Franklin Templeton has launched Singapore’s first liquid multi-manager alternatives fund for retail investors.
The city-state is the second Asian market, after Korea, that the fund has attained regulatory approval for retail distribution.
However, there are worries that the new fund’s performance will suffer from negative selection bias because it will not be able to attract the best managers.
Speaking to AsianInvestor yesterday as the Franklin K2 Alternative Strategies Fund launched, Singapore-based Scott Collison, Franklin Templeton Investments’ Asia head of alternatives, argued that hedge fund managers “recognise that this is where the growth is”. He highlighted the fact that retail investors are increasing their allocations to hedge funds from 0-2% of their portfolios at present to the 8-20% that most distributor model portfolios recommend.
Some retail banks in Singapore have already signed up to distribute the fund, said Collison, but he declined to name the banks.
“Hedge funds need to address concerns around transparency, liquidity and gating” to attract retail investment, said Collison, citing feedback from distributors.
Concerns about operational – more than investment – risks underpin retail investors’ perception that hedge funds are risky, he said.
Furthermore, a co-manager investment structure means that managers of individual strategies cannot gate the fund since the assets are held by Franklin Templeton. “Instead of being a holder of funds, Franklin K2 is the holder of the underlying assets,” explained Collison.
“The hedge funds can’t gate assets, their ability to commit fraud is lower, we 100% know what’s in the portfolio and we can cross-collateralise across assets,” added Collison. A co-manager structure where the overall manager – in this case Franklin Templeton – holds the assets is the “next progression,” said Collison, after funds of hedge funds, which are the most common liquid alternative structure at present.
Additionally, investors often also consider CTAs (commodity trading advisers) – along with equity market neutral hedge funds – when seeking out liquid alternative investment products to act as portfolio diversifiers.
Collison explained that a global macro strategy (which delivers CTA-like returns) is included among the eleven strategies that the new Franklin Templeton fund invests in, along with event driven, relative value and long short equity strategies.
The Ucits version of the fund was originally launched in Europe in September 2014 and initially seeded by Franklin Templeton before being made available to retail investors in Europe and high-net-worth individuals in Hong Kong and Singapore as well as institutional investors in Korea.
It has grown to more than $300 million in AUM. The US 40 Act version of the fund has now grown to more than $700 million in AUM.
A Hong Kong-based spokesperson for Franklin Templeton said the firm was considering a Hong Kong launch of the fund: “We are still assessing the feasibility of registering the fund for retail investors in Hong Kong at the moment.”