Franklin K2 Launches Second Multi-Manager Alternative Fund
By DailyAlts Staff Franklin Templeton Investments’ 2012 acquisition of K2 Advisors gave the firm a significant foothold in the alternative investments arena. Since then, Franklin Templeton has relied upon K2’s expertise in the hedge fund space to launch a ’40 Act fund, the Franklin K2 Alternative Strategies Fund (MUTF: FAAAX ), which debuted November 2013. More recently, K2 founder David Saunders “solidified” his case for liquid alternatives . And now the firm has announced the launch of another ’40 Act alternative fund: the Franklin K2 Long Short Credit Fund (MUTF: FKLSX ). “For investors looking to complement their overall portfolios with a diversified, multi-manager approach with less correlation to traditional long-only fixed-income holdings, we believe this Fund can be an important tool,” said Mr. Saunders, the co-lead portfolio manager of the fund in addition to being K2’s founder, in a recent announcement. Fund Overview The Franklin K2 Long Short Credit Fund is a multi-manager fund that invests in a variety of credit strategies sub-advised by institutional quality hedge fund managers. The fund therefore provides retail investors with access to managers that may otherwise be unavailable to them. The fund’s objective is to provide total return, through a combination of current income and capital appreciation, over a complete market cycle. Capital preservation is also part of the fund’s objective. K2 pursues these ends by continually adjusting allocations to the sub-advisors, based on the top-down market views of the fund’s portfolio managers. In addition to Mr. Saunders, they include head of investment research Robert Christian, managing director of portfolio construction Jeff Schmidt, and managing director Charmaine Chin. Manager Structure The sub-advisors – which include Apollo Credit Management, Candlewood Investment Group, Chatham Asset Management, and Ellington Global Asset Management – employ credit long/short, structured credit, and emerging-market fixed-income strategies. The investments used by the sub-advisors may include: Corporate bonds; Mortgage-backed securities and asset-backed securities; S. government and agency securities; Collateralized debt and loan obligations; Foreign government and supranational debt securities; Loans and loan participations; Mortgage dollar rolls; Repurchase agreements and reverse repurchase agreements; and Mortgage REITs. By diversifying across asset classes and strategies, the Franklin K2 Long Short Credit Fund – like the Franklin K2 Alternative Strategies Fund before it – aims to dampen portfolio volatility and provide lower correlation to traditional long-only fixed-income strategies. K2 makes its allocations to the underlying managers, who then execute high-conviction long and short positioning in pursuit of the fund’s objectives. “With credit spreads tight relative to historical averages, investors may not want as much credit risk exposure by being long-only high yield or investment grade debt, and may want a more flexible long/short approach,” said Franklin Templeton Solutions head Rick Frisbie. “In a potentially rising rate environment, U.S. investors who invest in fixed income for diversification and risk mitigation purposes are potentially taking on more interest rate risk than their goals would dictate and may be open to looking for new ways to diversify their portfolio.” For more information, visit franklintempleton.com .