The Sharpe Angle Interview: Jenny Johnson |
Franklin Templeton's recipe for success: Acquisitions, active management & alternatives
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Franklin Resources, known more commonly as Franklin Templeton, has been on a buying spree.
Over the last few years, it acquired fellow asset manager Legg Mason for $4.5 billion, custom index provider O'Shaughnessy Asset Management, and Lexington Partners, a secondary private equity investor - just to name a few of its deals.
In an industry that's historically shunned M&A over fears of some failed tie-ups, increasingly some asset managers have forged ahead, especially in the past few years. And CEO Jenny Johnson is undeterred. In a rare and exclusive interview the steward of $1.5 trillion in assets told us that she's focused on alternatives and technology as "bolt-on" acquisitions at the moment.
“We’ve been really clear about our acquisition strategy, which is to really find products that fill in particular product niches that we needed to have,” she said. Johnson said through acquisitions, they’re focused on expanding their alternatives and wealth business, as well as expanding globally and their fintech capabilities.
She said the recent volatility has been a reminder of the value that active asset management can have. While "flows are down across the board,” active is outperforming, she said. "In times of great volatility, active management pays off." She said the challenge in the current environment is that there are so many “mixed signals” out there. She pointed out factors like inflation, rate hikes, the war in Ukraine, China lockdowns and supply-chain challenges. Amid those headwinds, she sees opportunities in companies that are helping to nearshore supply chains, technological innovation around genomics and precision farming, and she also said “Web 3.0 is another big opportunity.” |
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Hedge fund winners and losers emerge in brutal tech-driven sell-off |
A wide divergence of performance has formed in the hedge fund industry amid a stock rout on Wall Street.
Tech-focused investors like Brad Gerstner and Tiger Global are getting crushed as growth stocks became the epicenter of the market carnage in the face of rising rates. Meanwhile, some value, macro and international oriented players are reaping sizable gains despite the market bloodbath.
Macro funds were a standout winner in April with a 5% surge, extending its 2020 rally to 15.5% thanks to strong performance in commodity, fundamental discretionary and trend-following strategies, according to data from HFR. On the flip side, technology-heavy hedge funds were among the biggest losers last month with a near 5% loss overall, HFR data said. "If you owned growth stocks this year - like we did at Altimeter - you got your face ripped off," Altimeter Capital's CEO Gerstner said in a Twitter post Thursday. "As a hedge fund we expect to lose less than the indexes on the way down - this year we have lost more... Markets moved fast- we moved too slow." Altimeter's four biggest holdings — Snowflake, Meta, Microsoft and Uber — are all down from 20% to as much as 60% year to date. The technology sector, especially unprofitable firms and richly valued software names, have been hit the hardest as of late. The Nasdaq Composite slid more than 13% in April, dropping almost 30% from its all-time high. |
Chase Coleman's growth-focused flagship fund at Tiger Global tumbled 15% last month, pushing its 2022 rout to 44% and wiping out nearly all of its gains since 2019, according to Bloomberg News. Its biggest holdings as of the end of 2021 included JD.com, Microsoft and Sea Ltd, which are all down double digits this year.
Still, many players managed to dodge the brutal sell-off and overcome the extreme volatility on Wall Street.
Citadel's multistrategy flagship fund Wellington rallied 7.5% last month, bringing its year-to-date performance to 12.7%.
New York-based activist and event-driven hedge fund manager Coast Capital is also beating the market this year as they looked for out-of-favor value names in Europe. Its Engaged fund is up 4% in April, advancing over 15% in 2022, according to a person familiar with the returns.
"Some of these companies we buy have lower valuations and lower share prices than they did in March 2009," said James Rasteh, CIO of Coast. "When we turn our companies around, there's often an important improvement in the margins and profitability of the companies. We make money even in declining markets."
The overall hedge fund community dipped 0.9% in April, compared to the S&P 500's near 9% loss for its worst month since March 2020, according to HFR. The S&P 500 is edging closer to bear market territory, down 18% from its record high, as the Federal Reserve's aggressive tightening spurred recession worries. |
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Delivering Alpha Headlines |
Big thoughts from the big money
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Dan Loeb says hard to call bottom in high-growth tech |
Third Point’s Dan Loeb managed to sidestep the market turmoil last month by taking down exposure to rate-sensitive tech names. “Even after dramatic declines, it is difficult to call a bottom in the high-growth, high-valuation end of the tech sector, especially given that many of these companies relied on stock-based compensation and controversial accounting and reporting techniques,” Loeb said. The hedge fund manager said his main funds only posted a narrow loss of 1% in April.
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Cathie Wood says Fed's aggressive rate hikes could cause recession |
Ark Invest’s Cathie Wood said the U.S. economy will start deteriorating as the Federal Reserve’s aggressive tightening goes on, adding that a global recession is likely. “I think the Fed is misgauging here what’s going on here. This is becoming highly restrictive,” Wood said in an investor webcast. "All of these indicators are a warning to the Fed. I think the indicators will start screaming at the Fed. They are shouting right now. They will start screaming as time goes on and they stick to their current plan."
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| David Tepper calls Fed’s tightening signal an ‘unforced error’ |
Hedge-fund manager David Tepper said the market turmoil was partly caused by the Fed’s messaging on its aggressive tightening schedule to combat surging inflation. “Central banks have a little bit of a credibility problem,” the founder of Appaloosa Management told CNBC’s Scott Wapner. “Taking the optionality of 75 basis points off the table was an unforced error the Fed didn’t have to do. The Bank of England making a similar mistake the next day caused the market to become a bit unhinged.”
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