Beyond Bulls & Bears

Alternatives

Alternative Allocations: Alternatives by Franklin Templeton—access granted

Franklin Templeton recently hosted due diligence meetings with financial advisors where Tony Davidow, Senior Alternatives Investment Strategist, led discussions focused on alternative investments. He believes that advisor adoption is just beginning and that there are three primary drivers that could help alternatives grow at a rapid pace.

Franklin Templeton recently hosted approximately 200 advisors in Nashville, TN, for due diligence meetings, which focused on providing insights about allocating to alternative investments. The programs were designed to provide a deep dive regarding the merits of certain types of alternatives (real estate, private credit, secondaries and hedge funds), explore the structural tradeoffs of the various types of investment vehicles (drawdown, feeder fund, interval and tender-offer funds), and discuss asset allocation and portfolio construction techniques.

“We’re thrilled with the strong turnout, active engagement and positive feedback from some of our most valued partners. We are laser-focused on bringing our institutional alternative capabilities to the wealth management channel by delivering to advisors what they want, in the structures they want. Events like our diligence offsite are invaluable in achieving that goal,” said Dave Donahoo, Franklin Templeton’s Head of US Wealth Management Alternatives.

We believe that the strong turnout and high level of engagement was a testament to the increasingly important role that alternatives can play in client portfolios.

“For decades our Senior Advisor Consultants have worked with our financial advisor partners to solve problems through a solutions-oriented and consultative approach. That same work that’s built a trusted brand on traditional investment products applies to alternatives as well, and we’re thrilled with the advisor communities’ receptivity to Alternatives by Franklin Templeton,” said Jonathan Kingery, Franklin Templeton’s Head of US Private Wealth and RIA.

We leveraged insights and perspectives from our specialist investment management firms Clarion Partners, Lexington Partners, Benefit Street Partners and K2 Advisors. The firms shared their views regarding the current market environment, their outlooks for 2024 and how their portfolios are positioned. We had chief investment officers (CIOs), portfolio managers and business leaders in attendance to share their insights regarding the growth of industry, the adoption of alternatives by the wealth channel, and where they saw the best opportunities for allocating capital.

I closed out both programs by discussing the concepts from our “Building Better Portfolios with Alternative Investments” whitepaper.  As part of the presentation, I shared data showing how institutions and family offices have historically allocated to alternatives and the historical risk and return performance of certain alternative investments. Throughout I referenced real world case studies to illustrate the impact of adding alternatives to client portfolios. At the end of my presentation, I polled each group about their plans for changing their allocation to alternatives. Nearly all the advisors surveyed plan on increasing their allocations.

We believe that there are three primary drivers of advisors’ adoption of alternatives—the market environment, product innovation and access to institutional managers. The market environment is demanding an expanded set of tools to meet client needs in the decades to come. Product innovation has helped bring these investments to a broader group of investors at lower minimums and more flexible features. Lastly, we are seeing more institutional managers bring products to the wealth management channel.

However, we are still in the early innings of advisor adoption of alternatives. As advisors and investors gain familiarity with the underlying investments and product features, we believe the rate of adoption will grow at a more rapid pace. As investors reap the benefits of accessing alternatives in the form of strong returns, alternative sources of income, diversification and inflation hedging, they will likely look to increase their exposure to these versatile tools.

 

WHAT ARE THE RISKS?

All investments involve risks, including possible loss of principal. Equity securities are subject to price fluctuation and possible loss of principal. Fixed income securities involve interest rate, credit, inflation and reinvestment risks, and possible loss of principal. As interest rates rise, the value of fixed income securities falls.

Alternative strategies may be exposed to potentially significant fluctuations in value.

Real estate investment trusts (REITs) are closely linked to the performance of the real estate markets. REITs are subject to illiquidity, credit and interest-rate risks, and risks associated with small- and mid-cap investments.

Privately held companies present certain challenges and involve incremental risks as opposed to investments in public companies, such as dealing with the lack of available information about these companies as well as their general lack of liquidity. 

IMPORTANT LEGAL INFORMATION

This material is intended to be of general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy. It does not constitute legal or tax advice. This material may not be reproduced, distributed or published without prior written permission from Franklin Templeton. 

The views expressed are those of the investment manager and the comments, opinions and analyses are rendered as at publication date and may change without notice. The underlying assumptions and these views are subject to change based on market and other conditions and may differ from other portfolio managers or of the firm as a whole. The information provided in this material is not intended as a complete analysis of every material fact regarding any country, region or market. There is no assurance that any prediction, projection or forecast on the economy, stock market, bond market or the economic trends of the markets will be realized. The value of investments and the income from them can go down as well as up and you may not get back the full amount that you invested. Past performance is not necessarily indicative nor a guarantee of future performance. All investments involve risks, including possible loss of principal.

Any research and analysis contained in this material has been procured by Franklin Templeton for its own purposes and may be acted upon in that connection and, as such, is provided to you incidentally. Data from third party sources may have been used in the preparation of this material and Franklin Templeton (“FT”) has not independently verified, validated or audited such data.  Although information has been obtained from sources that Franklin Templeton believes to be reliable, no guarantee can be given as to its accuracy and such information may be incomplete or condensed and may be subject to change at any time without notice. The mention of any individual securities should neither constitute nor be construed as a recommendation to purchase, hold or sell any securities, and the information provided regarding such individual securities (if any) is not a sufficient basis upon which to make an investment decision. FT accepts no liability whatsoever for any loss arising from use of this information and reliance upon the comments, opinions and analyses in the material is at the sole discretion of the user.

Products, services and information may not be available in all jurisdictions and are offered outside the U.S. by other FT affiliates and/or their distributors as local laws and regulation permits. Please consult your own financial professional or Franklin Templeton institutional contact for further information on availability of products and services in your jurisdiction.

Get Content Alerts in My Inbox

Receive email alerts when a new blog is posted.