Jamie, what is your remit?
Jamie Hammond: I’m based in London and I’m responsible for Franklin Templeton’s distribution business within Europe. We have four regions internationally, outside the US, responsible for distribution.
We have a country head distribution model with strategy responsibility for both the retail and institutional channels within each of the countries.
Over the years, the lines between what was retail and what was institutional have been slowly blurring. You have institutions very much open to buying mutual funds, which would be, perhaps, historically considered a retail product, as much as you have some of the retail channels, the banks and the insurance companies, looking at sub-advised mandates and the type of product that would have been considered institutional.
The model that we’ve had running for around six years now enables each country head to set the strategy that’s relevant to the distribution dynamics of the specific country.
What countries do you regard as the major markets within Europe to do business with?
JH: Most of Franklin Templeton’s offices have largely been in existence for 15 years or more. Our largest markets, in terms of assets, are Italy, Germany, Switzerland and the UK. We have distribution and offices in most major countries.
The most recent office we’ve opened is in Belgium just over two years ago. Historically it had been quite closed and captive to the banks, but now we have got people on the ground to service the clients we have in Belgium.
That’s how Franklin has grown internationally, not just in Europe. We have an internal saying ‘Think global but act local’. One of our strengths is having people on the ground servicing our distributors in a local language.
How much of Franklin Templeton’s business is not US business?
JH: Around 30% of assets of the group come from the international division, which is outside of the US. That’s been increasing slowly year-on-year as markets have been opening up and Franklin has been expanding internationally. Within that breakdown, Europe would probably be around 13% of the group assets.
Is Europe perceived as one of the growth areas of the business?
JH: We have offices in 35 countries and distribution in over 100 countries. We see opportunities outside the US in different stages of development, such as the emerging middle classes in India and Asia, or the opportunities opening up in Latin America.
Europe at the moment offers great growth opportunities in many countries. Particularly in the UK where, historically, we’ve had a relatively small business because our product range was sub-optimal for the UK IFA market. We have spent some time over the past few years addressing that, an example of which would be the acquisition of Rensburg Fund Management based in Leeds to give us the important domestic UK equity products which are needed in this market.
We try, where possible, to localise both the support and service model, as well as the product range to meet the needs of clients. Sometimes that means specific products for markets such as the UK. Other times it’s taking our Luxembourg-based SICAV and introducing local currency share classes to minimise the currency risk for investors. We are one of the first asset managers to expand this range of share classes. If you look at the fund range in the SICAV, you could find one fund which would have a dollar share class, a euro share class, a Polish zoty share class, a Swedish krone, Norwegian krone or a Singapore dollar share class.
We now have one of the largest SICAV umbrellas in Luxembourg, with total assets of approximately $170bn and 84 funds. Luxembourg is a major office for us, supporting our international business in many ways and is actively involved with various industry bodies.
How much of the business comes from funds run by Mark Mobius, and what about the ongoing importance of frontier markets?
JH: For all of the assets run by the Templeton emerging markets team, the figure is around $43.6bn, out of a total of $908.3bn for all of the Franklin Templeton group assets.
At the recent 25th anniversary celebration of TEMIT in London, Mark Mobius was telling how, at launch compared to today, the number of markets open to him was very limited. He also made a similar comparison with frontier markets, which might be limited today, but if you look forward 25 years, it’s going to be a very different story.
What do you notice about the different types of products that are selling in different regions?
JH: It does vary. Take one asset class, such as European equities. One country may have a preference for the eurozone exposure. Others may have a preference for the pan-European space, or happy to include the UK or not. But in recent times, there has been a strong movement into fixed income products, with lower volatility than you would see in equity markets and which can generate regular income for clients.
Over the past year or so we’ve started to see movement into more balanced and outcome style-orientated products, and also more clients happy to go back into equities on the retail side as well.
We have seen stronger flows into European equity products and also into balanced and outcome products. Funds like Franklin European Growth, Templeton Global Balanced and Templeton Global Income, which are more balanced products, have seen strong support in the last 12 months or so.
In the UK and internationally, what have you been doing to understand the opportunity given by the spring Budget pension changes, which come into effect in 2015?
JH: This is a good opportunity for the asset management industry as a whole. What we’re focused on is making sure we have the right product range to meet the diverse needs of people in that particular segment.
It’s very important that we have the right products in the pre-retirement accumulation phase so that we can help people accumulate capital as they’re heading towards retirement.
Then making sure we also have the right products available in what’s called the decumulation phase, when people are looking to take income from the capital they’ve accumulated.
The recent changes, in terms of compulsory annuity purchase, have created a good opportunity for the industry as a whole to look at product needs. That’s not just UK specific. When you look around the world there are going to be some strong similarities between people needing to accumulate capital as they realise that governments will no longer be able to provide adequate pensions in retirement.
People have got to take more responsibility themselves for saving.
In the decumulation phase, countries have very different approaches, for example in the US, target date funds have been very popular. In more of the IFA-driven markets and in Europe, the target risk approach has been more popular than target date, assessing a client’s attitude to risk as opposed to using an asset allocation model based upon the timescale to the date of your retirement.
The target date approach looks at what age you are today, what age you are planning to retire and then investing in a portfolio where the assets are managed and risk decreased the closer you get towards the retirement date.
There is clearly a market for those products.
There’s another school of thought that says if you are going to live for 25 or 30 years in retirement, you need to think very carefully about your allocations to equities and fixed income on a go-forward basis.
I think that’s again where ‘Thinking global and acting local,’ is important. We want to offer the right suite of products that can meet the needs of local markets, which will vary by country.
It is likely that as we go into 2015 we will add some products to this area. We’re currently looking at that right now. We have quite a broad suite of multi-asset and balanced outcome type products. I don’t have 100% of what I need right now for Europe. Therefore, you’re likely to see some product development in this space as we go into 2015.
Will Franklin Templeton be working closely with life companies to develop these types of products?
JH: Increasingly, there is a blurring of the lines between retail and institutional and we do see distributors of all types increasingly looking to sit down and discuss product development with asset managers.
Italy is one example where we’ve been asked to sub-advise funds for banks. We also get involved in discussions with life companies about specific product needs. That’s an area that will grow, where asset managers will work with life companies to develop products specific to their client requirements because they know the segments that they’re targeting.
That’s where I see growth opportunities for our solutions business.
Our clients could be looking for mutual funds that have a targeted outcome – which I’ve already touched on – but also more bespoke portfolios as an underlying manager for other funds.
How is your product strategy shaping up for the rest of the year?
JH: As mentioned, what we’ve seen in Europe is this strong movement towards more balanced and outcome-driven products. We recently hired another member to our Franklin Templeton solutions team. Toby Hayes recently joined the team, based in the UK, to be a portfolio manager for multi-asset outcome products.
We’re looking at our existing product range to make sure it’s what our clients and distributors want. Going into 2015, new product development is probably going to be more focused around the solution and outcome product areas, as opposed to specific asset class type products as we have a large and diverse range already.
For me, that’s the growth area.
