Franklin Templeton prepares first institutional crypto accounts

Franklin Templeton is to offer cryptocurrency-focused separately managed accounts (SMAs) to investment professionals for the first time.

The move is the latest example of a traditional financial giant diving into digital assets – despite the ongoing bear market. Separately managed accounts are sometimes favored by institutional investors over commingled funds because they come with customized strategy and risk profiles, as well as immediate liquidity.

The launches follow Franklin Templeton’s strategic investment in SMA platform Eaglebrook Advisors in April. The asset manager’s first $1.4 trillion crypto strategies will be available to financial advisors and wealth managers working with US investors via Eaglebrook’s turnkey platform by mid-October.

Roger Bayston, Franklin’s head of digital assets, told Blockworks that the firm’s registered investment advisor (RIA) partners have a growing interest in alternative investments, including crypto. But regulatory ambiguity in the US means that crypto-assets are not yet securities, he added.

“Custom SMAs are a perfect delivery mechanism for these assets constructed by sound counsel,” Bayston said in an email. “SMA is a significant business in traditional finance, and we are bringing these digital assets into a high-quality product offering delivered through RIAs. This is a further extension of what we do.”

Eaglebrook Advisors CEO Christopher King said Franklin Templeton’s new offering represents “a turning point” for crypto, as the US wealth management market demands professionally managed digital asset SMA strategies from trusted asset managers.

He called the segment the “lowest hanging fruit” of the crypto market in an interview with Blockworks last year, adding at the time that roughly 95% of the advisor market had yet to invest in crypto assets.

“We work together on the sale and distribution of these strategies and help wealth managers and the clients they serve understand the digital asset market,” King told Blockworks.

Franklin Templeton’s Digital Assets Core SMA is a market cap-weighted strategy that invests in 10 to 15 of the largest digital assets, excluding stablecoins and meme coins.

Its Digital Assets Core Capped SMA takes a similar approach, but limits allocations to bitcoin (BTC) and ether (ETH) to 25% of the portfolio each.

Although rival asset managers, such as BlackRock and Fidelity, launched ETFs focused on blockchain technologies in April, Bayston said at the time that Franklin Templeton was still thinking about the right time for an entry.

Fidelity in April moved to allow certain US workers to allocate a portion of their retirement savings to bitcoin through the company’s 401(k) investment plan. BlackRock, the world’s largest asset manager with roughly $8.5 trillion, partnered with Coinbase last month and days later launched a private bitcoin trust.

“I’m sure more and more TradFi firms are preparing to enter this innovation-driven asset class,” said CK Zheng, an ex-Credit Suisse executive who co-founded crypto hedge fund ZX Squared Capital last year. “While we cannot predict when the crypto winter will end, we do know that there will be a lot of demand from both institutional investors and high net worth individuals when the next crypto bull market begins.”

Franklin Templeton’s product rollout came on the same day as Mysten Labs’ $300 million fundraising. The asset manager participated in the Series B round — valuing the Web3 infrastructure company at roughly $2 billion — along with FTX Ventures, a16z and others.

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