| BOSTON, Sept 19
BOSTON, Sept 19 Mutual fund giant Franklin
Resources said on Wednesday it will buy a majority stake
in K2 Associates, one of the biggest so-called funds of hedge
funds, to beef up its offerings of alternative investments.
Franklin, which oversees roughly $731 billion in assets,
will pay an undisclosed amount for the bulk of K2, which manages
$9.3 billion. K2 will use the proceeds to buy back a stake in
itself from TA Associates and to retire all of its debt
obligations, the companies said in a news release.
Many bulge-bracket investment companies have been seeking to
buy hedge fund firms, as alternative investments are drawing
interest as a means to smooth long-term returns.
Three months ago, private equity company Kohlberg Kravis
Roberts bought fund-of-hedge-funds manager Prisma
The Franklin deal, which is expected to close at the end of
the calendar fourth quarter of 2012, will give the San Mateo,
California-based company the right to start buying the rest of
Stamford, Connecticut-based K2 beginning in 2016.
K2, founded by David Saunders and William Douglass III in
1994, is one of the best-known independent hedge funds of funds
and was able to grow assets after the financial crisis, which
hurt many competitors. With offices around the world, the firm
employs 115 people who select hedge funds for large public and
corporate pension funds as well as university endowments.
K2's investment approach is not expected to change because
of the deal, both firms said.
For Franklin, which has a taste for buying smaller,
experienced, management companies, the deal will allow it to
offer its wealthy investors more access to some popular hedge
"This new relationship with K2 is an important step in our
overall plan to expand Franklin Templeton's alternative
strategies and solutions platform," Greg Johnson, CEO of
Franklin Templeton Investments, said.
For K2, the deal ends months of flirting with potential
buyers. More than a year ago, speculation mounted that K2 was
getting ready to sell itself and talk that Carlyle Group
was interested spread through the $2 trillion hedge fund
Named for the Himalayan mountain K2, the hedge fund firm has
been a stalwart in a quickly consolidating industry. Its
founders have deep roots, with Saunders having worked as a
trader for industry icon Julian Robertson and Douglass having
worked at Donaldson Lufkin and Jenrette.