Since 2012, K2 Advisors, one of the industry’s largest hedge fund advisory groups, has been part of Franklin Templeton Investments. It has, in many ways, been an ideal marriage, with K2 bringing alternative fund solutions expertise and Franklin Templeton bringing a distinguished history in traditional registered investments.
Over the last six years, this has led to substantial growth in the firm’s managed account platform, which it uses as one of the building blocks to craft solutions for its institutional business as well as its registered ’40 Act and UCITS business.
As Wilson “Bill” Santos (pictured), Senior Managing Director and Global Head, Franklin Templeton Alternative Investments explains:
“We currently have USD11.8 billion in AUM on the platform, of which USD7.2 billion is in managed accounts. We grew by 24 per cent last year and the majority of that growth was in managed accounts.
“We have multiple ways of using these structures. Overall, I would say that transparency and lower expense ratios are becoming more important for institutional investors and managed accounts are a good way to address these issues.”
“We are able to customise solutions for every client so flexibility is really key in how we use managed accounts to support our current client base,” assert Jean-Francois Crousillat, Managing Director, Franklin Templeton Alternative Investments. “On the registered side,” he says, “the managed accounts offers us an advantage by bringing lower fee, daily liquid products to the market.
“Our multi-strategy fund has 15 underlying managers. Each and every one of them offers daily liquidity and each is priced at a flat 1 per cent management fee with no performance fee. The fund is now in its sixth year.”
There are two other registered fund products on the platform: the Franklin K2 Long Short Credit Fund and the Franklin K2 Global Macro Opportunities Fund. The Long Short Credit Fund is set to reach its three-year track record and has just received a 4-star Morningstar rating.
“Approximately USD3.7 billion of the USD7.2 billion in managed account AUM sits in these registered products (of which USD3.5 billion is in the multi-strategy fund). The rest of our AUM is made up of custom managed account mandates for our institutional clients.
“We have make it easier for our hedge fund managers to run managed accounts for us by removing the middle office and operational burden. The managers’ main focus is trading. That’s it. We have longstanding relationships with every one of the managers that we work with on the platform, having invested in their flagship LP structures as well. So it’s been an evolution of our relationship with those underlying managers,” outlines Santos.
Crousillat believes there is still plenty of growth coming from the pension plans for hedged strategies.
“They want to report better transparency, governance, lower fees, etc, to their investment boards, so I think the custom mandate business will continue to grow.
“We are very tactical in how we approach this: Does the institution want a defensive equity strategy, for example, or a volatility hedging strategy? How do we take in a group of high-quality hedge fund managers and construct something that doesn’t just make sense on a standalone basis but also makes sense in terms of how it fits in to a client’s broader portfolio?
“That’s what really excites us,” concludes Crousillat.
