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Franklin Templeton Alternative Capabilities

Franklin Templeton Alternative Capabilities

We believe our clients face a complex investing landscape that demands an intelligent approach beyond traditional asset allocation. As an innovator in seeking new, uncorrelated active return sources, we have the experience, scale, and scope to meet the needs of our clients.

HEDGE FUND STRATEGY OUTLOOK

Our quarterly outlook containing the strongest conviction views, proprietary scoring and commentary across various hedge fund strategies from K2 Advisors®. The Research and Portfolio Construction teams at K2 Advisors share their top convictions for the quarter: Long Short Equity Europe, Relative Value – Fixed Income, and Macro CTA.

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Alternatives have the potential to provide long-term risk and return benefits to an investor's portfolio. We believe that the actual risk, especially of hedge strategies, is often misunderstood.

Checkmark    Enhance Potential Return Opportunities

Checkmark    May Help Reduce Portfolio Risk

Checkmark    Improve Overall Diversification

THREE REASONS FOR CONSIDERING A STRATEGIC ALLOCATION TO HEDGE STRATEGIES

1. A POTENTIAL RISK MITIGATOR


Over the past 20 years, hedge strategies have exhibited less than half the risk of global equities and over the last 5 years in particular, hedge strategies have been 62% less risky. As a result, hedge strategies have the potential to lower overall portfolio risk (as measured by standard deviation).

20 Year Standard Deviation (Through 12/31/2015)

(Source: Factset. Data as of 12/31/2015. Hedge strategies represented by HFRI Fund Weighted Composite Index, global equities measured by MSCI World Index)

For illustrative purposes only: does not represent any Franklin Templeton product. Past performance does not guarantee future results.

2. A POTENTIAL SOURCE OF ASYMMETRIC RETURNS


An important goal of using hedge strategies in a portfolio may be to help reduce loss of investment value during periods of extended or extreme market downturns. However, well-managed hedge strategies could potentially also participate in upward moving markets, thereby positively impacting a portfolio's overall risk/return characteristics. As evidence, hedge strategies have an Up Market Capture Ratio of over 49% while capturing only 31% in Down Markets over the last 20 years.

Up Capture Ratio of 49.35%, Down Capture Ratio of 31.14%

(Source: Factset. Data for the 20 year period ending 12/31/2015. Hedge strategies represented by HFRI Fund Weighted Composite Index.)

For illustrative purposes only: does not represent any Franklin Templeton product. Past performance does not guarantee future results.

3. A NEW SOURCE FOR POTENTIAL ALPHA OPPORTUNITIES


Finding active, long-only managers that deliver consistently high alpha above and beyond that of a benchmark has historically proven difficult. By investing in hedge strategies, portfolios can potentially have a new source for alpha opportunities. For instance, over the 20-year period ending 12/31/2015, hedge strategies (represented by the HFRI Fund Weighted Composite Index) have delivered persistently high alpha levels relative to global equities (measured by the MSCI World Index). In fact, the average alpha level for hedge strategies was over 5.0% over this same period encompassing many different market cycles. Adding hedge strategies to an institutional portfolio can help capture these potential alpha opportunities.

HFRI Fund Weighted Composite Index

Source: FactSet. For illustrative purposes only; does not represent any Franklin Templeton product. Past performance does not guarantee future results. Alpha is a measure of a portfolio's return in excess of market return, after being adjusted for risk. 12-Month Rolling Alpha is calculated by looking at the previous 12 months of performance history and moving forward on a monthly basis.

See www.franklintempletondatasources.com for additional data provided information.

A craftsman is only as good as the tools available in his toolkit, and we believe the same principle applies to active investment portfolio management. Alternatives provide more tools aimed at meeting underlying objectives...client objectives."

William Yun, CFA
Executive Vice President and Head of Alternative Strategies

WHY CONSIDER FRANKLIN TEMPLETON FOR ALTERNATIVES

Prudent, risk-managed investing in alternative asset classes and strategies requires specific knowledge and expertise honed over many years through various market cycles. Franklin Templeton can offer the following:

 Checkmark    Broad alternative capabilities from specialized alternatives teams

 Checkmark    Proven history of innovation

 Checkmark    Global operational strength

 Checkmark    Experience with a diverse client base

BROAD CAPABILITIES, SPECIALIZED TEAMS

Franklin Templeton offers broad alternative investment capabilities through a multi-boutique structure. This structure supports the integrity and specialization of each team's investment process while creating a community for sharing perspectives and practices.

We offer products and strategies within the following categories:

  • Hedge Strategies
  • Real Assets
  • Private Equity & Debt

Broad Capabilities, Specialized Teams

 

HISTORY OF INNOVATION

Franklin Templeton has a long tradition of innovating when it comes to seeking new, uncorrelated active return sources by following a robust, risk-controlled process.

This tradition was extended with the start of our Alternatives business in 1984.

History of Innovation

*Dates indicated reflect the year the specific group began operations, and such groups may not yet necessarily have been affiliated with Franklin Templeton Investments in the indicated year.

 

GLOBAL OPERATIONAL STRENGTH

Franklin Templeton's global investment platform allows our specialized teams to focus on what's most important—investments. Combining innovation and team focus with the strength of a global investment leader, we bring confidence that our commitment to alternative investments is enduring.

Global Operational Strength

 

DIVERSE CLIENT BASE

Diverse Client Base

65 Years of Experience Working with Many Different Clients

Franklin Templeton has decades of experience working with institutional investors and financial professionals. We have dealt with and understand that the portfolio construction and implementation challenges are not the same across clients.

 

Combining a client-centric approach

Combining a client-centric approach with our broad investment capabilities helps investors achieve tailored outcomes.

We believe all institutional investors deserve a partner who understands their needs and realizes that investing is not a one-size-fits-all enterprise. It's why we have a history of seeking new, uncorrelated active return sources within a robust, risk-managed process.

Through a multi-boutique structure, we offer broad alternative investment capabilities spanning hedge strategies, private equity and debt, and real assets—including global infrastructure, real estate and commodities. This wide range of strategies, coupled with our deep knowledge and expertise, allows us to help our clients seek their unique investment objectives.

 

 

LIQUID ALTERNATIVES: DISPELLING THE MYTHS
  • The requirement to invest at least 85% in liquid assets does not appear to have a negative impact on historical performance relative to less liquid traditional hedge funds; in fact, historical data generally suggest the opposite.
     
  • Industry dynamics provide incentive for quality hedge fund managers to subadvise liquid alternative mutual funds, giving investors a breadth of access to a universe of alternative strategies.
NAVIGATING THE SPACE BETWEEN “DIRECT” AND “INDIRECT” REAL ESTATE INVESTING
  • Global real estate, as an asset class, has evolved past the stark distinction between “direct” and “indirect” real estate investment. Investors are seeking increased transparency, greater control and lower cost in their real estate portfolios.
     
  • These benefits are potentially available through a new and developing universe of local partners, who offer a range of investment opportunities on the continuum between “direct” and “indirect.”
PRIVATE REAL ESTATE CO-INVESTING TODAY: OPPORTUNITIES AND CHALLENGES
  • Real estate co-investments and joint ventures are increasingly available as real estate fund managers find it harder to compete for capital with the “mega funds.”
     
  • Relative to investing in real estate funds, these single-asset or small portfolio transactions offer the possibility of attractive returns, favorable terms, and the ability for investors to control portfolio construction.
FINDING DIAMONDS IN THE ROUGH: EMERGING REAL ESTATE MANAGERS PROVIDE UNIQUE INVESTMENT EXPOSURES
  • We believe commercial real estate continues to be an attractive asset class for institutional investors looking for diversification, historically attractive returns and potential income generation.
     
  • The addition of investments sourced from emerging managers can provide additional benefits due to their historical outperformance against larger peers.
TRUE DIVERSIFIERS: THE CASE FOR MULTI-STRATEGY, MULTI-MANAGER HEDGE STRATEGIES
  • Multi-strategy, multi-manager hedge strategies may be a valuable diversification tool.
     
  • We analyze four commonly-used hedge strategies including Event Driven, Global Macro, Long-Short Equity, and Relative Value.

STRATEGIES

Franklin Templeton offers the following Alternative strategies to institutional investors through its multi-boutique investment platforms. Many of these strategies can be accessed via custom solutions, pooled vehicles and separate accounts*.

HEDGE FUND STRATEGIES

  • Long/Short Equity (Generalist, Technology, Health Care,
    Commodities, Europe & Asia)
  • Equity Market Neutral
  • Specialist Credit
  • Structured Credit
  • Event Driven
  • Multi-Strategy
  • Commodities
  • Global Macro (Discretionary, Systematic)
  • Insurance-Linked
  • Fixed-Income
  • Convertible Arbitrage
  • Volatility Arbitrage
  • Liquid Alternatives
  • Hedge Fund Replication
  • Customized Portfolios

REAL ASSETS

  • Commodities
  • Listed Infrastructure
  • Listed Real Estate
  • Private Real Estate

PRIVATE EQUITY & DEBT

  • Private Equity
  • Mezzanine Financing
  • Infrastructure Financing
*Not all strategies may be available to all investors or in all vehicles. Account minimums and other requirements may need to be met.