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Alternative Allocations: Due diligence meetings

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How and why more advisors are tapping into alternatives—Tony Davidow, Senior Alternatives Investment Strategist at Franklin Templeton Institute, shares insights from a recent gathering. 

We recently welcomed approximately 100 advisors each in back-to-back due diligence meetings in Austin, TX. The energy was electric as advisors from across the country came to gain greater insights regarding Franklin Templeton’s alternative investment platform. “It’s incredibly humbling to see such strong advisor demand for our thought leadership, portfolio construction insights, and alternative education. Product adoption of the Alternatives by Franklin Templeton business—across Clarion, Benefit Street, Lexington, Franklin Venture Partners and K2 Advisors—continues to accelerate. Flagship diligence events like this are a key pillar of our commitment to advisors and distributors alike,” stated Dave Donahoo, Franklin Templeton’s Head of US Wealth Management Alternatives.

The events included Franklin Templeton professionals and CIOs from several of our alternative investment funds. We covered such topics as why real estate makes sense in today’s market environment, the role and use of alts, and how to build portfolios with alternative investments. Our CIOs shared their respective outlooks and responded to advisor questions about challenges and opportunities.

We took advantage of our Austin locale and brought advisors to dinner at one of Clarion Partners’ local properties. “Democratizing access to institutional-quality commercial real estate is an important goal for both Clarion Partners and Franklin Templeton. This event provided a terrific opportunity not only to spend time showcasing one of Clarion Partners’ local properties and share insights about the potential benefits of private real estate, but also to demonstrate how a city like Austin reflects two of the themes we feel are driving current real estate trends—demographics and innovation.  We look forward to participating in these types of events in other markets in the future,” noted Rick Schaupp, Portfolio Manager, Managing Director, Clarion Partners.

In both due diligence programs, I shared research on the impact of allocating to alternative investments in client portfolios. To gauge the audience’s level of engagement, I inquired about their current allocation to alts, and closed with a question regarding their future plans. Nearly 90% of the advisors in both programs indicated they were looking to increase their allocation to alternatives in the coming year. That’s a very good sign for the industry and our clients.

In the last couple of years, we have moved from an environment where advisors were apprehensive about allocating to alternatives, to one where advisors are not only considering alternatives, but also looking for guidance on the best way to allocate these strategies into their clients’ portfolios. We think there are a couple of contributing factors. The market environment over the last couple of years has seen dramatic shifts in market volatility, interest rates, inflation and geopolitical risks. Alternative investments can be valuable and versatile investment tools in challenging environments.

We have also seen product innovation that has brought these once elusive investments to a broader group of investors, at lower minimums, and offering more flexible features. Advisors are now able to access institutional-quality managers and leverage their expertise in putting capital to work. “The ability to meet the needs of financial advisors, no matter where they fall on the experience curve with alternative investments, is the cornerstone of the Alternatives by FT platform. Whether it’s alternative investment education, market insights or specific product solutions to solve for client needs, we are committed to helping advisors,” stated Matt Brancato, Head of Broker Dealer Alternative Sales at Franklin Templeton.

We have also come a very long way in building alternative education programs and developing thought leadership content for both advisors and investors. The alternative investment train is leaving the station, and advisors are getting on in droves. We are here to help advisors on their journey.

WHAT ARE THE RISKS?

All investments involve risks, including possible loss of principal.

Investments in many alternative investment strategies are complex and speculative, entail significant risk and should not be considered a complete investment program. Depending on the product invested in, an investment in alternative strategies may provide for only limited liquidity and is suitable only for persons who can afford to lose the entire amount of their investment. An investment strategy focused primarily on privately held companies presents certain challenges and involves 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. Diversification does not guarantee a profit or protect against a loss.

An investment in private securities (such as private equity or private credit) or vehicles which invest in them, should be viewed as illiquid and may require a long-term commitment with no certainty of return. The value of and return on such investments will vary due to, among other things, changes in market rates of interest, general economic conditions, economic conditions in particular industries, the condition of financial markets and the financial condition of the issuers of the investments. There also can be no assurance that companies will list their securities on a securities exchange, as such, the lack of an established, liquid secondary market for some investments may have an adverse effect on the market value of those investments and on an investor’s ability to dispose of them at a favorable time or price. Past performance does not guarantee future results.

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.

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Please visit www.franklinresources.com to be directed to your local Franklin Templeton website.

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