Santosh Kamath of Franklin Templeton MF is back with a new credit alternative investment fund
Subscribe to enjoy similar stories. Santosh Kamath, Franklin Templeton MF's fixed-income chief investment officer who was at the helm when the fund house wound up its six debt funds worth ₹25,000 crore in 2020, is now back with a private credit alternative investment fund (AIF). In 2023, Kamath stepped down as head of fixed income of the mutual fund segment to head the newly set-up alternatives business.
According to a private presentation accessed by Mint, the AIF will only lend to financial services-related companies and is targeting an internal rate of return (IRR) of 11% to 14%. Franklin Templeton said the fund will focus on developing the missing middle segment of the credit market. They are targeting pockets where they can get 10-15% returns.
It said that sub 10% (2-3% over risk-free rates) - AAA/AA-rated companies have access to funding through banks and capital markets and those at the other end, above 15% are accessed through high-yielding debt/distressed funds/venture funds. The fund will make periodic payments through quarterly coupons/amortization. It will seek to “minimize liquidity drag on investor returns through predictable and time-bound capital calls." It added, “Subject to market conditions, the intent will be to deploy within 3 months of fundraise.
Under current market structure investor returns get diluted by ~1.5-2.0%" The fund has no restriction on minimum credit rating requirements and has to allocate a minimum of 51% in unlisted securities. Kamath, who declined to comment on his new venture, joined Franklin Templeton MF in 2009, and started investing in bonds that most others were not touching due to their subpar ratings. His credit risk strategy worked well until it didn’t.
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