why are you involved in this?

Marty Flanagan

It's a good question, but multiple levels. I mean, what I would say is it was clear there was an opportunity here in Atlanta. And with the you start with the Atlanta that we knew collectively we could make a difference. And I think collectively we saw the way forward. So that was very exciting. But very selfishly, it's really important to Invesco, to us continuing to push our innovation agenda, opportunities for our employees to get excited about things that they might not be involved in otherwise attracting talent to Invesco. It's all really very important to us, and so there's a selfish element to it also. And I suspect if you ask any one of the corporate partners you’ll get some version of the same answer there, and it really has been an important journey for all involved and from my perspective.

Blake Patton

And Bud I think you know this but, you know, launching this on the platform, you know, if those resources at Georgia Tech really gave us a head start and then a big part of how we've been able to do that for Invesco and the other corporate partners is Georgia Tech helping us convene these working groups across these common innovation areas that the corporate partners care about, where we're bringing together, you know, over 100 domain experts, executives from the companies, the faculty and researchers at Georgia Tech, and diving into these innovation categories like supply chain and AI and analytics and customer experience and sustainability and future of work.

And so that's been a big, you know, a big component of it. So in addition to us getting smarter to go out and source these startups and bring in finally starts to bring into the Engage program, the corporates are also benefiting from that across corporate engagement, across corporate learning.

Marty Flanagan

Yeah, I just want to underline that. All right. To be clear, this would not have happened if Georgia Tech wasn't here and if Georgia Tech didn't have ATDC and or a leader like Bud and same thing without an experienced Blake who not only had been successful in the VC world, but actually knew how to get around Georgia Tech worked at ATDC and the dedication and of the corporate partners and the CEOs to say this actually could make a difference. That really is, you know, you need a lot to come together to create.

Blake Patton

And what I love is that, you know, when you add all that up, what you see is this amazing growth and connectivity that's kind of unique for Atlanta. The connectivity of the not just the established, you know, large corporates, but also the startup and innovation ecosystem. And we're really, you know, showing Atlanta is the best place in the country for enterprise startups to do business.

Disclosure:

This interview has been provided for educational and informational purposes only. The opinions expressed are those of the speakers, as of Oct. 18, 2022.

Marty Flanagan: 30 years ago, in the novel Snow Crash, science fiction writer, Neal Stephenson, described a virtual reality version of the worldwide web where people use avatars to engage with software and with each other. This was basically a depiction of a would be successor to the internet even though the internet was still very much in its infancy at the time. Today, science fiction has become science fact. The metaverse is taking shape, and it's happening at an increasing speed. I'm here today with some of my Invesco colleagues from around the world to discuss why this could be a weapon of mass disruption. A game changing innovation that will impact multiple aspects of all of our lives.

 Joining me in our New York studio is Donie Lochan, our global Head of Technology. Anna Paglia, our Global Head of ETF and Indexed Strategies. I'm also happy to be joined by Henning Stein, our Global Head of Thought Leadership and Market Strategy, joining from Switzerland, and James McDermottroe, a Deputy Fund Manager at our Henley Investment Center in the UK, and Giuliano D'Acunti, our Country Head in Italy. But it only seems right that a discussion about the metaverse should take place in the metaverse. So, let's dive into this virtual world, and please join me there now.

Thanks for joining me, everyone. And, Donie, before we really get into what the metaverse is all about, can you explain what we're seeing here and maybe give us a quick expert tour?

Donie Lochan: Sure. Will do, Marty. So, folks, see where we are right now. This is called a space. It's a workspace that you create. And you can create various different kinds of spaces. If you see the one we're in right now, you see the stores, you see some of the branding, et cetera. Let's quickly jump and show you some of the other spaces and what you could potentially use them for.

So, this space, you can see, is a virtual exhibit hall. So, if you can look and see the blue spots at the bottom, you can click any of those and move around. So, you could imagine if you were doing a client event and you had different booths for the clients or maybe an internal corporate event, and you can see all the different kinds of branding that you can do and you can basically go to the different places and interact. Let's go to another place which is maybe more of an intimate setting around maybe conversation.

And this one we called a sunken lounge. If you think about potentially maybe a smaller group, either a team or maybe a client, and you wanted a more intimate setting for a conversation. If you can see on the boards, you see we have media boards where you can show content, et cetera. You have the tables there. It acts as just a different way to do collaboration more in an intimate setting in the virtual world. So, hopefully, that's given a little flavor of the kind of spaces that one can create. With that, let's go to my main hall where we'll begin our panel discussion.

Marty Flanagan: Thank you, Donie. That was really amazing. Well, I've been in the metaverse a handful of times. Henning, I understand that you're pretty well traveled in the metaverse, is that right?

Henning Stein: Yes, Marty, actually, I used an augmented reality headset maybe for the first time around a year and a half ago, and I was actually visiting a friend in Germany and we played these old Commodore 64 games, Paperboy, Winter Games, Marble Madness. And then my friend suddenly said, "Henning, I need to show you something, put on this Oculus headset." And one minute I was meditating by virtual fireside, the next was fishing in a virtual lake, and then I was peeping out of a virtual helicopter. And that's not an average day for me in the real world. I like meditating, I do that in the morning, evening.

And now I have this metaverse app called TRIPP, I do this with that. Fishing and military assaults are not really my thing, but I was really astonished by what was possible. And so, I went back to Zurich, I started to research a little bit about the total addressable market behind this, and then I wrote up an article about augmented reality and its investment potential. And then a few months later, someone else started talking about the metaverse was Mark Zuckerberg. And I'm not claiming that he read all my articles, but I felt pretty proud in that moment. And now we have everything from big tech basically to some of the world's most innovative startups working flat out to realize the metaverse stream in full.

Marty Flanagan: Henning, that was great. You thanks very much. So, Donie, I have a question for you. Do you think the journey to a fully fledged metaverse really only just started or can we trace it back to Stephenson and his book, Snow Crash?

Donie Lochan: That's a good question, Marty. It certainly has hit another gear in the last year or so, but there's been significant milestones actually over quite a lengthy period. Gaming and entertainment is really where it started, and it's probably the most mature right now. Probably the most important trail blazer is a game called Second Life, which was actually launched over 20 years ago. Second Life helped pioneer ideas that are quite common today in the metaverse, which is things like buying virtual land and using platform as a way to build basically anything one can imagine. Fortnite followed a few years later, that provided us probably with an even better idea of what the look and the feel of a fully functioning metaverse could look like.

They've now matured and that platform actually held its first virtual concert in 2020, which again showed how a metaverse style environment could be used beyond gaming. I think today, I've lost count, there's probably about 10 different virtual metaverse concerts that have happened with the likes of Justin Bieber and others. I think one of the key milestones that has been an enabler has been the launch of both Bitcoin and the blockchain technology in 2009, and then the help of another crypto currency that's pretty prevalent in the metaverse, which is ETHA, which is around 2015. So, these blockchain technologies really set the underpin of the ownership of digital assets in the metaverse and will be vital to investments.

Marty Flanagan: Yeah, thank you, Donie. And talking about investments, James, can I get your perspective here? Where do you think we are on this metaverse journey?

James McDermott...: Importantly, despite these and other developments, we still don't have consensus on how the metaverse concept should be defined. This is no great surprise since the metaverse is still a work in progress, but I think we can agree on a few essential basics. First, we can assume we're talking about a shared virtual world that's accessed by the internet and that generates user presence. Second, we can assume it's likely to involve extending our senses of sight, sound, and touch by blending the physical and the digital. Third, we can assume it's going to be built around fully immersive 3D environments that will be able to use avatars to explore. Zuckerberg has spoken about an embodied internet. I think that's probably the neatest summary of where the journey is heading.

Marty Flanagan: Thank you, James. Let's turn to what we think are going to be the metaverse growth drivers. And I think we can all recognize and realize that, that tremendous advancement in technology, as Donie was talking about, is really a major driver which will probably rapidly advance the technology, but it's important to understand what the other factors might be fueling this metaverse journey. And, Henning, can I start with you and get your thoughts?

Henning Stein: Yeah, I think a general reassessment of really how we interact is playing a part. So, lockdowns, you had the pandemic of course with all the restrictions and I think that has sort of accelerated this. I think many people are now more willing to actually connect virtually, and that underlines the general appeal, the applicability, if you will, of the metaverse concept. Another big driver is demographics, or particularly, if you look, the metaverse clearly appeals to the world's biggest demographic cohort generation zoom, and the zoomers, they were born between actually the late nineties and the early 2010.

They represent the most, let's say, tech driven demographics, and research really shows most zoomers, they would happily visit a virtual game environment without even playing the game. They just want to be there. And so, we have the relentless advance of tech, we have a significant accelerant of tech, and we have an unprecedented appetite for tech. So, you put these things together, it's a very powerful combination and one that's really helping bring us closer and closer to a fully fledged metaverse.

Marty Flanagan: Thank you, Henning. Really helpful and very thoughtful. And let's now turn to really Genesis trends in thematic investing. So, when we talk about forces and trends that are likely to reshape our lives as investors, we often think about thematic investing. Thematic investing is basically about structural shifts that bring about long lasting change on a massive scale. So, the question is, do we think the metaverse will have that effect? And so, Giuliano, can I get your thoughts, with thematic investing on our minds, how do you think that metaverse is going to stack up against previous game changing innovations?

Giuliano D'Acun...: Yeah, the metaverse already birthed many of the hallmarks of what we might call a genesis trend of, if you prefer, a big bang trend. This phenomena is caused when the growth of a technology of a broader mark becomes sufficient to trigger a substantial, lasting shift. And that's what the metaverse market is already on course to achieve, and it has been tipped to grow very quickly during the next few years. Let me provide an example, some example. It was valued at 48 billion dollars in 2020, it's suspected to eat more than 208 billion by 2025, and approximately 850 billion dollars by 2028. In other words, we are talking about a market that's set to grow from less than 50 billion to nearly one trillion in less than a decade.

Marty Flanagan: Giuliano, thank you. It looks like there's quite an opportunity here. And now, one thing to think about, we all know that the past isn't necessarily a guide to the future, but we also know history may not repeat itself, but it tends to rhyme every once in a while. And so, Anna, if someone's thinking about investing in the metaverse, figuring it's a new Genesis trend, are there any lessons from history to draw here?

Anna Paglia: Absolutely, Marty, there are. You mentioned the most obvious right at the start, the internet, which has transformed almost every aspect of our everyday life. Another example is the smartphone. 15 years ago, when the iPhone kicked off the smartphone era, Apple share price was about $3. Early this year, Apple share price was about $160, why? Because the smartphone, like the internet, is now at the heart of our daily lives. And this is only a smart part of the story because let's not forget Apple was already a household name when the iPhone made this debut.

What's less appreciated though is that other businesses involved in the smartphone rise enjoyed growth that was even more spectacular. And I'll give you two examples, Innox Corp, a South Korean manufacturer of semiconductors and China's Sanan Optoelectronics, which makes LEDs, both companies have generated investment returns of around 20000%, far in excess of apples returns since the iPhone was unveiled. And they have done this not by designing a marketing of smartphones, but by making the components that allow smartphone to function. So, the point here, Marty, really is not just the high profile architects of a Genesis trend that are likely to do well over the long term, the many enablers of a Genesis trend are also likely to prosper and they might even enjoy the greatest long term growth of all.

Marty Flanagan: Well, it looks like there's quite an opportunity here, and obviously the pace is clearly picking up in this development. Let's build on that notion of architects and enablers because I think it's really a key to understanding the likely scale of this disruption. Henning, James, can you talk us through some of the enabling technology to show the metaverse's likely impact on multiple sectors?

Henning Stein: Yeah, sure, Marty. So, going back to my own formative metaverse experience, an obvious starting point is augmented reality and of course virtual reality. This is really central to creating truly immersive platforms that then transform how we interact also with product, services, organizations, and of course with each other. So, augmented reality, AR, that's already being used in various mainstream digital product and services. Just look at Snapchat or look at Pokemon. We also have cryptocurrency, we have blockchain. Donie mentioned this I think earlier in this discussion in terms of milestones, blockchain in particular, is likely to be really vital in ensuring the metaverse transforms not only how we interact but also how we transact. And it'll also underpin innovations. Think about non-fungible tokens, right? It's already accounting for billions of dollars worth of transactions.

Marty Flanagan: Thank you, Henning. And, James, how about yourself? Any thoughts?

James McDermott...: Yeah, sure. Another big enabler is artificial intelligence. Mark Zuckerberg described this as the most important foundational technology of our time. AI will provide the scaffolding needed to create virtual environments and sophisticated forms of metaverse user engagement. Meta, previously Facebook, is really throwing its weight behind this. Again though, let's not rule out lesser known players. The metaverse will also need new levels of wireless broadband connectivity, that means 5G technology and beyond. And it will need computer hardware, the basic building blocks of any digital system. Huge demands are going to be made of this market. The metaverse will need processes, it'll need semiconductors, it'll need supplies, motherboards, and even ventilation fans. So, here again, it would be wrong to presume a single company could dominate. Many market leaders and players are going to emerge.

Marty Flanagan: Yeah. Thank you, James. It looks like any of these technologies, the demand on underlying infrastructure is foundational. So, a lot to do here. And let's turn to what sectors might benefit from this development as you were talking about James, and what do we think the sectors that will benefit, and will the metaverse live up to its... The notion that it is a weapon of mass disruption as we look to the future? And maybe, Giuliano, can you start and give us your thoughts please?

Giuliano D'Acun...: Yeah, this is happening already, and it's most obvious in the sector that is done so much to develop the metaverse story, so far, gaming. Various platform in this space are incorporating technologies such as AR, VR, AI to announce that all important sense of immersion. Epic Games, which developed Fortnite, completed a two billion dollars round of funding earlier this year to support its metaverse efforts.

Another platform, Roblox, went public in 2021, and just months later, announced plans to build a metaverse around its user community. Nike launched Nikeland on Roblox last November, and this allow participants to play digital sports by using special sensors in smartphones. And there is also Unity, which is a leading designer of cutting edge game engines. And it says it want to be the 3D operating system of the world. So, we can think of Unity as the Shopify of gaming, and its business model relies on the user creating content and then monetizing their work. So, Unity has also shown how gaming platforms can branch out. Disney used it for 2018 Digital remake of The Lion King, for example.

James McDermott...: Social media is another sector that will benefit, especially given Zuckerberg's decision to rebrand Facebook as Meta. Meta spent at least 10 billion dollars in 2021 alone on Facebook reality labs whose metaverse division works on AR and VR projects. Most people still view the company as a social media giant, but Zuckerberg has said he wants it to be seen as a metaverse business. E-learning is one of the sectors that really flourished during the pandemic and the metaverse is likely to strengthen it even further. This is another transformation that's already underway. For example, avatars are now used in online science courses in South Korea.

Anna Paglia: And let's not forget what we are doing right now. The metaverse is going to radically redefine how we think about video conferencing. It's not so long since a software like Teams and Zoom appeared, but we are already seeing that they just scratch the surface of what's possible. The entertainment industry is also ripe for disruption. The metaverse could mean no traveling, no queuing, and perfect views of every show. To some extent again, the future is already here. Ariana Grande is one of the stars whose avatars have performed on the Fortnite platform. E-commerce will also undergo radical upheaval, for example, in the metaverse, we are able to try products before we buy them. Some companies are already developing branded items for avatars. Believe it or not, a virtual Gucci bag has sold for more than a real one, and I should know that. The metaverse is likely to accelerate the evolution of telehealth by making remote patient-doctor interactions more personal.

Donie Lochan: I would say all the markets we just mentioned are expected to grow significantly as the metaverse takes shape, but there are plenty others, like real estate with companies like Decentraland, and the figures speak for themselves. The entertainment market is expected to be worth $447 billion by 2025. E-Commerce is more than 20 trillion. So, we can truly think of the metaverse as a weapon of mass disruption, and that means investment opportunities across the board.

Marty Flanagan: The opportunities do surely seem endless here, but I think we all know with opportunity you need to assess risk. So, let's talk about the key risks around the metaverse from an investment perspective. One of the risks a lot of investors talk about is concentration risk within a portfolio, and that's having excessive concentration in technology, stocks maybe around the metaverse could be one. We also need to think about the timelines here because the total addressable market for the metaverse will likely take a bit of time to develop and might take longer than is expected. No one can dispute that the journey is well underway. And I think many of the sub themes that we've talked about here are performing largely as predicted, but we've also said nobody can say with confidence how long it's going to take before we have a fully formed, fully functional metaverse. But there's a lot of dollars, a lot of smart people and a lot of energy behind the notion of developing the metaverse.

Donie Lochan: That's correct, Marty. There's certainly a lot of branching out yet to come, at least for the time being. Most metaverse's experiences, as you've heard, are really focused on gaming centric loyalty and entertainment like the concerts that Anna mentioned. More generally, of course, there's the risk that we always have to attach to the next big thing, the possibility of more hype than substance. I think it's fair to say we all spend a lot of time looking for the next big thing, and it's also fair to say that many times we end up disappointed. You know how the story goes, the next best thing... Big thing, sorry, generates excitement, builds everyone's expectations, and then quietly fades away. As for someone who works deeply in technology, though, I don't think the metaverse will follow that pattern. This doesn't strike me as a flash in the pan.

Henning Stein: Yeah, good point, Donie. And maybe the biggest threat is what's now the pacing problem, right? This is what happens when innovation leaves regulation behind. And it's a problem that has arguably existed for centuries, but it has probably never been as pressing or as prevalent as it is right now. And the issue is essentially this, you have, on one side, technology, it changes exponentially, but then you have social, you have economic, you have legal system, culture, right? It takes time. And these things, they tend to only change incrementally. We saw this during the early years of the internet, in fact, and we are seeing it again now with the rise of concepts like crypto, like tokenization, AI.

And there is this risk, sort of a lack of meaningful frameworks, if you will, producing that free for all. So, we really need regulators to come in, policy makers to play their part. But this isn't a problem specific to the metaverse, the issues arising from this pacing problem, they apply in two dimensional things just as much as they apply in 3D. And many regulators, legislative efforts actually related to the internet are now underway. And for example, there's this raft of antitrust legislation in the US, and these should affect the matter soon. So, there's little chance of ending up as a fully digitized version of the Wild West. And I think one point I would make about this is, whatever regulation, whatever legislation emerges shouldn't stifle further innovation in this space.

Anna Paglia: And you mention timelines, Marty, and it's true, no one can say for sure how long it might take to realize the metaverse full potential. For example, experts say that computing capabilities will need to increase by several orders of magnitude to deliver a truly immersive experience. But I think we can all agree, the technological base is here, so are the conditions for a broader adoption around the wider appetite for change. We spoke earlier about thematic investing and how it's becoming more and more important to a long-term outlook. Let's quickly revisit that. Thematic investing isn't about where the market might be next quarter. It's not really even about where the market might be next year. Thematic investing is about the long term. It's really about where the market is likely to be in 5, 10, 20, or maybe even 50 years time.

Henning Stein: Oh, I totally agree with Anna. This is about understanding which of today's emerging innovation could become central to our lives over time. It's about asking ourself which companies, sector or industries might have vanished and which might have taken their place. As I said earlier, the metaverse already birthed many hallmarks of Genesis trend. That means it ticks these boxes. Without any doubt, it's a long term play.

Donie Lochan: And that's what we all like. Innovation with real, long-term impact. In the meantime though, I think it's now time to head back to the real world.

Marty Flanagan: Thank you, Donie, Henning, James, Giuliano, Anna, for joining me in the metaverse. It's been great to talk about it while actually experiencing it.

Marty Flanagan, Invesco President and CEO:

                                                So I've been at Invesco for 17 years and often people say, "What am I most proud of at Invesco, in my years?" And it's an answer that probably catches most people off guard. In fact, it's the culture of the firm. I found being here for so long, one of the fundamental strengths of the firm is the culture here. It's a group of people that care about clients immensely. They care about one another and what it does, it attracts talent, retains talent, and there's a culture of development of the talent. And at the end of the day, the winners are clients, our shareholders in the organization itself. So we're here to talk about the Rising Career Network, which is founded by Caitlin and Justin, my two colleagues. And so why don't we just start by getting an opportunity to understand who you are, your backgrounds, what attracted you here, and quite frankly, why did you start the Rising Career Network here at Invesco? So, Caitlin.

Caitlin Hood, Rising Career Network co-founder:

                                                Thanks for having us. I'll actually point to Justin to give a little bit of background about the rotational program that we started in.

Justin Nguyen, Rising Career Network co-founder:

                                                So Caitlin and I started three years ago in the Invesco technology associate program. So what that really is a rotational program that lets us get experience across all departments of Invesco. So through that, we started with a cohort of seven others and we really formed a really strong bond that we wanted to spread to the rest of the organization.

Caitlin Hood:                      Yeah, we used to joke, because when we joined here three years ago, Invesco really did look a lot different. And we used to laugh that we all went to the 15th floor together with our cohort. And we used to say, "Oh, people probably think it's bring your kids to work day." Because, there weren't a lot of early career professionals here at that time. And through the last three years we've seen that change and that cohort has kind of grown and we felt really lucky to have joined with a cohort of other people in our same situation that we felt really close to. And we wanted to bring that same sense of connection and belonging to the rest of the organization and kind of pull people into, not only a developmental program, because we do a lot of events on early career development and growth, but also networking and just feeling like you actually know the people that you spend all of this time with at work.

Marty Flanagan:               That's fantastic. And thank you for doing it. It makes it a richer career. It makes it more exciting, and it will continue to foster this culture that I'm so proud of. And having it be grassroots up, is really what makes a difference. And let's talk about networks for a second. You've self-identified the power of the networks and things are much more formal these days than when I started my career. And I learned often by observing people and getting to know people and you've really formalized that. And I think that's a really thoughtful thing to do an important thing to do. And what I've personally experienced is observing people, learning from people, listening to people, it really makes a difference. The networks you've created, how has it helped you in your career so far?

Caitlin Hood:                      Well, I mean, we're sitting here with you right now, so this is pretty cool. But I think that it's given us exposure across different leaders, different departments. We always talk about the fact that your early career professionals are located in all of these different departments and areas that could potentially, you'd be siloed, and not get to interact with. And I think that breaking down those barriers and being able to message someone in a different space and be like, "Hey, I really need this." It speeds up a lot of our work on our actual, day-to-day jobs, as well as providing, like you said, that cultural connection point.

Justin Nguyen:                  Yeah. I think the culture Invesco is really flat and the BRGs actually helped a lot with that. The reason the Rising Career Network actually started was, in my first month of work, I actually went and got coffee with Andrew Schlossberg, head of Americas. And Andrew asked me all sorts of questions from, why did I come to Invesco? In my first month, what do I want to improve already? And one of the things I mentioned was keep progressing the culture, keep developing our talent here. And one thing that we could do that is forming bonds across all different departments, all different age groups. And so that really gave rise to Rising Career Network. And I remember one thing that Andrew told me was, "Go make it happen. If anyone gets in your way, let me know, but this is a employee driven firm." And I think that's still holds true today.

Marty Flanagan:               And that's exactly right. And just stay on that topic. So what I've learned in my career and seen others that people look for a formal progression and, "What's my next move," et cetera. And I'd say through my whole career, it's really been ambiguous. I've never been in an environment where it was that way again, much more so that way. But what you're doing is probably the greatest thing you can do for your careers. And it's really knowing people in different parts of the organization, reaching out to them pitching in on different experiences and that's where the powers, and that's where the excitement is, quite frankly. And do you have an experience through that networking that you could share that you have found useful and powerful?

Caitlin Hood:                      Yeah. I think also another point that I want to bring up on that topic is not only do we feel like we've been able to develop as leaders of this business resource group, but we get a really amazing opportunity to develop a space for other people to step into leadership. So RCN month, each BRG has a month where they put on specific events. Ours is August 15th to September 15th, just because people are out early August. But last year we did a panel discussion with Andrew Schlossberg and some other leaders of Invesco. But we always like to pair more senior leaders with leaders who are just starting out or just becoming managers. And we got a message back from one of the leaders who was on a panel discussion and she was blown away and so excited about the fact that we had given her an opportunity to work with Andrew and to just communicate and network with other leaders in the firm. And so not only is it cool that we get to develop, but we get to create spaces for other people to develop, which is amazing.

Marty Flanagan:               That's fantastic. And Justin, how about you? Any thoughts?

Justin Nguyen:                  Yeah. I think the biggest thing for me is the Rising Career Network was really meant for early career folks to develop, but like Caitlin was kind of mentioning, it helps develop everyone. One thing that we like say is everyone's career is always rising. So even when we work as senior leaders, they're thanking us for the opportunity and they're really appreciative of everything employee driven, because they themselves are still employees at the end of the day. So I think having everyone be able to grow together and rising tides of the entire ocean, I think that's the thing that we really appreciate.

Marty Flanagan:               I like that, that's a great thought. And so I'm doing all the talking, but how about you. You guys have questions for me?

Caitlin Hood:                      Yeah. I guess to go off of your point about career trajectory and progression, I think it can be so often that we look at senior leaders, you're further on in your career than we are and we think, "Wow, you took such a deliberate path and there was such a clear line of your trajectory." So what would you say has been... Is that your experience? Has there been more ambiguous moments?

Marty Flanagan:               That's just not true. So I never thought I would be a CEO of a company. I frankly I never aspired to be one. What I did was I got in an industry that I found fascinating, that was interesting. That kept me always, sort of thrilled to get out of bed and come to work. And, I think you've seen this. In our industry, every day is a new experience. Every world event matters to what we do. And so it keeps you fresh. It keeps you on your toes. It's always a learning moment. And how my career progressed was really, as I said, yes, you have a day job, but doing what you're doing, really learning about other parts of the company pitching in different parts of the company. And it probably should be more formal than what I did and I think it is, but I think it's really following a passion and make sure you're doing something that keeps you excited, and be willing to take a risk.

                                                I think that's really important. Don't wait, when you see the job posting and it says, "You need to be... Have this skill, that skill, this skill. So many years of experience," I sort of say, ignore it. Put your hand up, have the interview and just put yourself out there. It's a really important thing to do. It's good for your careers. It's good for your organization. And what we want is we want people to stay here at Invesco and you can have multiple careers within Invesco doing different things.

Justin Nguyen:                  It's funny that you mentioned having multiple careers here at Invesco. I think Caitlin and I have been here for three years and already we've already held several different roles and gotten experienced different departments, different areas, and really try to find that thing that we have a passion for and [inaudible 00:08:58] up our career here at Invesco.

Marty Flanagan:               That's great.

Justin Nguyen:                  Yeah. And I think you mentioned a little bit about your career trajectory and not knowing what you do and not having that linear path, but you've had mentors in the past. Sir John Templeton, is one you've mentioned pretty often. So how has the role mentors played in your career and grown your role?

Marty Flanagan:               Hugely important. And I think if I think about Sir John, as a mentor, he didn't know he was my mentor, by the way. So, and probably the other two, Phil Purcell and another Charlie Johnson. I adopted them as mentors and what I'd engage with them. I'd pick their brain, I'd watch what they do, Sir John in particular. Early in my career, and one of the things that struck me and it's something that I've incorporated in, how I work and how I manage was, I've watched him always get extremely prepared for any meeting that we would have. He'd study he's research and he'd go into the meeting and simply ask questions. And I knew he had a point of view. I knew he had a strong point of view and he had a very curious mind, but what he did with that was always pulling out different ideas.

                                                And I could see and learn that he would change, change his point of view with a new set of information. And so what I've translated that into is, be the last one to speak. So when I'm in a meeting, I'll go in, I'll be prepared, I'll have a point of view, but I literally go around the table and ensure I pull out other thoughts, and I do change my view. And I think it's one of the most important things that you can do because as you're advancing in your careers, when you start by saying, "Here's my idea, what are yours?" As the leader, you've cut off all new information. Many people are unwilling to pass on their thoughts when they think you, as the boss, you have a point of view. So that's been important to me, it's a simple idea, but a really powerful one. And let me just ask what types of experiences have you guys had as you sort of evolved through your career and sort of engaging with your colleagues?

Caitlin Hood:                      Yeah. As far as mentors go, so both Justin and I have definitely utilized Invesco's networks that we have put in place, such as the iMentor program for the Invesco women's network. I was in that program last year and just have loved the opportunity to get to connect with senior leaders, especially senior leader women at Invesco. But I think that we've also formalized informal mentorships, which I think have been just as valuable if not more so. And every single leader at Invesco is so willing to step up and say, "I would love to help with early clear development." And we actually just launched a mentor program for the Rising Career Network, called Progression Pods. And it's a group mentoring program. So we felt like one-to-one connections can sometimes feel forced and a little awkward. So we wanted to create a group dynamic, allows some other people to the table to get the mentoring that they're looking for without the formality. I don't know if that's clear from this interview, but we're not into formal.

Marty Flanagan:               What a brilliant idea. And look, I think everybody will learn, it will again, create greater connectivity with different individuals within the firm. So really thoughtful.

Caitlin Hood:                      Yeah. And each other, within the network. Do you want to talk about your mentor experience?

Justin Nguyen:                  Yes. I think like Caitlin was saying, I value from both the formal mentorships, but including the informal ones. One thing that I've really appreciated after the pandemic was coming back to the office and actually connecting with employees. I think I get more out of the informal interactions at the coffee stand or at lunch rooms, and just connecting with your colleagues again, hearing their thoughts, hearing their ideas on different things. That's something that we were missing for a couple years. And I think that I really appreciate all of that and try and grow my network here as well. I think that's something that we can never take for granted.

Marty Flanagan:               Look, I'm glad you feel that way because it's actually true. And the pandemic has been challenging in so many different ways and quite frankly, get in the way of people's development and careers and the reality is as you're talking about, it's yes, the formal engagements at work, but it's the informal engagements that are so powerful and frankly you learn from it. It's exciting. The world's getting back on its front foot. Post the pandemic, it's something I think we need to continue to focus on. So really, really thoughtful.

Caitlin Hood:                      I had a question for you just thinking about your career growth and trajectory and you said, you weren't even planning to be a CEO that wasn't the end goal that you had in mind. What particularly drove you to asset management and you've had a really exciting career. What's kept you engaged in this industry?

Marty Flanagan:               I was interested in markets, generally my grandfather, my father, my uncle, they were all traders at what was the board of trade in Chicago, so that was one. But then also when I was at university, I went to school overseas, Spain, Ecuador, Peru. And so I said this, I wanted to be in a business that was global. And in asset management, when I got a school, it was a really emerging industry. Wasn't very well developed, quite frankly. Yes, many people manage money, but it was not the depth and breadth and size that it is today. And so when I had a chance to work with Sir John Templeton, it was in the markets, it was a global business and it was that constant learning that I've talked about every day is a challenge. Every day is something new. If you're bored in this industry, it's your fault, right. There's just too much there. So I just find it as one of the most exciting industries in the world. So, if you like to learn great industry to be in.

Caitlin Hood:                      Yeah, definitely. Yeah.

Justin Nguyen:                  And I think it's interesting, you say if you're bored in this industry and it's kind of your fault of your own, but for someone that's a CEO of a trillion dollar company co-founder of engaged ventures and so involving the Atlanta community, how do you find time to manage all of that, but still find time for your family and [inaudible 00:15:15] connect at home?

Marty Flanagan:               It's a great question. The reality it being a global business, the role that I have, I literally could work 24 hours a day, seven days a week. But you have to be very thoughtful about what you're doing. You have to have balance in your life. Family matters, your health matters. And, so what I'd say is there are cycles. There are cycles of time where it is just all out, got to go, but there are times when you just really have to take a break. I always focus on my family. When I was traveling, I would take red eyes to get back to go coach soccer game, there are soccer practice for my kids. You should do that. And I tell the top team, when I'm going on vacation, I say, "I'm going on vacation. You need to take vacation."

                                                And if you don't model it's not going to happen. And that's a necessity. And just involvement in community. Again, I think it's important to participate in community. It makes a difference, yes, for yourself and it helps you grow, but it makes a difference for the organization. And look, our families live in the communities and the stronger the community is the better it is. And you just figure it out. Open up your gauge, take care of yourself, that's first, and just broadly engage. Yes, in the organization, but also in community and in things that matter to you.

Justin Nguyen:                  Yeah. I think, I think one thing that I've really appreciated is in early career of professional, being trusted with my career in my personal life, a lot of times we talk about work-life balance, but I think it's a work-life integration. Invesco really trust me to be a professional and know when I need to be on and working, but also know when I need to take time off and trust me to make that best judgment.

Caitlin Hood:                      I think that's also something that's been such a benefit coming out of the pandemic and into this hybrid working world, is the opportunity to say, "Oh yeah, I have something from four to five, but I can jump back on later and do work with my pajama pants on." It's such a different world, but I think Invesco has really gravitated towards that is totally acceptable. All the leaders are doing it as well. And so it just makes you feel more comfortable taking that time for yourself and your family, like you said.

Marty Flanagan:               Well, that's great. And it's important to do. Yeah.

Caitlin Hood:                      Yeah. So one question, I guess maybe our last question if we have time. Something that we talk about with a lot of our leaders that we do RCN events with is just general early career advice. If you were sitting down like you are right now with two people in their early stages of their career, what is the one piece of advice that you would give them?

Marty Flanagan:               Only one. So, look, what I would say is your career's not a straight line. So I do know that. Continue to develop and I'd probably phrase it this way, listen, learn and engage. And you'll broaden your experience. You'll feel more fulfilled and your career will evolve. And so I think it's just really important to do that. And I'd say enjoy the journey, right? You're going to have great days. You're going to have some days that aren't so great, but that's life. And, frankly, that's how it is in the work world. But continue to spend time taking care of yourselves and making a difference.

Caitlin Hood:                      Yeah. That's great advice. Awesome.

Marty Flanagan:               Well, look again, thanks for doing this. And you are natural leaders to create this network work and how you're doing it is so thoughtful and it's clearly going to make a difference in your careers, but it's going to make a difference for the organization. It's going to make a difference for our clients. So thank you very much for doing that.

Caitlin Hood:                      Yeah, of course.

Justin Nguyen:                  Thank you.

Caitlin Hood:                      Thanks Marty.

Marty Flanagan:               Thank you.

Marty Flanagan, Invesco President and CEO:

So Adena, great to be with you, and let's talk markets. So I think common wisdom coming into the year was largely we'd be dealing with inflationary pressures, rising interest rates. Who would've known, sitting here today, the supply chain impact because of COVID in China or the Russia/Ukraine fight, lots of volatility in markets. So maybe your thoughts there, but also importantly, just from where you sit, people tapping markets is just critical. Coming from NASDAQ, that's really probably had an impact here. So your thoughts would be great.

Adena Friedman, Nasdaq President and CEO:

Yeah. Well, it's great to be with you, Marty.

Marty Flanagan:

Thanks.

Adena Friedman:

So as you know, we exited 2021 I think with a lot of optimism that we were seeing the end of COVID, theoretically, and that we were going to start to see the world get back to a different state. I wouldn't say to a normal state, because I think there's a new normal that's really developing, but we were hoping that a lot of the supply chain challenges we experienced during COVID would start to abate and that the economy would balance out a bit.

But going into 2022, I think we've had some new challenges. One is that the pandemic is very much still with us in an international and global setting, and as you mentioned, I think China continues to have challenges in supply chains because of COVID. I think that the second thing is the supply chain shocks that have come to food and energy related to the Ukraine conflict. I think that has been a new set of facts that have really, really created new challenges.

At the same time, I think we have to recognize here in the United States that you've got this core underpinning of the economy that continues to be strong. What I'm hearing from CEOs is the demand for our products continues to be very strong, that consumer spending continues to be quite natural and also very healthy. And yet, we've got the creeping inflation that I think are definitely making investors pause a bit and say, okay, what does that mean for businesses? In addition to you've got the supply chain shocks that will continue to make it to the goods and services, particularly goods have a harder time getting onto the shelves. So that is a confusing period of time for investors.

Marty Flanagan:

Absolutely, yes.

Adena Friedman:

You are an investor, so you can imagine, how does an investor do a discounted cash flow analysis when they don't actually really understand the future earnings if you have an inflationary environment and also supply chain challenges, and at the same time, you have this rising interest rate environment. So those two things together make it very difficult to come up with the right cash flow view of a company. And if that's the case, it's a much easier decision to sell than it is to buy.

Marty Flanagan:

Right.

Adena Friedman:

And I think that's what's really been manifesting itself in the markets in the last few weeks. Now, I also would say that if we could start to see inflations come down a bit on the back of some of the Fed actions they're taking, we're starting to see some of the COVID related supply chain challenges to be lessened over time. I think those are two positive signals that investors are waiting to see that might give them more confidence.

Marty Flanagan:

Yeah, I think you're right. And what we're just seeing at Invesco, and just generally, if you look at the retail investors in particular, is total risk off, right?

Adena Friedman:

Right.

Marty Flanagan:

They just, I'm scared, I don't know what's going on, I'm getting out. But it's really creating amazing opportunities for investment, and successful investors always have a long term view. And when you're most uncomfortable being thoughtful about the work that you do, it's a great time to make money.

Adena Friedman:

So that's what's really interesting about this period of time, because you have this really interesting confluence of humans with their judgment, combined with machines who are there to help really drive liquidity into the market, really coming together. It is an interesting time for people to make those judgment calls. There are some companies that when you look at their future potential, you could argue that there are potentially well oversold, and at the same time, you have to have that conviction and to make that courageous decision.

And I think you're starting to see more of that coming back into the markets, but it is definitely a volatile time for the markets. So, what does that mean for us here at NASDAQ? On the one hand, we have very healthy trading and I think we're still seeing a lot of confluence of investors coming into the markets and involving themselves in the markets. At the same time, we're not seeing investors ready to welcome a lot of IPOs.

So that's a different risk decision. If you're an investor, you usually meet with a company that's coming out and tapping the public markets maybe once or twice before that company goes public. You're having to make a pretty risk on decision to make a bet in that company. And I think that right now, with all of the other factors around us, it's harder for investors to make those choices. So we're seeing companies say we can wait, let's make sure that we really demonstrate continued performance in our company. We'll tap the public markets when the investors are ready for us.

Marty Flanagan:

Well, that makes a lot of sense, and getting ready to get ready. And the history of great companies listing on NASDAQ speaks for itself. So more to come, I'm sure.

Adena Friedman:

Yep, absolutely. Yeah, we have about 270 companies that have already filed to go public on NASDAQ and they're just wanting to make sure that they're coming out in a right environment.

Marty Flanagan:

That's amazing. Congratulations.

Adena Friedman:

Thanks.

Marty Flanagan:

So Adena, another thing's really important to all of us, both our companies and all companies, really, is diversity, equity, and inclusion. And it's been, I'd say for ourselves, we've made good progress. We're not done. We have a lot to do, and we continue to learn how to be more effective and be a better company. And Adena, congratulations, you were named one of the top 100 just companies in 2022, and really a measure of being successful in DEI efforts. And could you share some of what you've done and the impact on your company, please?

Adena Friedman:

Sure. Well, as you said, it's very much a journey, and I have to say as much as we're really proud of being recognized in that way, we have our own work to do internally as well. One of the things that we really focus on is saying how can we make our company reflect the communities in which we serve? How can we make sure that our people have as much opportunity here as they'd have anywhere else, or if not more, here at NASDAQ, and make it so that they feel once they arrive at NASDAQ, that they most importantly feel like they belong here, bringing their whole selves to work? Making sure that we understand how we can support them as individuals, in addition to being a contributor to our mission, in addition to obviously being a contributor to our financial success.

And I think that's a journey that never ends. It's always developing. And we're a global business. So what might be important here in the United States might have different importance in another country. So how does each country look at their society? How do we make sure that we're fitting ourselves into the society that we're operating in, in a way that creates opportunity and a sense of belonging in each of the cultures that we serve.

It is complex. It definitely is. And we have published our data now in terms of the diversity characteristics of our employee base, we provide that to all of our investors, but we're not where we need to be. We know that. And I think it's really now a matter of how do we put educational programs and career development programs, as well as our employee networks and kind of that social connection, in addition to understanding what's really important to different parts of our community in terms of their own sense of belonging here. How do we do all of that in a way that's repeatable, that's sustainable, and makes it so that we are a destination employer?

Marty Flanagan:

So let me pick up on being the global company bit, us being the same thing. That has been one of the most important things for us as an organization, because naturally we're diverse by just the global footprint that we have. And it's made us a better company, different views, different educations, different perspectives. But you're right, we had the same issue. If you look through, we had a lot more work to do. We've learned from it.

We started with gender, putting goals out there, and have been very successful, but it forced myself and everybody else in the organization to be very accountable to what we're trying to do. And we start by inclusion at Invesco and take care of the people that are here, give them opportunities. But again, more to do. It's quite the journey. And we know we're better companies the better we do with DEI.

Adena Friedman:

Well, and also, I just want to say it's a long term journey, too. I know for a fact that we'd like to see, the statistics that underpin all of our efforts, we want to see them improve. That takes time. So I would also say that this is something that we know that this is five, 10, 15, 20 years that we're really going to have to stick with it. We're going to have to continue to evolve and support those programs because that's what really creates change when it comes to these kind of social elements of running a company successfully in a modern society.

Marty Flanagan:

So very good points. And our experience also was we've been working on it for years, but when you really step back, why didn't we make more progress? And it was really unfairly, we had sort of an HR effort, when in fact I made it my effort and the executive team's efforts and we were all accountable. It was amazing what started to change. It changed everything within the organization. And I think for us, that was our experience, and others that are trying to sort it out, it really does have to start at the top.

Adena Friedman:

Yeah, I have to say, I think change starts at the top and it grows from the bottom. So we have to set the tone. We have to make sure that we care deeply about it. It's not just because it's the right thing to do. It's because we actually care about making it so that our employees feel really great about being here.

So that's something that you have to, that tone has to start from the top. But it has to also grow from the bottom. So the employee networks are a really, really important part of that. We have 12 employee networks now, so that when people come in, they feel supported by their peers, they feel supported by the whole organization, and they're not just hearing the message from the top.

Marty Flanagan:

And that's a very good point. So we've done the same thing with employee networks over the last number of years, and boy, what an impact it's made. And we just continue to learn as an organization from these networks. And what we've also seen is retention rates are improved. People want to stay at a place where they feel they can make an impact, where they're heard, given opportunities, and also, quite frankly, recruiting people. But also, the bottom line is you do just get better results because you have better people and you have more open-mindedness and better thoughts.

Adena Friedman:

Yeah. If you welcome more ideas and a diversity of ideas that come from a diversity of experience, you're going to get to a better outcome. And so it does ultimately accrue to the financial benefit of the company. There's no doubt,

Marty Flanagan:

No doubt about it. Well thank you, Adena.

So Adena, let's talk about ESG. So it's been quite the journey. I think around the world, we've all been learning a lot. I think we've made great progress, but the reality is there's opportunities and challenges that we're really trying to get to the end. And our efforts are ensuring that we meet our clients' needs in doing this, and all clients have a different perspective.

Some of the things that we're learning, 90% of millennials want to work for an organization or invest in products that reflects their values, which is really a fascinating development. Something important at Invesco right now, about 85% of our investment capabilities incorporate ESG in them. We have more to go, and we continue to learn. But interesting, at NASDAQ you sit in this fascinating intersection with corporates and investors, and could you share what you're seeing and what you've been doing with that please?

Adena Friedman:

Sure, sure. Yeah. So within NASDAQ, as a market operator, we provide access to capital for companies, and we therefore list 5,000 companies on NASDAQ here in the US and the Nordic countries. And the result of that is we have these really deep relationships with public company corporates that we develop. And as a result, we've been really working with them to think about how they can be as successful as possible in the public markets. That includes providing very comprehensive investor relation, support and governance support, but more recently, much more focus on ESG support.

And then on the other side of our business, like the relationship we have, we have our index business, where we partner with firms. We have a great partnership with Invesco to develop index products that we can serve to investors, and investors are looking at ways that they can create baskets of stocks that really reflect their values, as you mentioned.

So ESG indexing is becoming a bigger part of our business, and we also support the asset owner and asset manager community with data and insights that frankly allow asset owners like pension funds and sovereign wealth funds, endowments, to look at asset managers, and through the light of ESG as well.

And so it's a really interesting role that we play in bringing investors and corporates together. We really focus, there's a lot of providers out there who are really focused on the investor and making sure that they're giving them data that supports those decisions. Not as many companies that have been focused quite on the corporates and supporting them as they're having to find ways to deliver that data in a way that is digestible. And so we've really been focusing a lot of our commercial efforts on helping them on that journey.

But it's also been NASDAQ's own journey. So we have a big business in the Nordic countries. The Nordics are a real leader when it comes to certainly climate in other elements of ESG changes that we have to make. So we as a company have really embraced that ourselves and saying, well, how do we get to net zero? How do we support corporates, as they're moving to net zero? We have a business called Puro, which is a carbon removal marketplace that allows corporates to manage their net zero commitments. So we've been really trying to be a holistic provider to corporates on their journey and then also to deliver products to investors that they care about.

Marty Flanagan:

So let me pick up on something that's really important. So the headline is all about ESG through reality and implementation. When I said we've embedded ESG principles through 80% of our portfolios right now, what's the challenge? It's the disclosure elements of the corporates and helping the corporates, what should I disclose, how do I disclose it? That's a barrier for success that we're trying to move forward here, in the measurement of what is a measurement of success.

And is it really, when we think of the energy transition, it's a transition over decades. Focus on that is probably the most important thing we can do as opposed to thinking about exclusionary practices, where for some people that's just fine and that's their mission. But I think helping the corporates is really going to be an important part of getting to where we need to get to.

Adena Friedman:

Yeah. And I just want to say, first of all, I think that this is, as you said, it's a multi year, multi decade journey, particularly to really address the climate change challenges. But it's not just a matter of disclosures, but let's just say ESG 1.0 was okay, we're starting to get some information. The rating agencies are there to help you digest it and try to establish where companies are in that journey.

And then also I think that investors are that, as you called it, exclusionary, meaning it's an easier decision to take something out of an index or out of an investment portfolio. I think version 2.0 is, number one, what actions are actually underway at the companies to help them? The first is disclosure, the second is taking action.

And then the third element of that is measuring that progress over time. So helping them now realize it's not just about disclosure, but it's about, okay, what actions are you taking? Then how you're disclosing them. And then you, as an investment firm, rather than necessarily relying only on the rating agencies, you want to be able to make your own judgments. You want to take that data directly from corporates so that you can decide and make more nuanced judgements, and you can track people over time as to what they're doing. I think that's version 2.0, and we're just getting into that. I think that's what the next five years are really going to be all about.

Marty Flanagan:

So let me pick up on that, and how we've addressed ESG as a money manager, it's investor led and client led. And what does that mean? So we have a very talented group of ESG experts. They do the research for the investment teams. They make the decision by engaging with corporates. But as you say, there's more to do there, more information, but that's been our approach.

What we've also learned in the last couple years is all clients in all countries are not the same. So we were just in Europe last week, both of us, and the view there would be different than it might be in the United States, and be different views in different parts of the United States itself. So as we say, it's not our money. We have to manage money consistent with the way that our clients want us to manage it.

So that's really been a learning, I think, also for us. And you mentioned the exclusionary elements, and I think on climate in particular where you're going is something I very much agree with. I think for us to get there over these multi decades, the leaders where the money is, the technology is, the drive is, the necessity, it's in these energy companies and the notion of cutting them off from access to capital doesn't help us get to where we want to get to. So it's just being more thoughtful. As you say, we go through these different stages of ESG and how to use it and what it might mean for us.

Adena Friedman:

Yeah. And I just, I want to pick up one thing you said, within your team, you have a team that engages with corporates.

Marty Flanagan:

That's right.

Adena Friedman:

I think that's a really important thing for our corporate clients to understand, is that this next iteration of ESG is going to be around corporate engagement. We want to make sure that our corporates are prepared to have that right engagement, that they understand what the programs are, they can describe them, they're measuring them, and that you can track them over time.

And that is what a transition is all about. It's not just cutting off and turning on. It's a matter of working with them through that transition, tracking them over time. Are they meeting the commitments that they've made over time? And by the way, they may not know how exactly they're going to meet those long term commitments yet because the technologies might not exist to enable them to get there, but they know that they've got that commitment out there.

So they are going to be iterating and trying things. Let's just engage. Let's make sure that we bring the investors and the corporates together, because at the end of the day, what we're really trying to do is create a more sustainable world. Okay, well that's our end goal. If that's our end goal, let's work together to figure that out, as opposed to, as you said, choking off capital to some group and trying to fund another. Let's find ways that capital can be used towards the transition. And I'm pretty excited about that next iteration of what ESG is all about.

Marty Flanagan:

So Adena, let's talk about innovation. So we're now in a world where I think by all accounts, we're in our stair step change of the advancement of technology, and it's really digitizing everything. We saw around the world the pandemic actually rapidly advance our adoption of digital technologies out of necessity. You can see what different countries are doing around the world. What fascinates me in particular is China. Looking back there, visiting five years ago, it just hit me right between the eyes of within financial services in China, they were so far advanced to anywhere else in the world.

And typical Americans, we think we're so on top of it. What they were doing, mobile digital technologies and financial services was just amazing. And it's continued. And when I think of your company, NASDAQ, and those that list, it's really an innovation hub coming out of here. And so let's start with NASDAQ in particular. You think of yourself and people think of NASDAQ more so a technology company than the stock exchange. Could you share that perspective with us?

Adena Friedman:

Sure. Yeah. So NASDAQ was created 50 years ago, and we were the first technology-driven stock exchange, or the first electronic stock exchange that existed in the world. But today, of course, all exchanges are electronified and we're all built on the back of very advanced technology. So you could argue that as a stock exchange, we're a technology enabled company. However, we provide that technology that powers our own markets, we provide to 130 other markets around the world now. So we've become the critical technology provider to most and many of the capital markets around the world.

And we're really, really proud of that, but we've actually gone way beyond that. So we have also recognized that in our relationships with corporates, in our relationships with investors, in our relationships with market participants, we have a much bigger role to play in protecting financial transactions with our anti financial crime technology, supporting corporates in their journeys as public companies, in terms of their IR and governance capabilities, and then supporting investors with much more advanced analytics to help support them as they're making asset allocation decisions and investing decisions with our indexes.

So we have really turned into a very scaled technology company that supports the capital markets and beyond. We're really proud of that, but it is also that pace of innovation means we have a lot of new things that we're introducing into our markets, into our clients' markets, and across our ecosystem we're pretty excited about.

Marty Flanagan:

So it's a fascinating development, and it's probably a never-ending demand of what you're going to do each and every day. And where does your next dollar go for that innovation? But let me pick up on one in particular you talked about, that anti financial crimes element, and that's probably a really good thing that you're doing it, but it's probably too bad that it has to happen. But can you share what you've done there, please?

Adena Friedman:

Yeah, so I think first of all, we have to recognize that the financial system, criminals around the world, unfortunately they need money in order to operate, and they tend to try to use the banking system as a means for them to pay each other or to use the dollars that they need in order to perpetrate their crimes. That puts the financial industry on the front lines of trying to protect the public against those predators.

And those predators can be any type of criminal. They can just be people who are just out for the money. They could be human trafficking rings. They can be involved in drugs. They can be terrorist rings. It's really kind of the worst actors in the world. So what the financial industry has been made responsible for is rooting out those criminals, finding them as they're trying to transact inside the financial system.

NASDAQ, through its acquisition of Verafin, as well as through our market surveillance and trade surveillance technologies, we really work very hard to use very advanced data analytics and kind of, I would say that we work really closely with the banks to develop this kind of data capability that allows us to find those criminals as they're trying to use the financial system. And it's a global problem, $2 trillion problem. And so it's not something that is easy to solve.

At the same time, we want to use the most advanced technology available. So our systems are cloud based, they're oriented on data analytics, machine learning, and capabilities that really allow us to be a very advanced provider and partner to the banks in helping them with their crime management solutions.

Marty Flanagan:

Wow. We're all beneficiaries of it, so we thank you for the investment. And it is one of those areas, ourselves, the amount of money that we're spending in security is unimaginable from my perspective. And we're not a bank. We don't have deposits and the like. But we sit in the middle of it, being a money manager, but you being an important backbone is something that is invaluable.

Adena Friedman:

Yeah. Well, I think it's a great point because if you think about it, if you want to open an account with an investment management firm, or even if you're interacting with a corporate client, there are ways that bad actors can infiltrate any sort of any part of the commercial institutions that we have around here. So we are really focused on supporting the banks and brokerage community, but there are broader needs across every element of the commercial system. I also would say it's, again, it's a never-ending challenge. And so we want to make sure we're always staying on top of the technologies that are available to us so that we can make that more available and more accessible to the financial industry.

Marty Flanagan:

Well, again, hopefully someday that slows down, but I doubt it.

Adena Friedman:

Exactly.

Marty Flanagan:

Well, Adena, I hope the investment in the anti crime area can go down, but I doubt it will, but let's turn to something else and probably more interesting and fascinating and lots of attention around DeFi within our industry, and digital assets in particular. I'm sure it's something you're spending a lot of time on, just by the nature of your organization, but what are your thoughts on that?

Adena Friedman:

Sure. Well, if we think about digital assets and decentralized finance, what is underpinning all of that is this new technology that has been created around the blockchain and how that can create much more seamless transactions. So you go from having an interest in buying a good or service, you have a pricing mechanism to determine the good or service, and then you have instantaneous settlement on the back of that, with a perfect tracing and tracking of the transfer of ownership. And that's the underpinning of what the blockchain technology provides.

So that can be applied to so many things. And it also, of course, applies to markets. So if we think about the way that the markets operate around the world today, we have very efficient ways to create price discovery and find and make a trade. Where it gets a lot less efficient is in that transfer of ownership and making sure you're tracking and tracing that ownership over time.

That's where I think the technology can really continue to evolve our industry towards something that's more modern, more real time, and more accessible. It also opens up the potential for individuals to say, you know what, and I don't just want to trade stocks and bonds and other financial instruments, but I want to be able to trade a fractional interest in that building across the street, or any sort of good that can be fractionalized and made into a piece of art, those types of things. So it really opens up this notion of price discovery in markets to a much broader set of assets, using this digital technology.

But that is, it sounds great. It's a very big change, though, for our industry, to be able to integrate that new technology into all of our core systems and make that a big [inaudible 00:26:07] and also I would say decentralize some of the elements of what underpins our financial model and our financial system.

Okay, so crypto is one manifestation of a much bigger set of opportunities that come with digital assets. NASDAQ, as a result of this new technology, we've been integrating the blockchain into our next generation trade lifecycle technology. We can now launch and provide markets to those who want to be able to trade these digital assets, soup to nuts in a digital format. And we are able to provide that as a marketplace technology available. We have an index product that tracks the crypto pricing that's existing today, and that we've actually launched that outside the United States.

And then we also provide surveillance. So these markets, they're dealing with the same actors we're dealing with. So you want to make sure you're protecting the markets, you're creating a fair trading environment. So our market surveillance technology and our anti financial crime solutions for people who are opening digital wallets and making those accessible, all of that technology now has been created to support this new digital asset ecosystem. And we're excited to be a part of it, but recognizing it's an evolution. It's going to take time for that to infiltrate throughout the financial system. And NASDAQ wants to be the partner to the financial system as they're dealing with this transition.

Marty Flanagan:

Well, no question in my mind you're going to be a very important partner to the system, and we'll continue to partner as you go on that journey also. But let me pick up on that. You talked about really it's individual investors gaining access to asset classes that they've not been able to in the past. And think of private markets, thinks of real estate was a very, very good example.

And when we work with our retail wealth management platforms, their goal is to have individual clients be at 15% in alternatives and largely private assets. They really can't get there because of just the topic that you're talking about. And so this is going to be tokenization and developing products to get individual investors access to things like real estate will be a really important development. And no doubt you're going to be an important part of making that happen.

The other thing that we're seeing, too, is there's no part of our business that blockchain is not going to impact. So the question that we have, and I'm sure you've had, and others, is where do you make that investment? What's going to be the biggest bang for the buck from a client perspective or from an organizational perspective? But I think this also is going to be one of those many, many year developments.

Adena Friedman:

I think you do have to recognize that it really is upending a lot of the core systems that frankly haven't been touched in a long time. And then we also have a lot of post-trade processes that are not really efficiently built, because we always used to have three days and now two days to settlement. Well, when you have instantaneous settlement, that changes everything.

And so I think that recognizing that means that every bank and every institutional investor, the exchanges themselves, the settlement agencies, we all have to rethink our technology stack to support a much more real time, streamlined process. It will ultimately accrue to the benefit of having less risk in the system because you have less time between trade and settlement, and honestly facilitating, I think, more access to different asset classes and different investment vehicles.

However, it does take transition. Again, I would agree with you. I think we're talking about probably, I think now there's been acceptance of the blockchain as the next generation of technology. Now it's a matter, as you said, is where we're going to put our dollars to invest behind that, to change the underpinnings of the markets, change the underpinnings of financial institutions. I think that'll take the next five to 10 years to really bring in and make it into a mainstream part of who we are.

What it will ultimately result in, though, is every intermediary, they should be evaluating themselves and saying, where do I add value? If I add value, I will be a persistent part of whatever model exists. But to those that feel like they are not necessarily adding value, if this technology really evolves to what it can become, that's when they want to start to rethink their business models a little bit to say, how can I become a value added player?

I think for markets themselves, we are a natural place of efficiency. It's a hub and spoke. We're the hub to the spokes. And that I think is a very persistent part of whatever model develops. But we have to build the technology that supports that in a hyper efficient manner. And that's the technology we've been developing for our clients and for ourselves.

Marty Flanagan:

So let's keep moving. Another thing that's happened there, too, is that development for sure, but now the cloud. That's another element that's really been on the move here, and moving systems and storage to the cloud, and you've been very active there. And can you share your thoughts on that?

Adena Friedman:

Yeah. I think that on the back of what we just talked about, if you think about being able to trade any asset in a fractionalized way with instantaneous settlement and great transparency, that's a lot of data, by the way.

Marty Flanagan:

It is, yeah.

Adena Friedman:

So today, just for instance, in NASDAQ alone, in the traditional format we have, we trade both options and equities here in the United States. We're the largest equities marketplace and options in marketplace in the United States from a trading perspective. We process inbound anywhere from 80 to 90 billion messages a day. And so that's a very high throughput. And we provide a match between an order that turns into a trade in less than 20 microseconds, so hyper low latency environment. But that scalability, to be able to scale up and to continue to support the growth of that, particularly in this digital format that we're talking about, that requires a hyper scaling.

So we believe the cloud is a critical component of allowing markets to continue to develop and scale and be able to be there as a hyper efficient way to match supply and demand. We've developed our next generation trade lifecycle technology to be completely cloud enabled, cloud ready. We now are putting our first market into the cloud this year, in partnership with AWS, through action edge compute system that we've developed with them. And so we're really excited about taking that journey and supporting our clients as they're launching markets in the cloud. It's a pretty important evolutionary step in the future, I would say the future of markets.

Marty Flanagan:

It's amazing, the combination of blockchain and all the elements you just described in the cloud. As you say, five, 10 years, we'll look back and it'll be just astonishing. But I think the other thing that we're all seeing, and we're seeing this too, is we move to the cloud, it's like the rat going through the snake. It is just a lot of hard work and a lot of dollars that you're trying to push at the same time while you're trying to advance innovation within organizations.

Adena Friedman:

Yeah, I think that's right. And as you said before, you have to be able to make sure you're really thinking through what investments are really going to give you the highest return and do that evaluation, making sure you also bring in some expertise to really support your transition to the cloud.

Also, the cloud providers actually bring a lot of expertise to the table, too. Take advantage of that. Really leverage them as partners, see them as a partner. I think that's been really helpful to us. But at the end of the day, the end state will be a much more scalable model that's much more global and accessible to more investors, to be able to trade more asset classes in a much more streamlined way, with faster time to settlements and more certainty of ownership. And I think all of those things are positives. Those are all things that really help the integrity of the system.

Marty Flanagan:

Look, those are going to be great outcomes, but let me come back to the quiet lesson learned that you passed on, and let me reiterate it. I think you're right. Partnering with the cloud providers is really important, and they want to share that expertise. They want us all to get there. And it is something that we've benefited from also, and just a plug for everybody, it's a great thing to do.

Adena Friedman:

Yeah, it is.

Marty Flanagan:

So please do it.

Adena Friedman:

It's in their interest for you to be a long term client. So they want to make it so that you use them efficiently. If you suddenly get a bill that you weren't expecting, that's not a good outcome for them either. So how do they make it so that they can work with you to make that transition as smooth as possible?

Marty Flanagan:

Well, Adena, you've done amazing things at NASDAQ, and innovation has always been top of your list and you just continue to amaze, so thank you.

Adena Friedman:

Yeah, thank you so much, Marty. It's great to spend time with you today.

Marty Flanagan:

And you. Thank you.

Ed Bastian, CEO, Delta Air Lines:

We realize financial wellness and soundness is at the core and the foundation maybe as some other bigger challenges and the other thing is social well-being. We’re in a challenging time and society with the challenges around racial inequality and the divisiveness that unfortunately in a lot of our cities today and the impact and the bearing that can have on the individual and the individual is to take all of that with them as they come to work.

Marty Flanagan, President and CEO, Invesco:

You know Ed, those are all really good thoughts and real. I think when the pandemic started, for us we prioritized the health and safety of our employees and getting them home, getting them able to engage. Now, we didn’t have the physical elements that you had, that was a different, you know, just because of the very different businesses, but that really helped with our clients as we’ve talked about a second ago, but the reality is we thought that was challenging. It’s really these deeper things that have come past that, the well-being of everybody, the mental health, and take mental health –there was a time where you just didn’t talk about mental health issues. It was just be tougher, and now we’re trying to take it to a very different level and mental health challenges are at probably the highest levels that we’ve ever seen and I think we as leaders of our company, what resources can we make available to all our employees and their families. It’s paramount.

Marty Flanagan, Invesco President and CEO:

We are living differently now post COVID. I don't think we all understand what the end state might be. So could you share your thoughts on that?

R. Scott Dennis, CEO of Invesco Real Estate:

Absolutely. COVID has affected real estate and I always start with the premise that real estate houses the economy, houses the world. So it's not going away. The biggest negative impact to COVID has been retail first and foremost, and those are physical stores. And that was a trend that was already in motion. This just accelerated what took place in COVID. But to the negative of retail and industrial logistics has been the beneficiary, e-commerce has really ballooned and become such a bigger part of the economy. And retail is not dead either. There's still the grocery anchored shopping centers, where people go. Some of the major malls that are more entertainment oriented and retailers work differently now. Yes, people buy online, but we're still human beings that like to touch and feel. And so showrooming is a term that's used out in the retail sector where you go into a store, you touch, feel, you try on, you go out to your car and then you buy it. So the whole dynamic is changing.

Marty Flanagan, Invesco President and CEO:

Hello everybody. I'm Marty Flanagan, the CEO of Invesco, and I'm pleased to be joined by Ric Edelman today, who is the founder of the Digital Asset Council of Financial Professionals. It's the organization that created the certification in blockchain and digital assets.

Ric has also written the book, The Truth About Cryptocurrencies. And so I wanted to sit down with Ric today, spend some time to better understand the opportunities, the challenges around the digital asset space, and really learn from his experience and really create the opportunity for everybody to hear from Ric.

So Ric, as I said, you literally wrote the book on cryptocurrencies and digital assets. Why don't we start by just spending a minute and you defining digital assets and why you think the space is growing in such a rapid pace.

Ric Edelman, Founder of Digital Assets Council of Financial Professionals and author of The Truth About Crypto:

Marty, first of all, thank you so much for inviting me on to chat with you. You know how big a fan that I am of Invesco and your work and the leadership that you show in helping advisors stay cutting edge and informed and educated. I'm really glad to be part of this program.

The fact is that digital assets is the first new asset class in 150 years. The last new asset class was oil, the discovery in the 1850s. And look at the incredible global impact oil has had.

People sometimes don't remember the fact or realize that prior to the discovery of oil, we were using whale oil to light our candles. And so what a change the world has experienced in the last 150 years. And that's where we are now with this innovative technology.

It's the most profound change for global commerce since the invention of the internet back in the nineties. And most advisors don't understand yet the incredible impact this technology's going to have.

And the fact that it is so totally new and different means that all of our collective experience in managing money and in understanding asset valuations really isn't applicable to this asset class, because it is a totally new vocabulary, a totally new technology.

And the innovative nature of this, the fact that it is growing at an exponential rate is why it has zoomed at such a rapid pace.

It's fascinating that a year ago, nobody had ever heard of an NFT. It wasn't until Beeple last February sold a piece of digital art for $69 million in an auction of Christie's. Nobody had heard of NFTs.

Nine months ago, we never heard of DeFi. Eight months ago, you never heard of a DAO, a Decentralized Autonomous Organization. Five months ago, you never heard of the Metaverse. This is growing and evolving with such rapid speed that it's vital that investment advisors keep up so that we can better serve clients and giving them the advice in their best interest.

Marty Flanagan:

That's really helpful. You're highlighting really the rapid development that the world is just catching up to. And with that said, where do you think the digital assets could evolve to in the coming years?

And picking up on your long, successful experience in financial planning and the asset management industry, what do you think the impact will be on our industry, quite frankly?

Ric Edelman:

It's going to be massive. When you have a company the size of Facebook changing its name to Meta platforms, Zuckerberg is making it very clear, it's all about the metaverse. It's all about a digital economy and digital commerce.

And what we have to recognize is that the world's economy is going digital. By the end of this decade, the vast majority of asset classes will be represented digitally. Meaning you're going to have tokenization as a routine element of business.

People are looking at NFTs saying, "That sure looks like a beanie baby. It looks like a bubble. It looks like a fad that'll be short-lived like Hula Hoops." We have to remember, Hula Hoops was still around after 75 years.

And so we need to recognize that this isn't a fad. Oh sure, an individual NFT might be a fad. Who knows if the bored apes are going to be something that has staying power? But the notion of tokenization, the ability to create a digital representation of a physical asset is something that is here to stay.

And as a result, we're going to see virtually all asset classes represented digitally. And that includes, frankly, ETFs, let alone stocks and bonds and other asset classes. We're going to be tokenizing real estate, the biggest asset class in the world, triple the size of the global stock market.

It's about $300 trillion in value. Most people don't have access to commercial and industrial real estate because they're really expensive properties and they're illiquid. But if you tokenize them, you make them affordable and liquid, just like shares of IBM are.

And this changes everything. We can tokenize, thanks to the blockchain, any asset class. We're going to start with real estate. We're already doing it with digital art. We're going to be soon tokenizing music royalties.

Bob Dylan's song catalog was sold for $500 million last year. Pretty soon, you're going to be able to buy tokens of Bob Dylan's music so that every time you hear it played on Spotify, you're going to earn a royalty.

We're going to be tokenizing contracts for professional athletes and Hollywood actors and Broadway stars so that as their careers grow and they make money doing what they do, you're going to earn a piece of the action.

You're going to be able to tokenize entire teams in the professional sporting world. The opportunity to create this tokenization means instead of having 15 or 20 asset classes, there are going to be 15,000 or 20,000 asset classes.

The ability to create truly customized portfolios are going to be exploding and this is going to increase the value of financial advisors and the financial advisory business in a way that is going to be really hard to even fathom. It's going to be extraordinarily exciting.

Marty Flanagan:

Ric, I couldn't agree with you more. I'll tell you, here at Invesco, we believe the exact same thing. I was literally just in the meeting talking about tokenization of our real estate portfolios. There is no doubt it's going to create access to asset classes that today many individuals can't get to.

So they'll be able to build better, more diversified portfolios and get access to different return opportunities that they really can't today. I'd also say there's no part of our business right now that we're not staring at because it's all going to be digitized.

The issue for us is, how fast can you go? And what's the most meaningful area to focus on initially? But the opportunity's enormous. I'd say the end game is probably beyond even what we're imagining right now.

So again, really good thoughts. And I think you're right on the mark. Maybe changing gears again, you've seen over the years how financial advisors change the way that they engage with their clients about historically building portfolios. But now there's this element of digital assets.

How are you counseling and seeing the conversation of financial advisors as they talk to their clients? And how do you bring them into the opportunity here?

Ric Edelman:

Four years ago, I created this organization, DACFP, the Digital Assets Council of Financial Professionals because I recognized early in this decade, this past decade that this is a transformative asset class that is unlike any other that we've ever experienced. And most financial advisors are not trained or educated in this field, and therefore they're not able to counsel clients effectively because they don't know frankly much more than their clients. You ask a typical consumer what's Bitcoin? They can't answer. And you ask a typical advisor what's Bitcoin? They can't answer either. And for much of the last decade, advisors didn't care about the fact that they didn't know what Bitcoin was because they weren't getting questions from clients.

The advisors didn't really believe much in this. It was need to dismiss Bitcoin because of its incredible price volatility as either a fad or a fraud. If it's not a tulip bulb, it's a beanie baby. And they were just able, just with a wave of their hand, the rare occasion a client would say, "Hey, what's Bitcoin? What's blockchain?" The advisor was easily able to say, "Oh, ignore it. It's a fad. It's a fraud. Pay no attention. Just keep doing what I've been telling you to do." Well, that dismissiveness kind of worked for the last decade.

Even up till say three years ago, an advisor could succeed in blowing it off. Not anymore. Today, it is clear that this technology is here to stay. We've got the chair of the Fed saying we're going to create a CBDC. There's now a chief innovation officer at the Federal Reserve whose task is to figure out how to launch a CBDC. We've got the White House issuing an executive order, the first ever, Obama didn't do it, Trump didn't do it, Biden has, calling on the full resources of the federal government to coordinate in the development of federal policy and regulation for guidance and protection of consumers in their ability to invest in this asset class and to foster innovation.

We're not going to ban it. We're going to help foster and facilitate it while protecting consumers. We've got Janet Yellen who just in the last two weeks as secretary of the treasury had a major speech saying this is a transformative innovation and we need to facilitate the innovation. When you've got the Treasury Department, the White House and the Federal Reserve all saying this is a big deal, we know that advisors can no longer wave it off. And now that you're seeing major crypto companies being the dominant advertisers at the Super Bowl and the World Series, with crypto companies slapping their names on stadiums, this is something we can't ignore anymore.

And as a result, consumers are now asking questions of their advisors. What is this thing? Who is that company? Is this something I should be investing in? How does it work? What does it mean for me? Advisors now realize they don't have a choice. They need to be able to demonstrate to their clients that they know what they're talking about. That they're able to help guide their clients to say whether or not you should invest in this asset class. If so, how much should you invest and how should you invest? What investments do you buy? What ETFs? What private placements?

What digital assets? Should you do it with an IRA? And if so, through what IRA custodian? How do we protect yourself from the scams and the frauds? In other words, we got to do our job in this asset class the way we do our job and every asset class. Because at the end of the day, it's just another asset class. And if you believe in diversification, if you believe in long term investing, if you believe in portfolio rebalancing, this new asset class is additive to the portfolio.

And so over the last year, Marty, we have seen at DACFP a massive sea change in advisor attitude. Advisors who historically were dismissive about it, who didn't like the idea, who thought it wouldn't have any staying power have changed their tune. Partly because clients are asking with greater level of frequency, partly because they're seeing the mainstreaming government regulators getting engaged in this, major institutional investors. When you've got companies like Mass Mutual, MicroStrategy, IBM, American Express, all making big investments.

When you see major endowment funds, pension funds, hedge funds, three out of four, family offices are investing in crypto and half of them say it's a key component of their portfolios. When you see this going on, advisors realize I better get on with it or I run the risk of losing credibility, having my clients go elsewhere and I'm going to lose clients, lose assets. I'm not going to be able to demonstrate that I'm staying state of the art. They're engaging. And the problem is most advisors don't know where to turn because there are very few resources for getting the education they need.

And that's what we do at DACFP. Our certificate course, which you are a huge proponent of and I'm really grateful for the support that Invesco has provided in helping us educate advisors. We're able to provide advisors the certificate in blockchain and digital assets through an 11 module online self-study course that teaches you what you need to know, not just about what is the tech, how does it work, but the practice management elements, the investment thesis, portfolio, allocation, regulation, taxation, and compliance, and most importantly, how to communicate with advisors and clients.

How do you talk to clients about this, how do you help them understand it and to determine whether or not it belongs in the portfolio, and if so, how. So this is being a bottom up driven thing where clients are demanding that their advisors be able to help and advisors who are resistant are going to lose credibility. They're going to lose clients.

Marty Flanagan:

And look, the work you're doing is just so important. And for all the years that we both have been in the industry, education is foundational to client success, ultimately. And we could not be more supportive of the program and the importance that is bringing to the educational element and creating the opportunities for all of our clients. But let's stand one of these foundational elements right now. How do you think financial advisors are doing with their clients in distinguishing between cryptocurrencies and really digital assets more broadly?

And do you think they're starting to understand the opportunity in digital assets more broadly?

Ric Edelman:

Yeah. I think that they are recognizing the possibilities better. Advisors are beginning to realize that there are two categories in the world of digital. There are digital currencies, as you noted, and digital assets. In the beginning, there was Bitcoin. That was all there was and it was meant to be a digital currency, an online form of money not issued by a government. That experiment failed. And Bitcoin has proven that it is not really going to serve as a currency because it has massive price fluctuation. That's the last thing you want for the currency.

And so Bitcoin has proven itself to be a store of value, just like gold, just like oil, just like stocks, just like real estate. That value fluctuates with the sentiment of investors and the supply demand issue. But there is no question that Bitcoin has a massive price over $40,000 as we speak here today and widely expected a massive increase in that price in years to come. So as a digital asset, it has the characteristics of any other asset, whether we're talking rare wine, rare stamps and coins, baseball cards, or stocks, bonds, real estate, gold and oil.

Separate from the digital assets, you have digital currencies. What we now refer to as stable coins. These are currencies, digital currencies that are pegged to a fiat currency, the dollar, the Euro, the yen, etc., where you're using these literally as a currency where it allows you to own and transfer them, exchange them with other people without worrying about volatility or fluctuation in price. This is wonderful as a payments method. It allows you to move money across borders around the world instantaneously and free in a highly secure and transparent way, which you can't do in the federal and global swift system.

It takes five days and six and a half percent in fees on average, to move money from one country to another. With digital currencies, you can do it in minutes for free. This is transformative for global business around the world. So, advisors are beginning to realize there are tremendous commercial use cases, there are wonderful attributes using this technology of blockchain. And that represents at the same time, massive investment opportunity. So, advisors are beginning to appreciate this, realizing there's a there there. And this is something that they haven't recognized for much of the past decade, and so they're beginning to appreciate that digital assets bring a huge new asset class to improve portfolio diversification.

Advisors, more than ever, become of greater value because consumers are hearing about digital asset. They're confused about digital assets. They need an advisor to assist them with digital assets. And this is a wonderful business building opportunity. And the advisors who recognize that now are the ones who are going to win in the rest of this decade.

Marty Flanagan:

Well, I think you're right. And as you say, you can feel the pace and energy of everybody's trying to get their arms for around the opportunity. But one thing that was fascinating, and I'm sure you know this, so Investopedia recently surveyed 4,000 people. And what was amazing to me actually was, found that more millennials own crypto than they owned stock. And so, a couple thoughts there. Why do you think that's the case that millennials are more allocated crypto than to stock? And do you imagine that this trend is going to go beyond the millennial crowd in the future?

Ric Edelman:

Yes. Among the millennials and Gen Xers, this is a fact, and it's not going to change in the course of their lives. We have to remember that most of investors these days are baby boomers. We're the ones with all the money. We're the ones with the most investment experience. And we use tech, but we don't use it very well. I still get confused with the remote control covering my TV. We use tech, but the younger generation is tech. They grew up at age three, playing with an iPad. They understand scrolling and swiping on a screen. They don't use paper books, they download eBooks and they use audio books. They refer to videos that don't have any sound on TikTok, we used to call them silent movies.

And so, their attitude and their functionality in this conversation is totally different. They're not going to suddenly change and go to an old school mutual fund back when they had eight and a half percent front-end loads. Right? Those days are gone and that's not who this audiences dealing with. But as they become more ingrained in this marketplace, recognizing that digital investing is their life, they're influencing their parents and their grandparents.

And so, we discover now that there is a huge engagement by baby boomers in the crypto space. It isn't limited to the next gen. And so advisors need to realize that your clients, even those in their 50s, 60s, and 70s own crypto. They haven't told you, just like your teenagers are drinking beer, they haven't told you that either, because they don't want you to know. They're afraid of being judgmental. They're afraid that you're going to be negative, and so they're doing it, but they're not telling you about it.

If advisors were to embrace, or at the very least be nonjudgmental about it, it'll help improve the relationship with a client. And we need to recognize that this technology is going to impact all parts of the client's business. Tokenization is going to democratize and demonetize. It's going to allow investors to engage with smaller amounts of money in a broader array of asset classes. And the ability to create portfolios that are of greater value of the client will be never bigger than ever.

So the younger investors are leading away, and they're going to show their parents and grandparents that future. And that is to encourage those parents and grandparents to talk to their advisors about it. And if the advisors continue to say, "I don't know much about it." or, "My firm won't let me engage.", all they're saying is, "Go somewhere else." And that's going to hurt their business overall. So, the advisory community, not just the advisor but their firms, have to figure out how to engage, how to retain the client, how to keep the assets, and how to grow the assets. And we're excelled in teaching you how to do that in a way that is safe from a regulatory perspective, a reputational perspective, and a revenue perspective. The days of being passive and oblivious to this, those days are gone.

Marty Flanagan:

Let me get specific here. Obviously, very optimistic on the long term opportunity here, and I agree with you there. But as somebody's looking today at cryptocurrencies, what would you advise them? How should they think about crypto currency in their portfolio today?

Ric Edelman:

Well, here's the neat thing. One of the objections, frankly obstacles, that advisors have is there's no easy way for me to add crypto to my portfolio. I would have to radically change how I do business. I would have to tell my client to go to a digital exchange like Coinbase or Gemini or Kraken, where the client's got to do all the work in opening the account. These outfits won't really coordinate with me. I can't do block trading on behalf of all of my clients. I can't rebalancing. I can't include the asset in my portfolio reporting because it doesn't connect to Orion or Envestnet. I can't do tax management at the end of the year, and I can't debit my fee. And so I can't even get paid.

And why would I want to do this? And it's so disruptive. I'd have to build new systems. I'd have to retrain my staff. I'd have to fuss with my compliance department. I don't even know how to do all that. Why would I want to bother doing all that? And it just doesn't fit within my practice, even if I wanted to, which a lot of them don't even want to. So it's an obstacle. It's an objection that people have, and it's reasonable.

Here's the point. All of that I just said is old school thinking. It was valid three years ago, but not today. The crypto community has grown up in amazing ways over the past two or three years. Partly because the crypto community has hired massive numbers of financial services executives. There's been a huge outflow, as you have seen, Marty, in the industry, of people leaving Wall Street to join crypto companies. And these folks are bringing with them the financial services expertise that the crypto community has not had.

Meaning today, however you operate your practice, there is a crypto solution available to you. Meaning some advisors like to trade stocks. Others like to use ETFs, probably the majority of advisors like the ETF model. Just look at the success of Invesco, one of the major ETF players in the country. Some like to trade options and futures. Some like to buy... they like to engage in private placements on behalf of accredited investors. No matter how you like to manage money for your clients, there is a strategy within digital assets that accommodates you.

So when advisors say it's too hard, it's too difficult, it's too new, it's too different, it's not something my compliance department would approve of, that was true three years ago. It's not true today. And as a result, advisors would be shocked to discover how easy it is to add this asset class to their client portfolios in a seamless way to practice management. So advisors need to recognize that if you haven't studied the marketplace recently, you probably don't realize how easy it is to do this, so that you can say to your client, "I got you covered. We can easily add it to the portfolio." No fuss, no muss. Nothing new or different. It's the same as we've been managing the rest of the portfolio, no matter how we manage it, we can integrate this into the client portfolio, no big deal.

Marty Flanagan:

That's really helpful. And Rick, thank you for joining me today. And this is such an important area, and your leadership is so important for the financial planning community and for the end clients. The opportunity is enormous for financial planners, but also their clients. And really balancing the opportunities with the risks and the practice management of how to go forward is really well done.

And again, congratulations on starting the Digital Assets Council for Financial Planners, and the program, educational program, is just absolutely essential for the success of the industry. So thank you very much, and good [crosstalk 00:30:42].

Ric Edelman:

Well, I appreciate it so much, Marty, and all of your support.