Caveat Emptor? Franklin Templeton Retail Hedge Fund Raises $1.3 Billion

Have you always dreamed of investing in a hedge fund but didn’t have an extra $100,000 (or $1 million) lying around you could commit for a year or more? Well, the Franklin K2 Alternative Strategies Fund aims to give you that “opportunity”.

The Franklin K2 Alternative Strategies Fund is designed for investors for whom hedge funds are normally out of reach. Now you can invest as little as $1,000 in the hedge fund if you live in the U.S. and $5,000 if you live elsewhere. The fund invests in positions as advised by several hedge funds including Chilton Investment Company, York Capital Management and Graham Capital Management.

K2 Advisors announced this week that their alternative strategies fund has raised $1.3 billion since its 2013 launch to become the fastest growing fund launch of any kind at the firm over the last five years. The rapid growth of this segment has some people worried that some investors are not fully aware of the risks many hedge funds take as they pursue greater returns on their investments.

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Statement from Franklin Templeton’s K2 Advisors managing director

“Although K2 has been investing in hedge funds for over 20 years, we have seen a growing level of demand, especially since 2008, for alternative investment opportunities particularly in a more daily liquid format,” noted David Saunders, the founding managing director of K2 Advisors (a division of Franklin Templeton).

“Investors today are faced with an array of risks in traditional asset classes which are driving them to seek alternative investment choices, and there is broad-based demand for liquid alternatives.”

Liquid alternative retail hedge funds growing rapidly

Traditional hedge funds typically require a minimum investment of $100,000, but liquid alternative funds such as Franklin Templeton’s are cheaper, more liquid and more transparent, and therefore more appealing to retail hedge fund investors.

The total global market for these funds has increased by more than 40% a year since the financial crisis to over $600 billion, according to a 2014 Deutsche Bank survey.

Keep in mind that the Franklin Templeton’s K2 Alternative Strategies retail hedge fund charges just a flat fee and there is no performance fee, which can be as high as 20% of profits. Also of note, unlike most traditional hedge funds, there is no “lock up period” so you can withdraw your funds at any time.

As always caveat emptor