Chidem Kurdas
K2 Advisors, one of the largest fund of hedge funds firms, is to manage a new Franklin Templeton mutual fund that will allocate to hedgie managers. The U.S. Securities and Exchange Commission agreed that the mutual fund will be able to shift assets among managers without having to obtain prior approval from investors.
David Saunders and William Douglass will oversee the new fund. They founded K2 in 1994 and made it a success with $9 billion in assets as of last year, when they sold a majority stake to mutual fund heavyweight Franklin Templeton.
The fund is to pay K2 a 2% annual fee. It is not clear what fee arrangements K2 has with the managers and in particular what, if any, performance fee they will receive. Large fund of funds typically have significant bargaining power over managers.
Among the managers chosen so far are Chilton for long/short equity, P. Schoenfeld for event driven and Lazard for relative value strategies. Assets may also be invested in exchanged-traded funds.
What allows the mutual fund format is the green light from the SEC in the form of a so-called exemptive order that allows K2 to hire or fire managers subject only to board approval. Investors in the fund have to be informed within 90 days. According to K2, this will avoid the delays and expenses that would occur if shareholder approval had to be obtained for every change in managers.
Other firms also seek –and may have received – SEC exemptions for similar products. These include Legg Mason’s hedge fund investment arm – Permal – and Goldman Sachs.
Tags: Chilton, Franklin Templeton, Goldman Sachs, Lazard, Legg Mason, P. Schoenfeld, Securities and Exchange Commission
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