InvestorQ : How exactly did Franklin Templeton manage to end up in this kind of a mess with its debt funds? It was one of the most conservative fund houses?
Archita Jajjoo made post

How exactly did Franklin Templeton manage to end up in this kind of a mess with its debt funds? It was one of the most conservative fund houses?

Answer
user profile image
Rashi Mehra answered.
5 months ago


They have been one of the most conservative and methodical growth engines but the last few years saw them going overboard on their credit risk funds. In fact, the current fiasco is being largely attributed to the over aggressive ways of their star debt-CIO, Santosh Kamath. In the market circles, Santosh is a sort of pioneer in the credit risk market. He has managed to give above average returns and that has ensured consistent inflows into these funds. In fact, Kamath managed to consistently outperform the peer group by 200 to 300 basis points due to his heavy focus on “AA” and “A” rated funds. Now, lower grade papers had the advantage of higher yields but also came with much higher risk. Thinks were hunky dory as long as the economy was doing well. But COVID-19 and the lockdown proved to be the undoing. When the rot in the portfolio began to reveal, the ultra aggressive strategy of Santosh Kamath appeared daft and cowboy like. One can also justify such actions, but risk management has surely gone for a toss in this case.