Franklin’s Benefit Street Shuts Credit Hedge Fund After Losses

(Bloomberg) -- Benefit Street Partners, the alternative credit manager acquired by Franklin Resources Inc. in 2019, has shut its credit hedge fund after returns slumped.

The firm began liquidating its portfolio in September and returned the bulk of the capital by the end of last year, according to a person familiar with the matter. The fund lost 11.2% last year through August and had $575 million in assets at the end of that month, said the person, who asked not to be named. Its assets once peaked at as much as $1 billion.

Many credit funds are struggling with yields and default rates near historic lows. The hedge fund industry is also grappling with pressure from investors after years of mediocre returns and hefty fees. Closures have outpaced openings and marquee names including billionaire Louis Bacon have shut funds or returned client capital.

A representative for New York-based Benefit Street declined to comment. The firm, run by Thomas Gahan, manages about $27 billion in assets and its credit hedge fund started trading in 2011.

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Franklin, which has agreed to purchase asset manager Legg Mason Inc., acquired Benefit Street to expand into private credit as the appetite for such strategies intensified. Gahan was named head of alternatives at Franklin Templeton following the close of the acquisition last year.

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Private credit funds, which have focused on high-yielding strategies like direct lending, have cashed in on the shift to alternative capital providers from banks. As private equity cash piles have grown, such funds have deepened relationships with sponsors, who rely on them to provide capital for buyouts and strategic acquisitions.

Benefit Street, established in 2008, focuses on senior secured and subordinated debt as well as liquid and illiquid credit.

--With assistance from Kelsey Butler.

To contact the reporter on this story: Melissa Karsh in New York at mkarsh@bloomberg.net

To contact the editors responsible for this story: Sam Mamudi at smamudi@bloomberg.net, Alan Mirabella, Josh Friedman

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