Franklin Resources, Inc. better known under its operating name, Franklin Templeton Investments, says it has agreed to acquire a majority stake in K2 Advisors Holdings, an independent fund of hedge funds manager. This acquisition, it says, will enhance Franklin Templeton’s alternative investments and multi-asset solutions platforms.
For its part, K2, we are told, will use the proceeds to purchase all of the equity currently held by TA Associates and to retire all of K2’s debt obligations. The current management of K2 will not sell any of its interests at this time and will receive no up-front consideration in this transaction. Beginning in 2016, Franklin Templeton will acquire the remainder of K2 over a multi-year period. The transaction is subject to certain conditions including regulatory approval and is expected to close in the calendar fourth quarter of 2012.
Douglass and Saunders, K2’s founding managing directors, have entered into long-term employment arrangements in connection with the transaction and will continue to manage the business. No changes are planned for the K2 investment management processes.
K2 has a global presence with 115 employees in the U.S., U.K., Japan, Australia and Hong Kong, and approximately US$9.3bn in assets under management as of August 31, 2012.
“One of the ways that we have built Franklin Templeton’s global business is by making strategic investments in smaller, highly experienced asset management companies whose expertise complements Franklin Templeton’s global offerings and meets our world-class standards,” said Greg Johnson, CEO of Franklin Templeton Investments. “This new relationship with K2 is an important step in our overall plan to expand Franklin Templeton’s alternative strategies and solutions platform.”
William Yun, CFA, executive vice president, Franklin Templeton Alternative Strategies, said, “The continued development of our alternatives platform has been a core strategic initiative for Franklin Templeton, and to that end we’ve focused on creating new investment strategies and broadening our distribution capabilities across multiple channels. K2 will be an important addition to those capabilities, particularly as institutional investors continue to shift allocations towards the hedge fund and fund of hedge funds space and to look for multi-asset solutions providers.”
Yun continued, “K2’s success in creating alternative investment solutions that enhance overall returns and lower portfolio volatility is closely aligned with our own vision for the alternatives business. K2 integrates a conservative, risk-based philosophy and advanced risk management systems into its investment strategies, and this complements Franklin Templeton’s well-established commitment to risk management.”
Saunders said, “By joining forces with Franklin Templeton, we are solidifying our position as a leading fund of hedge funds manager in an evolving alternative investment landscape. This has been a management-led effort to seek out the best partner to replace TA. From the outset, we were attracted to Franklin Templeton’s established global presence and its extensive resources in distribution, operations and technology. Franklin Templeton’s network of portfolio managers, country heads on the ground and real-time information about global markets will be invaluable to K2 in executing our clients’ objectives.”
Douglass said, “In seeking a partner to replace TA, it was critical to identify a world-class asset manager that shares our culture and core values. Franklin Templeton has a long and successful track-record of partnering with asset management firms and enabling them to operate as standalone businesses that leverage the full resources of the company’s diverse platform. Our clients should take great comfort as K2 transitions from a financial sponsorship arrangement to a strategic buyer-of-choice, with management retaining its current equity stake.”
Roger Kafker, managing director, TA Associates, said, “Since acquiring our interest in K2, the firm has grown from US$5bn to US$9bn while generating strong returns for its investors in challenging markets. K2 has been an excellent partner and we wish the firm well as it enters its next chapter.”
K2 was established in 1994 and has focused its business exclusively on the fund of hedge funds business. The Stamford, CT-based company has offices in New York City, London, Tokyo, Hong Kong and Sydney. K2 has built organisational, systems and process competencies over 18 years to support investments in alternative and asymmetric return strategies. In 1994, the firm was launched with a single commingled fund of hedge funds product with six underlying hedge fund investments. Today, K2 oversees aggregated assets of approximately US$9.3bn, more than 65% of which is held in 30+ separate accounts or single investor entities that represent some form of strategic partnership with its clients. For more information, please visit www.k2advisors.com.
