Alternative investments, especially private equity and real estate, are among key growth priorities for the US fund firm’s assault on the Emea wealth market.
Recruited in 2019 to build out Franklin Templeton’s alternative assets business in the Emea region, George Szemere reflects on what he has achieved so far, in his city hideaway above London’s Cannon Street railway station.
He did not have too far to come, “three floors down” in the same building, he recalls, from his previous employer Columbia Threadneedle, where he spent 11 years, also distributing alternative investments.
But his prominent corner of the industry has changed dramatically since then, particularly the wealth management sector, which became his primary focus during 2024.
When he joined six years ago, Franklin Templeton initially tasked Mr Szemere with establishing an important “diversifier to the traditional business lines” of equities and bonds, creating strategies including alternative credits, real estate and private equity.
The last two were fuelled by the purchases of Clarion Partners and Lexington Partners respectively, specialist units which have built up client books of more than $70bn each over several decades.
His role at that time was almost exclusively working with institutions, including pension schemes and sovereign wealth funds. Today, that balance has shifted significantly. Interest in alternatives from wealth managers and their clients, which began in the US, is now taking shape in Europe and elsewhere.
Expanding segment
Of the $1.5tn managed by the firm globally, $255bn is in the alternatives realm, with plans to further boost this expanding segment, requiring Mr Szemere “to build out infrastructure and distribution” for the private wealth channel.
He plays down concerns from many industry watchers, that these allocations are happening to soon and too fast, without clear direction or knowledge. Moreover, most wealthy families recall the crisis of 2008, when private banks were queuing to invest client capital in hedge funds, but could no longer access the funds once instructed by customers to pull out.
His claim is that the “sophistication of the wealth channel” has increased over the last few years, with industry players including Franklin Templeton “supporting the knowledge base” of banks and their private markets capabilities.
“The barriers to entry for the wealth channel into institutional capabilities across private markets have been very high,” suggests Mr Szemere, although he is hoping recent initiatives to include alternatives in diversified portfolios can now extend further down the advisory food chain.
“You have to categorise, even within the wealth management channel, whether you are talking to professional investors, semi-professional, ultra-high net worth, or whether you're speaking to mass affluent,” he states. “Because the knowledge base, the access and barriers to entry do differ among those distribution channels. But I feel very confident that we are at a point in time when those barriers are being broken down, both from product proliferation and the regulatory environment around that.”
New adopters
But for Mr Szemere’s “big business opportunity” to really materialise, particularly in private markets, strategies of education and knowledge transfers must take centre stage.
“This is a meaningful new avenue for private banks to support their client base,” he believes, “right across the value chain of wealth adoption, and because the product availability in the marketplace has been there to be able to support that.”
Rather than focusing on family offices, already well-versed in these strategies, it is the “brand new adopters” he wants to convince. These are “professional investors at a lower minimum”, who can be beneficiaries of “certain evergreen” semi-liquid fund structures.
“The average private client portfolio for a private bank in alternatives today is still very low, often quoted at being sub-5 per cent,” he says.
“So if you marry that to a traditional bond and equity portfolio, and you have well understood diversification benefits of adding private markets, there is a great room for growth in that allocation, without it actually overwhelming the traditional side of the business.”
Still waters run deep
A key reason why Franklin Templeton needs to diversity its business and sharpen its branding is the ongoing litigation, relating to funds subsidiary Western Asset Management in 2024, leading to billions in outflows from investors.
The company points out that this is “very much a separate issue that is isolated to one individual at the moment. And Western is very much separate from our alternative platform.”
But there is certainly a renewed push within the firm to accentuate the concepts of trust and “partnership”. One of the advertising campaigns launched by Franklin Templeton in the US focuses on how the firm can act as a “trusted partner” to investors, and now it is Mr Szemere’s goal to broaden this approach in Europe.
“Speaking for the wealth channel, I think it's pretty unique from our perspective, where we as Franklin Templeton already have strong relationships, partnership, investment capabilities, solutions for various wealth segments in individual countries, in regions across Emea,” he says, rising enthusiastically to this theme. “We are now able to tap into those partnerships and offer a broader sense of capabilities across private markets.”
In his spare time, Mr Szemere likes nothing better than playing water polo in his local swimming pool and an occasional bout of white water rafting in more exotic locations.
His hope is that, unlike the chequered history of alternative asset management, the newest incarnation of this business will better resemble the pool rather than the hazardous rapids.
