Developing innovative investment solutions for clients

Adam Petryk is executive vice president (EVP) and head of Franklin Templeton Investment Solutions (FTIS), a team of specialists in multiasset and systematic equity investing who serve as a gateway into the firm’s full breadth of investment capabilities. FTIS starts with client goals and translates them into portfolios powered by Franklin Templeton’s best thinking across the globe.

Mr. Petryk holds a bachelor of science in computer engineering and a master of science in electrical engineering, both from the University of Waterloo. He also holds the Chartered Financial Analyst (CFA) designation.*

*CFA® and Chartered Financial Analyst® are registered trademarks owned by CFA Institute.

 

1. Tell us about your role.

Adam Petryk: I’m focused on building a sustainable solutions business for Franklin Templeton (FT), alongside our chief investment officer, Wylie Tollette. We often refer to ourselves as ‘sitting on the same side of the table as clients’ – that means developing a deep understanding of their needs and then bringing internal and external stakeholders together to deliver the investment intellectual property (IP) of FT in new and creative ways.

From an internally facing perspective, my management philosophy emphasises setting clear, measurable goals that will impact the overall success of the team from both an investment and growth perspective. This aligns and motivates our teams whilst encouraging accountability and ownership

 

2. How would you describe what FTIS does?

Adam Petryk: I like to think of us as a manifestation of Franklin Templeton’s value proposition. At our core, we specialise in multi-asset and systematic equity investing and serve as a gateway into FT’s full investment IP.

Our take is that clients want more than simply an investment proposition, they are looking for a ‘solution’ for all their investment needs. This could be adding or combining investment capabilities into a custom solution or building innovative technology to unlock efficiencies and scale.

As a result, our investment expertise and technology are designed to really engage with clients and tease out their needs. The ability to develop multi-asset solutions that utilise the expertise of all FT’s specialist investment managers is key to that. Ultimately, FTIS aims to build deep connections with clients, leading to longterm partnerships.

 

3. Thinking about interest rates and inflation, which trends or major shifts have you seen in the asset allocation decisions of investors?

Adam Petryk: For most of the last decade, investors experienced an environment of very low global interest rates that made it very difficult to achieve meaningful returns from fixed income investments. The investment landscape has changed dramatically during the last 18 months as major central banks have aggressively tightened monetary policy in response to rising inflation, pushing up yields. As a result, bonds now hold more value for investors than purely as an option for portfolio diversification.

Our forward-looking capital market expectations (CMEs) for fixed income are attractive relative to recent history. Using the US bond market as an example of this dynamic, sophisticated investors can now achieve a yield comfortably above 4% on 10-year US Treasuries, while also securing the potential for longer-term capital appreciation amidst uncertain economic conditions. The same is true in Europe, and those willing to take on more risk can expect significantly higher yields on investmentgrade corporate bonds.

In a retail context, this means multi-asset and balanced funds are back in vogue, allowing FTIS to add real value for clients. Although 12-month return expectations for equities are currently lower than broad fixed income, both asset classes have relatively attractive risk/return profiles. Our challenge, from an asset allocation perspective, is to ensure that the solutions we develop can capture the changing opportunity set within fixed income, whilst also maintaining exposure to growth assets like equity and alternatives investments that offer attractive return and diversification potential.

Now is not the time to become complacent, despite the surprisingly subdued market volatility we’ve seen of late. Our team strives to diversify and position client portfolios against future volatility and look past current sentiments around soft landings and healthy employment numbers. The market cycle is not dead.

 

4. Which key initiatives are you and your team currently working on?

Adam Petryk: Our major initiatives are centred around developing solutions-at-scale for our clients that are also cost effective. One of the most exciting for me personally is MosaiQ^TM, a multi-asset operating system that we’re piloting with our own portfolio managers and research analysts. MosaiQ has modules for portfolio optimisation, trade generation and research. These run as applications (apps) on the overarching operating system and can be deployed in synchronisation by our portfolio managers around the world.

Using MosaiQ, our portfolio managers can design a custom solution against specific risk, return and concentration hurdles. MosaiQ’s data function generates dynamic ‘live’ multi-currency CMEs, allowing our portfolio teams to incorporate major market events and ongoing research into the portfolio construction process.

‘Live’ CMEs also allow our portfolio managers to refresh their strategic asset allocation (SAA) to incorporate significant changes in the markets more quickly. This provides our client portfolio managers with the opportunity to check in regularly with clients to reassess their portfolios and provide additional value to the investment partnership. Our vision is that once the system is fully operational, large institutional clients will also be able to leverage its capabilities to enhance their own third-party portfolio management. I’m excited by the possibility of clients benefitting from this innovation.

Another crucial initiative is what we’re calling ‘direct implementation’. Most of our current multi-asset solutions either use a fund-of-funds structure, or allocate capital to other teams within FT. While these approaches meet current objectives, we want to deliver a more compelling proposition to clients. As such, we’re building the next generation of solutions capability, which taps into the IP of other FT investment teams to directly build custom portfolios.

This gives us the flexibility to implement client preferences at a more granular level in addition to lowering overall fees, thus deepening our value proposition.

 

5. What do you expect to drive investor decisions over the next few years?

Adam Petryk: We expect fees will continue to be a significant driver of investor decisions, though performance or differentiation where it can be effectively and efficiently delivered may likely be an exception.

In the smart beta and passive space, it has proved difficult for single-asset active managers to deliver enough value to justify higher fees. However, we find that this dynamic is more nuanced in the multiasset space, particularly if we factor in increasing client demand for alternatives. Asset classes such as private equity, private credit, real estate, and hedge funds are relatively opaque to many investors and have proven more challenging to research and access. As a result, investors see value in this proposition, especially if it delivers enhanced performance and diversification to their portfolios.

Our team is working on building a wide range of alternative assets into our client portfolios, leveraging specialist alternatives managers elsewhere in FT to augment our efforts. As an example, one of the major complexities of navigating private markets is underlying manager selection, where quality and consistency of performance often varies more widely than public markets.

In Europe, another factor that continues to impact investor decisions is sustainability. Our proprietary set of sustainability indicators are implemented via a quantitative multifactor engine. They provide a tangible, data-driven approach to portfolio composition that brings rigour to the process of sustainable investing and will be an integral part of our MosaiQ platform. Elsewhere, FTIS has recently launched multi-asset funds that actively consider sustainability as part of the investment process.