TORONTO (HedgeWorld.com)–Franklin Templeton Investments added hedge funds to a family of 11 investment pools targeting high-net-worth investors through investment advisers.
The idea is to add diversification and possibly some downside protection to the pools, which are sold in Canada under the Tapestry name, with the amount of hedge funds used depending on the targeted risk of the pool and current market conditions. The largest benchmark allocation to alternatives the pools is 15%, plus or minus 5%, said Elizabeth Lunney, a portfolio manager in the private client group for Franklin Templeton Investments, a Canadian subsidiary of Franklin Templeton Resources Inc., San Mateo, Calif.
The benchmark and hedge fund strategy used by a given pool will depend on the risk profile of the Tapestry pool, as well as on the portfolio managers’ current view of market conditions, Ms. Lunney said. The change comes as part of a new allocation to alternatives, which in the future also could include private equity investing and real estate, she said.
Franklin Templeton will be using two hedge funds of funds managed by Franklin Templeton Alternative Strategies in San Mateo, an operation that works with the Auda Group, New York, on hedge fund management under an agreement signed in 2001. One fund, the Capital Preservation Fund, has a low risk profile, and emphasizes non-directional hedge fund strategies. The other fund, the Strategic Growth fund, has a low- to medium-risk profile that will put more emphasis on directional strategies but will include non-directional funds, as well. Both funds of funds will invest in a minimum of seven funds, she said.
But the pools will not be purchasing the funds of funds outright. Instead, it will enter into forward contracts tied to the hedge funds of funds performance, less the cost of the contract, which is being offered through a Canadian bank, Ms. Lunney said.
The Tapestry funds had been previously available but have been changed to make them more broadly available, she said. The pools carry a minimum of C$250,000 (US$179,649) and are offered to accredited investors in Canada. The pools will be available through the National Security Clearing Corp.’s mutual fund clearing system, fund/SERV.
A U.S. company, Phoenix Investment Partners, Hartford, Conn., made a similar move last month but didn’t add a pure hedge fund portfolio to its investment adviser-sold offering. Instead, it added an equity market neutral fund to two of its asset allocation funds .
Franklin Templeton Investments manages C$640 million (US$460 million) in Canada, while its parent manages US$293 billion.