Franklin Templeton Investments has won fans for its steadfast presence in Europe. With an office due to open in Belguim soon, Nick Fitzpatrick speaks to Jamie Hammond, managing director, Europe.
Being promoted could never be considered unlucky, but a promotion in a recession might at least be more daunting than a promotion outside of one – particularly when it is European business that you are put in charge of.
This is the situation that Jamie Hammond found himself in when he moved from being Franklin Templeton Investments’ Northern Europe and Benelux head, to its European managing director in July 2010.
Potentially adding to the strain, Franklin Templeton’s star fixed income manager, Michael Hasenstab, bought a large amount of Irish debt and now sits on this while on Hammond’s watch.
Then again, it must also be a relief that Franklin Templeton has one of the most well known emerging market managers in the business, Mark Mobius, at a time when that same recession has everybody looking towards this asset class.
Hammond, who is based in London, says: “There has been a lot of volume in my two years and what has been good for Franklin Templeton has been the shift in domestic and regional products in Europe, towards emerging markets and globalisation, whether that’s down to the search for yield or for lower volatility.”
German anniversary
US fund management houses have earned a reputation for pulling back from their foreign outposts in times of hardship. This perception persists. Franklin Templeton, though, is celebrating the 20th anniversary of its Frankfurt am Main office and Hammond says there are plans to open an office in Belgium. Pointing out that Franklin Templeton, which is based in San Mateo, California, and is listed on the New York Stock Exchange, has offices in ten European countries, Hammond says: “We have offices in Luxembourg and the
Netherlands, and we have sales people in Belgium – but we want an office there.”
He says this has become necessary as banks have adopted more guided architecture and appointed Franklin, whose business split is roughly 80/20 in favour of institutional, in the process. “We have a reputation of showing commitment to the market, and that’s very important now.”
Franklin has offices in 35 countries and distribution in more than 100.
Local markets
The economic climate has not stopped the firm extending its European office network. But Hammond concedes that the economy has impeded Franklin’s strategy to become more established in European local markets.
“The economic situation has not stopped us from opening offices where it makes strategic sense. But in the past few years we’ve launched some additional European equity and fixed income funds and the situation has not been supportive of regional products that we have been looking to distribute at a more local level. The situation has stopped us building more local domestic products.”
This is a significant enough impediment to realising European ambitions. Building a local offering – not just in terms of asset classes but also with local fund structures – is an important part of Franklin Templeton’s strategy. The idea is to position Franklin as a “global-local” house.
Hammond says Franklin was one of the first managers to offer currency-hedged share classes as part of this local push. There are share classes for Polish zlotys and Norwegian krones, among others in its Luxembourg Sicav range. Hammond says the firm has $30 billion (€23.5 billion) in currency-hedged share classes.
The localisation of its cross-border skills is so important to Franklin Templeton that the firm acquired a UK fund manager, Rensburg Fund Management, in January last year to further this aim in the UK market.
“We have become viewed as a large cross-border manager in the region but we have not been seen as a big manager in some local markets, such as in the UK, which is a big unit trust and Oeic [open-ended investment company] market.”
Illustrating the point further, Hammond adds: “The UK is a large market and it has great potential, but we have a large Sicav and in the UK a more local product is needed.”
The Rensburg offering, now merged into Franklin’s UK product, fills that gap. It includes the Franklin UK Equity Income fund, structured as an Oeic.
Data from Lipper shows this range of funds suffered net outflows over 2012 to the end of July, though equities in general – and UK equity funds in particular – have been generally unloved. July saw outflows of €1.1 billion from UK equities across Europe.
However, more positively, Hammond says interest in this product has been signalled even by sovereign wealth funds that award single-country mandates.
Aside from localisation of its business, the other two main strategic priorities for Franklin in Europe, says Hammond, are to focus on existing popular products, and on its service model, catering for increased demands for information and transparency.
The next two years
Over the next two years, Hammond says he expects the ongoing shift from defined benefit to defined contribution pensions to provide context for the development of Franklin’s business in Europe. Also, the need that banks have for portfolio construction rather than just product components will be another pull, he says.
Relevant here is a group that Franklin created for “outcome” products. “People want solutions rather than just products. Defined contribution pensions will want risk-graded, multi-asset vehicles and we provide equity income for pre- or post-retirement situations.”
Global bonds are also seeing more interest, Hammond says. So what, then, of those Irish bonds bought recently by Hasenstab who runs the Templeton Global Bond fund? It is out of Hammond’s hands, of course, as Hasenstab is in the US. But as someone closer to the eurozone crisis than his US colleague, the holding – reportedly of €6.1 billion – does not seem to worry Hammond.
The Irish exposure is a small amount of the total assets under management ($158 billion/€124 billion), he says.
“Michael Hasenstab is a conviction manager. He takes a contrarian view and is long-term in his approach. His fantastic track record speaks for itself with outperformance of the Templeton Global Bond fund in eight out of the last ten years.”
©2012 funds europe
