Franklin Templeton brings liquid hedge funds to European investors

Five-strong Sicav range uses non-European managers and carries a performance fee

Franklin Templeton has unveiled a liquid hedge fund range, run by its alternatives boutique K2 Advisors, carrying a high water mark performance fee.

The five-strong Luxembourg Sicav range, known as Franklin Templeton Alternatives Funds, is made up of daily-dealing Ucits funds.

K2 Advisors has been investing in alternatives through daily liquid managed accounts since 2007 and about 60% of its $10.6bn in assets under management are in these structures.

The underlying managers are from outside Europe which the group believes offers “differentiated styles of alpha generation and risks”.

It comprises Franklin K2 Bardin Hill Arbitrage; Franklin K2 Chilton Equity Long Short; Franklin K2 Electron Global, a global long-short global utilities and infrastructure equity strategy; Franklin K2 Ellington Structured Credit; and Franklin K2 Wellington Technology Long Short.

Annual management fees are between 1% and 1.5% and the funds carry a performance fee of 12.5% to 15% collected on hitting a high-water mark decided on a monthly basis.

Capitalising on a ‘pause point’ in the market

K2 Advisors senior managing director Bill Santos (pictured) told Portfolio Adviser now is “a good pause point in the market” to unveil a liquid hedge strategy.

“When you first had the gold rush, if you will, you had a lot of managers come out that were long biased, not necessarily true traditional hedge fund managers. So, I think this is a good pause point to weed out some of that, and really come back with higher quality.”

Santos also believes now is an opportune time in the market cycle, especially in Europe.

“I’ve spent time over the past two years traveling in the region looking for this kind of solution in capability and bringing high quality managers that can help diversify these portfolios… high quality managers that are North American that you don’t necessarily have here in Europe.”

Brexit insulation

Santos said having the range domiciled in Luxembourg should insulate it from any potential impact from Brexit.

“They are pretty much registered in every major country in Europe and our client base sits in all of Europe. Part of launching this new range is the registration in all of the countries.”

Santos said the daily-dealing range undergoes a “rigorous” three-stage due diligence process in terms of assessing its liquidity.

First it goes through BNY Mellon Hedge Mark, then through the Franklin Templeton risk team and finally through K2 Advisors.

“So, you have three separate groups looking at liquidity,” said Santos.

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