Alyson Velati | Financial Advisor IQ
Franklin Templeton‘s May fee waiver for its private credit interval fund could get it past the $100 million mark, which is crucial for interval funds to survive, consultants said.
The company launched the fund in October 2022, and it invests primarily in U.S. middle-market debt, including traditional direct lending, opportunistic and rescue lending, high yield, liquid loans and real estate debt. Affiliate Benefit Street Partners manages the fund.
Management fees for Class A shares and the advisor share class are 125 basis points, according to fund filings.
To garner assets, the company has advertised the waiver on LinkedIn and its own website and through “partner e-blasts,” a company spokesperson said.
The spokesperson declined to comment on how much the company has spent on fund marketing.
For Franklin, a fee waiver will help the fund get assets “in the door; it is a common practice in both listed and non-listed funds,” John Cole Scott, president and chief investment officer at Closed-End Fund Advisors, wrote in an email.
The fund is in the interval fund “valley of death,” which means it hasn’t yet reached $100 million in assets, Kimberly Flynn, president of XA Investments, wrote in an email.
“In the interval fund valley of death, it is common for interval fund sponsors to waive fees as an incentive for large seed investors to come into the fund,” she wrote. “Scale is critical to the success of any relatively new interval fund.”
Bigger asset management firms can be successful with fee waivers for interval funds, Flynn said.
“Smaller boutique managers may not be as successful with a full management fee waiver approach,” she wrote. “Larger alternative managers with various avenues for capital raising in different distribution channels may find the use of fee waivers or expense waivers to be helpful in the sales process.”
Those smaller managers that aren’t as well known among financial advisors are better off raising a private fund with institutional investors before launching a registered fund, Flynn wrote.
“Various strategies for raising initial capital are employed, and different sales strategies are a better fit, depending on each firm’s brand, distribution team, track record, etc.,” she wrote.
Franklin Templeton acquired Benefit Street Partners in 2018 as part of its initiative to build its alternative investment platform.
Across firms, interval funds represent about $75.3 billion in total assets, according to data compiled by Interval Fund Tracker.
About 58% of interval funds’ assets are in credit strategies, according to the data provider’s website.
Real estate interval funds represent the next-largest category, with a little more than 25% of total assets.
The biggest interval fund to date is the Cliffwater Corporate Lending Fund, a credit interval fund, which has roughly $18 billion in total assets, according to Interval Fund Tracker.
The firm’s second interval fund, the Cliffwater Enhanced Lending Fund, had a 100% management fee waiver for the first year to help expedite capital raising, Flynn wrote.
That fund launched in July 2021 and has surpassed $3 billion in assets under management.
Fund workers in product and sales and distribution teams across retail, institutional and alternatives shops are most interested in expanding their product lineups in private debt (81%), private equity (73%) and real estate (65%), according to an Ignites Research survey from April.
