Focus on hedge funds – Franklin Templeton explains logic behind K2 deal

In broad terms, M&A involving funds of hedge funds is being done from two different rationales. It could be argued that one, taken recently by Franklin Templeton and K2 Advisors, will be far more acceptable to clients.

The deal by the traditional $731bn asset manager for a majority stake in $9.3bn fund of hedge funds manager K2 Advisors Holdings LLC, for an undisclosed sum, expands Franklin Templeton’s existing capabilities.

The additional capabilities hardly overlap Franklin Templeton’s existing strategy palette at all.

William Yun (pictured), executive vice president, Franklin Templeton Alternative Strategies, says Franklin Templeton has some absolute return-type, multi-asset strategies in its fixed income group, and “asset classes that act somewhat like alternatives, such as natural resources and distressed debt”.

It also has EM private equity, mezzanine finance and infrastructure capabilities though Darby Private Equity, REIT private multi-manager real estate and real-asset capabilities of Franklin Templeton Real Asset Advisors, and commodities, managed futures and hedge fund replication strategies, via a minority stake in Pelagos Capital Management.

Yun says of the latest deal: “Adding K2 gives us a presence in the hedge fund area”.

It therefore offers something fundamentally new to institutional and retail clients who come to Yun and his team to help achieve financial goals.

Franklin Templeton is not alone in doing diversification-M&A involving funds of hedge funds, of course.



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