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CONTRIBUTORS

Tony Davidow, CIMA®

Senior Alternatives Investment Strategist
Franklin Templeton Institute

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.

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