1 00:00:07,160 --> 00:00:14,080 Speaker 1: Welcome you, trillions. I'm Joel Wearer in America Bell Truders. Eric. 2 00:00:14,120 --> 00:00:16,759 Speaker 1: This was a busy week with some news, uh, some 3 00:00:16,840 --> 00:00:19,400 Speaker 1: big news, and I want to talk a little bit 4 00:00:19,400 --> 00:00:22,080 Speaker 1: about that. And joining us is also Rachel Evans from 5 00:00:22,120 --> 00:00:25,560 Speaker 1: Bloomberg News. Rachel, what happened this week? Yeah, so we 6 00:00:25,640 --> 00:00:28,120 Speaker 1: had a big new outbreak in the fee wall, the 7 00:00:28,280 --> 00:00:31,680 Speaker 1: race towards zero on the commission side of things, this 8 00:00:31,760 --> 00:00:34,959 Speaker 1: time from trading platforms. So Schwab came out and announced 9 00:00:34,960 --> 00:00:37,519 Speaker 1: that it was going to cut to zero commissions that 10 00:00:37,560 --> 00:00:40,000 Speaker 1: it used to charge on trading stocks E t f 11 00:00:40,080 --> 00:00:43,560 Speaker 1: s and options. This prompted Schwab's share price to fall 12 00:00:43,640 --> 00:00:46,440 Speaker 1: almost ten percent, but it didn't just take itself down there. 13 00:00:46,479 --> 00:00:48,720 Speaker 1: It also took E trade t D a merry trade. 14 00:00:48,840 --> 00:00:50,560 Speaker 1: And I think there's a lot of questions being asked 15 00:00:50,560 --> 00:00:54,360 Speaker 1: about what this really means for commissions in trading platforms. 16 00:00:54,640 --> 00:00:56,400 Speaker 1: So kind of a blood bath, but this is good 17 00:00:56,440 --> 00:00:58,760 Speaker 1: for me as a consumer writer. Yeah, I think for 18 00:00:58,800 --> 00:01:02,040 Speaker 1: the small investor is obviously saving what five six bucks 19 00:01:02,080 --> 00:01:04,160 Speaker 1: on the trade helps you. If you're bigger, that means 20 00:01:04,160 --> 00:01:06,920 Speaker 1: a lot less that that dollar amount. But per the 21 00:01:06,959 --> 00:01:09,640 Speaker 1: company's falling, you know, Um, we had some numbers here 22 00:01:09,680 --> 00:01:13,039 Speaker 1: that Schwab probably felt felt the least because they only 23 00:01:13,040 --> 00:01:16,680 Speaker 1: get seven percent of their revenue from these commissions, but 24 00:01:16,880 --> 00:01:19,960 Speaker 1: t D and E Trade are thirty sev so it's 25 00:01:19,959 --> 00:01:23,080 Speaker 1: more heavy on them. But really, to me, this is 26 00:01:23,120 --> 00:01:25,119 Speaker 1: just all part of the Vanguard effect because one year 27 00:01:25,160 --> 00:01:27,560 Speaker 1: ago Vanguard announced all E t F s could be 28 00:01:27,560 --> 00:01:31,039 Speaker 1: traded for free, and so I think that just people 29 00:01:31,640 --> 00:01:33,360 Speaker 1: you know, dealt with that for a while. And then 30 00:01:33,400 --> 00:01:36,399 Speaker 1: you saw interactive brokers come out like a week ago, 31 00:01:36,840 --> 00:01:39,120 Speaker 1: and then you had Um Schwab and then t D 32 00:01:39,200 --> 00:01:42,200 Speaker 1: amor Trade and now the two left standing our Fidelity 33 00:01:42,240 --> 00:01:45,360 Speaker 1: and E Trade, and everybody's wondering, you know, how quickly 34 00:01:46,040 --> 00:01:49,040 Speaker 1: they will follow suit, and when they do, you're basically 35 00:01:49,040 --> 00:01:51,440 Speaker 1: all the dominoes have fallen. Um. But I look, I 36 00:01:51,480 --> 00:01:54,040 Speaker 1: think it's good news. I think there's one concern is 37 00:01:54,120 --> 00:01:56,520 Speaker 1: there anything really free? I think if they're going to sell, 38 00:01:56,560 --> 00:01:59,559 Speaker 1: your order flow could have been a slightly wider spread, 39 00:01:59,640 --> 00:02:02,320 Speaker 1: and if to one bib extra in your spread that 40 00:02:02,360 --> 00:02:04,960 Speaker 1: could be three to six bucks anyway, so it might 41 00:02:05,040 --> 00:02:08,760 Speaker 1: be a wash. And also would this encourage bad behavior 42 00:02:09,040 --> 00:02:12,320 Speaker 1: if you trade um, you know, out of your mind. Um, 43 00:02:12,360 --> 00:02:15,160 Speaker 1: you're probably gonna lose money. So there's some car you know, 44 00:02:15,280 --> 00:02:18,520 Speaker 1: concerns and dangerous here, but arguably probably a win for investors. 45 00:02:18,600 --> 00:02:20,800 Speaker 1: So this wasn't the only news this week though, because 46 00:02:20,800 --> 00:02:23,640 Speaker 1: the SEC had a lot of bit of other news. Rachel, 47 00:02:23,680 --> 00:02:27,200 Speaker 1: what was that? Yeah, So the SEC finally approved more 48 00:02:27,240 --> 00:02:31,000 Speaker 1: than decade in the making rule about exchange trade of funds. 49 00:02:31,160 --> 00:02:33,560 Speaker 1: This basically allows e t F s to come to 50 00:02:33,600 --> 00:02:37,000 Speaker 1: market without going through an onerus and sometimes expensive process 51 00:02:37,000 --> 00:02:39,520 Speaker 1: of getting what used to be called exemptive relief. They 52 00:02:39,520 --> 00:02:41,679 Speaker 1: can now come to market under the e t F rule, 53 00:02:41,840 --> 00:02:44,400 Speaker 1: which should kind of streamline that process. They also made 54 00:02:44,400 --> 00:02:47,200 Speaker 1: a few kind of tweaks around the edges, allowing fixed 55 00:02:47,240 --> 00:02:50,160 Speaker 1: income to kind of have more of a hope because 56 00:02:50,320 --> 00:02:53,800 Speaker 1: it now is allowed to use custom baskets. Custom baskets, 57 00:02:53,919 --> 00:02:57,040 Speaker 1: very very technical term, basically means you don't necessarily have 58 00:02:57,200 --> 00:03:00,320 Speaker 1: to do a pro rata slice of the fun that's 59 00:03:00,360 --> 00:03:02,480 Speaker 1: coming in or out of the e t F. Gives 60 00:03:02,480 --> 00:03:06,119 Speaker 1: a bit more flexibility, allows the managers of these products 61 00:03:06,120 --> 00:03:08,120 Speaker 1: to actually and make a few more kind of decisions 62 00:03:08,160 --> 00:03:11,079 Speaker 1: and relating to their fund rather than just to the investor. Eric. 63 00:03:11,080 --> 00:03:12,840 Speaker 1: How many more ets do you think we'll see because 64 00:03:12,840 --> 00:03:14,880 Speaker 1: of this rule? So this is interesting. If this rule 65 00:03:14,919 --> 00:03:16,799 Speaker 1: would come out five ten years ago, I think it 66 00:03:16,840 --> 00:03:19,440 Speaker 1: would have immediately you see to pop in new launches. 67 00:03:19,480 --> 00:03:21,040 Speaker 1: I don't think we'll see that. I think that the 68 00:03:21,080 --> 00:03:25,000 Speaker 1: market has matured and everybody wants you know of the 69 00:03:25,000 --> 00:03:26,760 Speaker 1: flows this year are going to products that are twenty 70 00:03:26,760 --> 00:03:30,079 Speaker 1: basis points or less. That is, I think that's UM 71 00:03:30,560 --> 00:03:31,959 Speaker 1: made a lot of people who have products in the 72 00:03:32,000 --> 00:03:35,280 Speaker 1: pipeline more conservative and cautious about launching. I don't think 73 00:03:35,640 --> 00:03:38,080 Speaker 1: saving whatever UM looks like it might save you a 74 00:03:38,080 --> 00:03:41,080 Speaker 1: little money on the launch. Probably it probably helps some 75 00:03:41,120 --> 00:03:44,080 Speaker 1: people who are outsiders who might have been waiting, But UM, 76 00:03:44,120 --> 00:03:45,480 Speaker 1: I don't know if it's going to help it. I 77 00:03:45,600 --> 00:03:48,040 Speaker 1: maybe I'll be wrong, we'll say, but I'm I don't. 78 00:03:48,040 --> 00:03:52,640 Speaker 1: I just think the market's brutality is what's gonna trump 79 00:03:52,840 --> 00:03:54,480 Speaker 1: the fact that it's now easier. And what do you 80 00:03:54,480 --> 00:03:57,440 Speaker 1: think of this does for fixed income ETFs? Like Racil mentioned, 81 00:03:58,000 --> 00:03:59,640 Speaker 1: I think it's good for them. I think the big 82 00:03:59,680 --> 00:04:02,920 Speaker 1: winner here is active ETF though because previously only passive 83 00:04:03,120 --> 00:04:05,280 Speaker 1: and only some of them could do these flexible baskets. 84 00:04:05,720 --> 00:04:08,560 Speaker 1: UM Here's the stat that um my colleague in London, 85 00:04:08,600 --> 00:04:11,080 Speaker 1: Tom came out with, which is that only six percent 86 00:04:11,200 --> 00:04:13,800 Speaker 1: of all e t f s pay capital gains um. 87 00:04:13,840 --> 00:04:17,600 Speaker 1: But if you look, active ETF pay capital gains. So 88 00:04:17,640 --> 00:04:20,279 Speaker 1: this is probably going to help them lower that number. 89 00:04:20,720 --> 00:04:23,120 Speaker 1: And especially a lot of them are small, and I 90 00:04:23,120 --> 00:04:25,680 Speaker 1: think this is a big advantage for them. You know, again, 91 00:04:25,720 --> 00:04:28,960 Speaker 1: active has its own issues, but this certainly should help them, 92 00:04:29,040 --> 00:04:32,120 Speaker 1: so to me, I think that the bigger takeaway here 93 00:04:32,200 --> 00:04:35,480 Speaker 1: from this rule is that it probably helps little areas 94 00:04:35,480 --> 00:04:38,000 Speaker 1: on the fringe, you know, certain little and it probably 95 00:04:38,040 --> 00:04:40,600 Speaker 1: is democratic because it seems like the winners overall are 96 00:04:40,640 --> 00:04:44,120 Speaker 1: the smaller firms. So that's not all that we're gonna 97 00:04:44,160 --> 00:04:47,560 Speaker 1: talk about on this week's episode, Rachel. You also recently 98 00:04:47,560 --> 00:04:51,200 Speaker 1: wrote an article for Bloomberg Markets magazine about Dan McCabe, 99 00:04:51,640 --> 00:04:55,880 Speaker 1: CEO of Presidian Investments. Who's Dan. He's actually right here 100 00:04:55,920 --> 00:04:57,839 Speaker 1: next to us, but we'll hear from it in a second. Yeah, 101 00:04:57,880 --> 00:04:59,440 Speaker 1: but as you said, it has been a busy way. Yeah, 102 00:04:59,440 --> 00:05:00,640 Speaker 1: this was the other thing that we were kind of 103 00:05:00,680 --> 00:05:04,240 Speaker 1: working on this week. Basically, there's been a whole kind 104 00:05:04,240 --> 00:05:06,560 Speaker 1: of structure that's been in the making for for more 105 00:05:06,600 --> 00:05:08,279 Speaker 1: than a decade or you thought the e t F 106 00:05:08,360 --> 00:05:10,800 Speaker 1: rull took a long time, Well, so has this. This 107 00:05:10,880 --> 00:05:13,200 Speaker 1: is something that the SEC has been considering since I 108 00:05:13,200 --> 00:05:16,000 Speaker 1: believe about two thousand and nine when Dan set up 109 00:05:16,040 --> 00:05:19,760 Speaker 1: his company Presidian, And basically this structure is designed to 110 00:05:19,839 --> 00:05:22,359 Speaker 1: allow active funds to come to market in an e 111 00:05:22,400 --> 00:05:25,880 Speaker 1: t F wrapper without necessarily disclosing their holdings every day. 112 00:05:26,200 --> 00:05:28,880 Speaker 1: That's something that's obviously, you know, something that's very common 113 00:05:29,000 --> 00:05:32,080 Speaker 1: for um, you know, active managers, this kind of concern 114 00:05:32,160 --> 00:05:35,160 Speaker 1: that they're going to have to disclose their holdings and 115 00:05:35,320 --> 00:05:39,400 Speaker 1: they don't necessarily exactly, Yeah, you've got your intellectual property, 116 00:05:39,440 --> 00:05:41,039 Speaker 1: you want to keep that hidden. But for the e 117 00:05:41,120 --> 00:05:43,400 Speaker 1: t F structure, that is typically been the way you 118 00:05:43,440 --> 00:05:46,080 Speaker 1: do it. You put your holdings out every night. So 119 00:05:46,120 --> 00:05:47,760 Speaker 1: this is kind of a structure that that has gone 120 00:05:47,760 --> 00:05:50,520 Speaker 1: through the SEC process and seeks to give active managers 121 00:05:50,520 --> 00:05:53,159 Speaker 1: away to get into the market without necessarily giving away 122 00:05:53,200 --> 00:05:54,760 Speaker 1: those goods. I want to job out the SEC. It 123 00:05:54,760 --> 00:05:58,799 Speaker 1: seems like everything take takes a decade there. The financial 124 00:05:58,839 --> 00:06:01,920 Speaker 1: crisis happened in the middle to this is probably the 125 00:06:01,920 --> 00:06:04,760 Speaker 1: biggest issue, especially for people in the E t F bubble. 126 00:06:04,800 --> 00:06:08,039 Speaker 1: I think it's something we debate constantly because you have 127 00:06:08,200 --> 00:06:12,279 Speaker 1: twelve trillion dollars in active mutual funds and a good 128 00:06:12,320 --> 00:06:14,600 Speaker 1: portion of it is wondering how can I take part 129 00:06:14,640 --> 00:06:16,800 Speaker 1: in this quote new world of e t f s 130 00:06:16,880 --> 00:06:19,120 Speaker 1: and index funds where all the money is going, which 131 00:06:19,160 --> 00:06:22,320 Speaker 1: for context is four trillion dollars, which well, no, seven 132 00:06:22,080 --> 00:06:25,839 Speaker 1: seven and a half. Yeah, so you have twelve over here, 133 00:06:25,880 --> 00:06:27,360 Speaker 1: seven and a half here, But the seven and a 134 00:06:27,400 --> 00:06:30,280 Speaker 1: half has come out of nowhere over the past ten years. Um, 135 00:06:30,320 --> 00:06:32,240 Speaker 1: And I thought of it actually came out of the 136 00:06:32,279 --> 00:06:35,360 Speaker 1: active side. Yeah, exactly, Yeah, that this is stolen from 137 00:06:35,360 --> 00:06:37,919 Speaker 1: the active side. All the active side is grown because 138 00:06:37,920 --> 00:06:41,080 Speaker 1: of the market returns, but long story short, the organic 139 00:06:41,080 --> 00:06:43,760 Speaker 1: growth is going towards passive. This to me, I always 140 00:06:43,800 --> 00:06:46,520 Speaker 1: picture this is like a bridge. Is this the bridge 141 00:06:46,680 --> 00:06:48,520 Speaker 1: that will get us from one side to the other? 142 00:06:48,600 --> 00:06:50,880 Speaker 1: And I think There's been a couple attempts, but I'm 143 00:06:50,960 --> 00:06:53,560 Speaker 1: excited to go into them here on this episode of 144 00:06:53,600 --> 00:07:01,960 Speaker 1: Joints making Sense of non Transparent actives. Dan, welcome to trillions. Hey, 145 00:07:02,120 --> 00:07:04,440 Speaker 1: thank you very much. So, Dan, where did this idea 146 00:07:04,520 --> 00:07:07,880 Speaker 1: come from? This idea generated actually from meeting I had 147 00:07:07,880 --> 00:07:10,320 Speaker 1: with the company out in California back in two thousand 148 00:07:10,400 --> 00:07:12,440 Speaker 1: and seven. They had asked us to see if we 149 00:07:12,480 --> 00:07:15,600 Speaker 1: could figure out a way to work embedded capital gains 150 00:07:15,600 --> 00:07:17,679 Speaker 1: out of the fund that had a small cap fund 151 00:07:17,680 --> 00:07:19,560 Speaker 1: that frankly got to a point where they were not 152 00:07:19,640 --> 00:07:22,800 Speaker 1: able to rebalance it because they were triggering so many 153 00:07:22,800 --> 00:07:26,040 Speaker 1: capital gains. I went to a whiteboard with my partners. 154 00:07:26,240 --> 00:07:28,200 Speaker 1: We spent in that it was actually on a weekend, 155 00:07:28,360 --> 00:07:30,240 Speaker 1: so we actually took time away on the weekend, went 156 00:07:30,280 --> 00:07:34,160 Speaker 1: to a whiteboard and drew this up. Um Interestingly enough, 157 00:07:34,240 --> 00:07:36,600 Speaker 1: once we saw, you know, what we had created, we 158 00:07:36,680 --> 00:07:39,440 Speaker 1: knew what it was useful for. But to Rachel's point, 159 00:07:39,680 --> 00:07:41,920 Speaker 1: it took us a decade uh in order to be 160 00:07:41,960 --> 00:07:44,920 Speaker 1: able to get the necessary approvals from the SEC to 161 00:07:44,960 --> 00:07:47,040 Speaker 1: bring this. So this sounds like a big deal because 162 00:07:47,040 --> 00:07:50,320 Speaker 1: the thing that an ETF is known for is its transparency. 163 00:07:50,440 --> 00:07:52,360 Speaker 1: Right like, at any moment in time, I can see 164 00:07:52,400 --> 00:07:55,560 Speaker 1: what's happening here and what's inside of ye about what 165 00:07:55,840 --> 00:07:57,560 Speaker 1: I would disagree with that. I think that what e 166 00:07:57,640 --> 00:08:00,000 Speaker 1: t f s are really known for primarily very few 167 00:08:00,000 --> 00:08:01,880 Speaker 1: people know what to do with the transparency other than 168 00:08:01,880 --> 00:08:04,200 Speaker 1: the professional audience E t F to know for real 169 00:08:04,240 --> 00:08:07,840 Speaker 1: time pricing and access, and I think that's what we've 170 00:08:08,040 --> 00:08:11,320 Speaker 1: we've allowed here. So we're giving actual pricing of the 171 00:08:11,400 --> 00:08:14,480 Speaker 1: value of the securities in real time per second, updated 172 00:08:14,520 --> 00:08:17,480 Speaker 1: on the midpoint of their worth, and then we're giving 173 00:08:17,520 --> 00:08:20,760 Speaker 1: access through what entity we call an AP representative to 174 00:08:20,880 --> 00:08:23,720 Speaker 1: create a redeem shares the actual shares on a pro 175 00:08:23,800 --> 00:08:27,280 Speaker 1: roded basis. So very similar to how the spider operates today. 176 00:08:27,520 --> 00:08:30,000 Speaker 1: But what's inside? How do I know what I've got? Well? 177 00:08:30,000 --> 00:08:31,800 Speaker 1: What you what you know is you have the corpus 178 00:08:31,800 --> 00:08:33,880 Speaker 1: of the trust right. You know exactly who the manager is, 179 00:08:33,920 --> 00:08:35,640 Speaker 1: you know what he's trying to accomplish for you. And 180 00:08:35,720 --> 00:08:37,320 Speaker 1: just like a mutual fund, you're going to get the 181 00:08:37,360 --> 00:08:41,160 Speaker 1: same disclosures on a quarterly basis of what the actual 182 00:08:41,200 --> 00:08:45,360 Speaker 1: holdings are um. But most importantly, you have full price 183 00:08:45,440 --> 00:08:50,040 Speaker 1: transparency every day. How was it dealing with the SEC 184 00:08:50,200 --> 00:08:53,200 Speaker 1: for a decade? Uh? You know, to be fair to 185 00:08:53,200 --> 00:08:55,959 Speaker 1: the SEC, there was a lot of turnover. We'd start, 186 00:08:56,040 --> 00:08:58,880 Speaker 1: we we'd have great, what we thought were really good meetings, 187 00:08:58,880 --> 00:09:01,839 Speaker 1: We get things moving along and then uh, people may 188 00:09:01,920 --> 00:09:04,120 Speaker 1: leave or you know, the shoe may drop on on 189 00:09:04,160 --> 00:09:06,760 Speaker 1: a flash crash or something like that, and everything goes 190 00:09:06,800 --> 00:09:08,840 Speaker 1: in a drawer for a number of years. So it 191 00:09:08,880 --> 00:09:10,960 Speaker 1: was it was a little difficult. So before we get 192 00:09:11,000 --> 00:09:12,800 Speaker 1: to some of the headwinds that I think this structure 193 00:09:12,800 --> 00:09:15,480 Speaker 1: is going to face that are bigger, just real quick, 194 00:09:15,520 --> 00:09:17,040 Speaker 1: let's go into the price and the NAV which I 195 00:09:17,040 --> 00:09:19,200 Speaker 1: think it's some of the technical issues without getting two 196 00:09:19,240 --> 00:09:22,240 Speaker 1: technical actions. But the reason et F S works so 197 00:09:22,280 --> 00:09:23,840 Speaker 1: well is the price you pay for it on the 198 00:09:23,840 --> 00:09:26,800 Speaker 1: exchange usually is very close to the navy So it's 199 00:09:26,800 --> 00:09:29,120 Speaker 1: almost like the you know, that blue book value of 200 00:09:29,160 --> 00:09:31,520 Speaker 1: a car being close to what you pay. It's a 201 00:09:31,559 --> 00:09:33,800 Speaker 1: great thing, right, Nobody wants to pay something more than 202 00:09:33,840 --> 00:09:37,679 Speaker 1: what it's don't know, net asset value. It's basically the 203 00:09:37,760 --> 00:09:39,719 Speaker 1: value of the stocks or bonds in the e t 204 00:09:39,880 --> 00:09:42,240 Speaker 1: F So it's like the fair value, right, so you 205 00:09:42,240 --> 00:09:44,400 Speaker 1: want to pay something close to the fair value. How 206 00:09:44,440 --> 00:09:47,880 Speaker 1: can we ensure that in when something's hidden, because how 207 00:09:47,920 --> 00:09:51,079 Speaker 1: can you arbitrage it if you don't If the people 208 00:09:51,080 --> 00:09:54,480 Speaker 1: who are arbitraging don't know the underlying components every day, 209 00:09:54,559 --> 00:09:57,079 Speaker 1: and that's what arbitrage essentially is a dirty sounding wall 210 00:09:57,080 --> 00:09:59,600 Speaker 1: street where but it's actually very effective in keeping the 211 00:09:59,640 --> 00:10:02,520 Speaker 1: price in the navy clothes. I would agree with exactly 212 00:10:02,600 --> 00:10:04,880 Speaker 1: what you're saying. And what we've done is to update 213 00:10:04,920 --> 00:10:07,599 Speaker 1: what you're calling the nav or in an E t 214 00:10:07,760 --> 00:10:11,360 Speaker 1: F terms, an indicative value. We've created a methodologies it's 215 00:10:11,400 --> 00:10:14,360 Speaker 1: called a verified indicative value. So we're actually updating what 216 00:10:14,440 --> 00:10:17,920 Speaker 1: I think is UM. Something that is you know, ancient 217 00:10:18,040 --> 00:10:23,079 Speaker 1: developed in nineteen has not updated so that today's ETFs 218 00:10:23,120 --> 00:10:26,480 Speaker 1: rely on a fifteen second indicative value based on last cell. 219 00:10:27,240 --> 00:10:29,920 Speaker 1: You know that's not enough information to your point, So 220 00:10:29,960 --> 00:10:32,760 Speaker 1: what we've done is taken next next generation. We've taken 221 00:10:32,800 --> 00:10:35,480 Speaker 1: it to a per second indicative value on the actual 222 00:10:35,520 --> 00:10:38,920 Speaker 1: holdings of the component securities priced at midpoints, So you 223 00:10:38,920 --> 00:10:43,240 Speaker 1: are eliminating stale stale prices in that in that process. UM. 224 00:10:43,320 --> 00:10:46,000 Speaker 1: The other thing that is critical again and to your point, 225 00:10:46,320 --> 00:10:49,280 Speaker 1: you need to have access to the underlying component securities 226 00:10:49,280 --> 00:10:53,200 Speaker 1: in order to be able to to execute that arbitrage um. 227 00:10:53,360 --> 00:10:56,520 Speaker 1: Through the ap representative role that we've created here, you 228 00:10:56,600 --> 00:10:58,960 Speaker 1: have the ability not only to know the value of 229 00:10:58,960 --> 00:11:02,520 Speaker 1: the component securities, but to access the component's securities, not 230 00:11:02,679 --> 00:11:05,680 Speaker 1: a proxy, not something that may correlate, but the actual 231 00:11:05,840 --> 00:11:08,400 Speaker 1: fund itself. Rachel, what do you think this means for 232 00:11:08,440 --> 00:11:10,319 Speaker 1: the industry. I think it means that there's a lot 233 00:11:10,400 --> 00:11:13,320 Speaker 1: of mutual fund managers out there that are looking at 234 00:11:13,360 --> 00:11:16,120 Speaker 1: this very closely and wondering whether this is the kind 235 00:11:16,120 --> 00:11:18,800 Speaker 1: of salvation that they've been waiting for. The thing. Yeah, 236 00:11:18,880 --> 00:11:20,920 Speaker 1: I mean, like you've been seeing, to to Eric's point earlier, 237 00:11:20,960 --> 00:11:23,680 Speaker 1: this huge amount of money coming out of active mutual 238 00:11:23,720 --> 00:11:26,640 Speaker 1: funds and going into predominantly passive e t f s. 239 00:11:26,880 --> 00:11:28,920 Speaker 1: But there's nothing really about the et F structure per 240 00:11:28,920 --> 00:11:31,440 Speaker 1: se that stops it from being used by active managers. 241 00:11:31,679 --> 00:11:33,600 Speaker 1: It's just at that point about kind of not wanting 242 00:11:33,640 --> 00:11:36,320 Speaker 1: to give up their secret source. So I think there's 243 00:11:36,320 --> 00:11:38,800 Speaker 1: a lot of kind of like interest in how these 244 00:11:39,240 --> 00:11:41,760 Speaker 1: structures kind of like do when they hit the market. 245 00:11:41,920 --> 00:11:43,840 Speaker 1: I think the challenge is going to be sort of 246 00:11:43,880 --> 00:11:47,199 Speaker 1: standing out because DAN is sort of the only active, 247 00:11:47,280 --> 00:11:50,240 Speaker 1: non transparent et F to to get approval at the moment, 248 00:11:50,520 --> 00:11:52,480 Speaker 1: but there are a number of others that are seeking 249 00:11:52,480 --> 00:11:55,280 Speaker 1: approval and that the SEC is kind of currently evaluating. 250 00:11:55,679 --> 00:11:58,960 Speaker 1: Let's just go over those real quick, just for anyone curious. 251 00:11:58,960 --> 00:12:02,400 Speaker 1: So who is sides PRESIDI and what are the structures 252 00:12:02,400 --> 00:12:04,720 Speaker 1: are in the running. Yeah, So at the SEC at 253 00:12:04,760 --> 00:12:07,439 Speaker 1: the moment, there are I think about six proposals that 254 00:12:07,480 --> 00:12:09,959 Speaker 1: are currently seeking approval. So you've got one from tro 255 00:12:10,160 --> 00:12:14,280 Speaker 1: Price Fidelity Investments, nice Ease in their company called Blue 256 00:12:14,320 --> 00:12:16,959 Speaker 1: Tractor Investco. Just filed, and there's a bunch of me 257 00:12:17,000 --> 00:12:18,800 Speaker 1: I'm missing one there, but there's a bunch of people 258 00:12:18,840 --> 00:12:20,640 Speaker 1: out there that are kind of looking to to get 259 00:12:20,679 --> 00:12:24,000 Speaker 1: into the the market. They are primarily proposing something a 260 00:12:24,000 --> 00:12:26,440 Speaker 1: little bit different to what Dan's looking at. He mentioned 261 00:12:26,440 --> 00:12:29,120 Speaker 1: they're the ap representative kind of having sort of this 262 00:12:29,640 --> 00:12:31,840 Speaker 1: kind of blind trust element kind of standing in the 263 00:12:31,840 --> 00:12:34,640 Speaker 1: middle that helps facilitate money going into the fund and 264 00:12:34,720 --> 00:12:37,480 Speaker 1: coming out from the fund. These are other structures are 265 00:12:37,480 --> 00:12:40,240 Speaker 1: primarily looking at what we call a proxy basket, which 266 00:12:40,280 --> 00:12:43,400 Speaker 1: is basically kind of putting out some kind of maybe 267 00:12:43,400 --> 00:12:47,280 Speaker 1: representative maybe substitute, some kind of version of the holdings 268 00:12:47,520 --> 00:12:50,040 Speaker 1: within that fund and allowing kind of market makers to 269 00:12:50,040 --> 00:12:51,960 Speaker 1: see that and use that to make markets. So there 270 00:12:52,000 --> 00:12:54,439 Speaker 1: is a slightly different approach going on. What's your pattern 271 00:12:54,520 --> 00:12:57,600 Speaker 1: for though, Dan, Well, we have about sevenary issued patterns 272 00:12:57,640 --> 00:13:02,240 Speaker 1: are around this around the ap representative role, uh, which 273 00:13:02,280 --> 00:13:06,360 Speaker 1: we call trusted agent. Given our conversations with the sec A, UH, 274 00:13:06,520 --> 00:13:09,720 Speaker 1: the the and then on the indicative value processes as well, 275 00:13:10,280 --> 00:13:20,160 Speaker 1: we have a bunch of issued intellectual property. Let's let's 276 00:13:20,160 --> 00:13:21,800 Speaker 1: go into the real I think what I have the 277 00:13:21,800 --> 00:13:24,640 Speaker 1: real motivation here is the tax efficiency of ets which 278 00:13:24,640 --> 00:13:27,520 Speaker 1: was honestly a happy accident. They did not really mean 279 00:13:27,640 --> 00:13:29,600 Speaker 1: for that to be such a big benefit. But if 280 00:13:29,600 --> 00:13:32,440 Speaker 1: you're in a taxable count and et F will it 281 00:13:32,480 --> 00:13:34,680 Speaker 1: defers the taxes, let's say, but it it doesn't spit 282 00:13:34,679 --> 00:13:36,559 Speaker 1: out capital gains. As the number I mentioned earlier, six 283 00:13:36,600 --> 00:13:38,800 Speaker 1: percent of e t f s paid taxes last year. 284 00:13:38,840 --> 00:13:41,840 Speaker 1: I think for mutual funds is more like and that's 285 00:13:41,840 --> 00:13:44,320 Speaker 1: got to be very frustrating for the fund itself because 286 00:13:44,320 --> 00:13:47,160 Speaker 1: et f s get this quote maybe unfair treatment or 287 00:13:47,480 --> 00:13:50,040 Speaker 1: different treatment, and for the investors in the mutual fund 288 00:13:50,040 --> 00:13:51,480 Speaker 1: who did nothing but sit there and they got to 289 00:13:51,520 --> 00:13:54,400 Speaker 1: gain on their hands. So how confident are you that 290 00:13:54,440 --> 00:14:00,560 Speaker 1: this structure will really um minimize those capital gain distributions? Well, 291 00:14:00,600 --> 00:14:02,360 Speaker 1: I think yea. To your point, I would agree with 292 00:14:02,360 --> 00:14:03,679 Speaker 1: you that this is going to be a lot more 293 00:14:03,720 --> 00:14:06,880 Speaker 1: efficient than any mutual fund out there. Mutual funds do 294 00:14:06,960 --> 00:14:09,800 Speaker 1: have the ability to deliver our securities and cond It's 295 00:14:09,800 --> 00:14:13,080 Speaker 1: just that the structure itself doesn't avail it self to 296 00:14:13,120 --> 00:14:16,840 Speaker 1: that UM DTF structure. The t F rapper and this 297 00:14:17,040 --> 00:14:18,920 Speaker 1: what we've created here with active shares is an e 298 00:14:19,000 --> 00:14:23,560 Speaker 1: t F UM will will function again very similar to 299 00:14:23,560 --> 00:14:25,640 Speaker 1: how the spider functions. We're going to hand out a 300 00:14:25,680 --> 00:14:29,120 Speaker 1: provider slice of the basket to the trusted agent of 301 00:14:29,200 --> 00:14:32,320 Speaker 1: the ap who have the ability to UH sell those 302 00:14:32,360 --> 00:14:36,360 Speaker 1: securities and and therefore make that deliver out the low 303 00:14:36,400 --> 00:14:38,440 Speaker 1: cost basis shares out of the fund to make it 304 00:14:38,480 --> 00:14:41,960 Speaker 1: more tax efficient than today's mutual funds are. I would 305 00:14:42,000 --> 00:14:44,480 Speaker 1: take umbradge with with one point. I don't think it's 306 00:14:44,520 --> 00:14:47,360 Speaker 1: just taxes. I think taxes are very important component. I 307 00:14:47,360 --> 00:14:52,200 Speaker 1: think that today's UM investors, younger investors, want access. They 308 00:14:52,240 --> 00:14:53,680 Speaker 1: want to access from real time, and they want to 309 00:14:53,680 --> 00:14:55,960 Speaker 1: know evaluations in real time. You know, we all have 310 00:14:56,000 --> 00:14:58,080 Speaker 1: our phone sitting here. We're all what customed to we're 311 00:14:58,120 --> 00:15:00,280 Speaker 1: on computers. You know, we don't want to weigh until 312 00:15:00,280 --> 00:15:03,200 Speaker 1: four o'clock to find out what what our securities are worth. 313 00:15:03,520 --> 00:15:05,520 Speaker 1: So I think E t F s are are do 314 00:15:05,560 --> 00:15:09,040 Speaker 1: your point of bridge between you know the traditional fund 315 00:15:09,040 --> 00:15:11,560 Speaker 1: today and the exchange based model and just to riff 316 00:15:11,600 --> 00:15:13,640 Speaker 1: off that. Like on the on the cost side, it 317 00:15:13,680 --> 00:15:15,320 Speaker 1: is interesting Corlo, when you look at sort of some 318 00:15:15,360 --> 00:15:16,920 Speaker 1: of the costs inherent with an e t F and 319 00:15:16,960 --> 00:15:19,440 Speaker 1: mutual funds. You do have that taxation issue, but also 320 00:15:19,480 --> 00:15:22,000 Speaker 1: you have kind of issues about transfer agency. The e 321 00:15:22,080 --> 00:15:24,360 Speaker 1: t F isn't necessarily kind of paying the same amount 322 00:15:24,360 --> 00:15:26,280 Speaker 1: to kind of record that the holders of the fund 323 00:15:26,280 --> 00:15:28,320 Speaker 1: that a mutual fund would be, so that gets rid 324 00:15:28,360 --> 00:15:30,680 Speaker 1: of one cost by by doing an e t F structure. 325 00:15:30,800 --> 00:15:33,520 Speaker 1: Then you also have what's technically called twelve B one fees, 326 00:15:33,760 --> 00:15:36,040 Speaker 1: which which kind of like are the marketing fees that 327 00:15:36,160 --> 00:15:38,720 Speaker 1: most mutual funds do charge and most ETFs do not. 328 00:15:39,080 --> 00:15:40,920 Speaker 1: Now there's kind of a question mark about how much 329 00:15:40,960 --> 00:15:44,040 Speaker 1: of that gets incorporated into an overall expense ratio on 330 00:15:44,160 --> 00:15:46,440 Speaker 1: these e t F s. They are not likely to 331 00:15:46,480 --> 00:15:48,920 Speaker 1: be as cheap as some of the cheapest passive funds 332 00:15:48,960 --> 00:15:51,680 Speaker 1: because somebody is still out there picking stocks. But by 333 00:15:51,720 --> 00:15:54,880 Speaker 1: removing some of those kind of inherent costs, you potentially 334 00:15:54,880 --> 00:15:56,840 Speaker 1: have a way in which you know a mutual fund 335 00:15:56,920 --> 00:15:59,600 Speaker 1: is able to run more efficiently, efficiently and cheaper and 336 00:15:59,640 --> 00:16:02,360 Speaker 1: that should get posted onto the amvestor. Okay, this brings 337 00:16:02,400 --> 00:16:04,240 Speaker 1: up a great point and one that I've yet to 338 00:16:04,240 --> 00:16:07,440 Speaker 1: get an answer on what will these costs? Because you know, 339 00:16:08,080 --> 00:16:09,960 Speaker 1: how do you price this thing so it's cheap enough 340 00:16:10,000 --> 00:16:12,720 Speaker 1: to attract some of the cost obsessed advisors who are 341 00:16:12,760 --> 00:16:15,480 Speaker 1: E t F users, but not too cheap where it 342 00:16:15,600 --> 00:16:19,120 Speaker 1: upsets the existing mutual fund shareholders in the company's own fund. 343 00:16:19,680 --> 00:16:21,800 Speaker 1: PIMCO did this thing where they priced it rate in 344 00:16:21,880 --> 00:16:24,720 Speaker 1: between the EYE class and the A class, which is, 345 00:16:24,880 --> 00:16:26,920 Speaker 1: you know, maybe five six bits away from each and 346 00:16:27,160 --> 00:16:29,760 Speaker 1: that seemed to do the trick. But they were also 347 00:16:29,800 --> 00:16:32,360 Speaker 1: doing a fund that was slightly different than the mothership 348 00:16:32,480 --> 00:16:36,480 Speaker 1: mutual fund. But largely speaking, what's your plan of attack there? 349 00:16:37,520 --> 00:16:39,680 Speaker 1: You have to step back and understand what we are 350 00:16:39,720 --> 00:16:42,320 Speaker 1: Prosidian are right, We're we're we're really not going to 351 00:16:42,400 --> 00:16:45,000 Speaker 1: be the sponsor of the product, right, We're the guys 352 00:16:45,000 --> 00:16:47,000 Speaker 1: behind the scenes. They have developed a structure, so we 353 00:16:47,080 --> 00:16:49,960 Speaker 1: have license and you're talking about the other competitors. The 354 00:16:49,960 --> 00:16:52,760 Speaker 1: other compartiers are all one off models. We have licensed 355 00:16:52,760 --> 00:16:55,960 Speaker 1: fourteen of the largest active active managers on the planet 356 00:16:56,240 --> 00:16:58,840 Speaker 1: who are all coming to market with their own plans. 357 00:16:59,120 --> 00:17:01,400 Speaker 1: So I think in first quarter of this coming year, 358 00:17:01,400 --> 00:17:03,440 Speaker 1: you're gonna see a lot of new products come to market. 359 00:17:03,840 --> 00:17:06,160 Speaker 1: And and from what I see from from these guys, 360 00:17:06,200 --> 00:17:08,600 Speaker 1: and I'm not gonna put it any any names to this, 361 00:17:09,119 --> 00:17:11,159 Speaker 1: is that if there are savings, they're gonna want to 362 00:17:11,160 --> 00:17:13,320 Speaker 1: pass some of those savings along to the client to 363 00:17:13,400 --> 00:17:15,680 Speaker 1: make it more efficient for that client. And that's away 364 00:17:15,720 --> 00:17:18,200 Speaker 1: from just a taxation to to the point removing the 365 00:17:18,280 --> 00:17:21,040 Speaker 1: twelve B one fees and removing transfer agency costs that 366 00:17:21,600 --> 00:17:24,119 Speaker 1: automatically and yours to the benefit of the client. And 367 00:17:24,119 --> 00:17:27,080 Speaker 1: then you're gonna pick up also the the efficiency and 368 00:17:27,160 --> 00:17:29,480 Speaker 1: taxation that you don't have in the mutual fund. I'm 369 00:17:29,480 --> 00:17:32,080 Speaker 1: not trying to side scept that I think that they're 370 00:17:32,080 --> 00:17:35,040 Speaker 1: gonna be guys that are waiting for it, because I'm not. 371 00:17:35,119 --> 00:17:37,080 Speaker 1: I'm not the guy who's gonna tell JP Morgan how 372 00:17:37,119 --> 00:17:39,720 Speaker 1: they should charge, right, So, so you're gonna want these 373 00:17:39,760 --> 00:17:41,879 Speaker 1: guys look this, we're in a competitive world here, and 374 00:17:41,920 --> 00:17:46,040 Speaker 1: I think they know. But that said, this is a 375 00:17:46,040 --> 00:17:48,720 Speaker 1: better mouse trap than anything they've ever had to avail 376 00:17:48,760 --> 00:17:52,360 Speaker 1: themselves up before to compete with the passive industry. That's 377 00:17:52,400 --> 00:17:55,800 Speaker 1: had an advantage for twenty five years. So now we're 378 00:17:55,800 --> 00:17:57,399 Speaker 1: gonna be able to put them on a level playing 379 00:17:57,440 --> 00:17:59,359 Speaker 1: field and and they'll be able to go head to 380 00:17:59,400 --> 00:18:01,680 Speaker 1: head with the past. So here's a question for you, though, 381 00:18:02,080 --> 00:18:05,280 Speaker 1: there are about Kirk if I'm wrong, two d and 382 00:18:05,280 --> 00:18:09,080 Speaker 1: fifty transparent active e t f s the account for 383 00:18:09,119 --> 00:18:10,560 Speaker 1: less than two percent of the assets. They've been on 384 00:18:10,600 --> 00:18:13,760 Speaker 1: the market for ten years, and if you take fixed 385 00:18:13,800 --> 00:18:15,959 Speaker 1: income out of there, you get two really more bleaku numbers, 386 00:18:16,080 --> 00:18:19,200 Speaker 1: maybe like point four percent of the market. The equity 387 00:18:19,240 --> 00:18:22,200 Speaker 1: side is pretty much unloved. What would make you think 388 00:18:22,240 --> 00:18:25,480 Speaker 1: someone would pay for non trant that's acting. So you're saying, 389 00:18:25,640 --> 00:18:29,760 Speaker 1: if transparent active equity doesn't sell currently, what would non 390 00:18:29,840 --> 00:18:33,080 Speaker 1: transparent active equity do differently? Again, to be to be fair, 391 00:18:33,200 --> 00:18:36,959 Speaker 1: if you look at the growth in active even transparent 392 00:18:37,040 --> 00:18:41,480 Speaker 1: index ETFs over the last cup four years, it's so 393 00:18:41,480 --> 00:18:44,960 Speaker 1: so it's not like they're not growing the but specifically 394 00:18:45,040 --> 00:18:48,359 Speaker 1: numbers are small. Numbers are right, right, yeah, very small 395 00:18:48,520 --> 00:18:51,840 Speaker 1: for a good reason. Because if I actually have intellectual property, 396 00:18:52,119 --> 00:18:54,719 Speaker 1: I'm not going to bring my intellectual property to someplace 397 00:18:54,760 --> 00:18:58,199 Speaker 1: that it can be copied and then mimicked by somebody 398 00:18:58,200 --> 00:19:00,200 Speaker 1: else a lot cheaper than it cost me the out 399 00:19:00,200 --> 00:19:03,000 Speaker 1: of it. Yeah, exactly. So. So so if you have 400 00:19:03,080 --> 00:19:05,159 Speaker 1: your best fund managers out there, you're you were never 401 00:19:05,200 --> 00:19:07,320 Speaker 1: going to come to market in a vehicle that where 402 00:19:07,320 --> 00:19:10,640 Speaker 1: you were forced to give away your intellectual property. So 403 00:19:10,640 --> 00:19:13,320 Speaker 1: so I think now that they have that vehicle, to 404 00:19:13,320 --> 00:19:15,520 Speaker 1: your point, we're gonna see what happens well the next decade. 405 00:19:16,560 --> 00:19:20,400 Speaker 1: Is it possible though, that the fund managers are overestimating 406 00:19:20,400 --> 00:19:23,280 Speaker 1: how much people actually care what they hold, Like if 407 00:19:23,320 --> 00:19:24,960 Speaker 1: they just put their holdings out there. I mean Bill 408 00:19:25,000 --> 00:19:27,159 Speaker 1: Gross did it with bond he put you know, and 409 00:19:27,240 --> 00:19:31,000 Speaker 1: PIMCO continues to do it. Sure, Um, you know, is 410 00:19:31,040 --> 00:19:36,680 Speaker 1: it really doesn't really matters? Besides maybe a big gigantic 411 00:19:36,680 --> 00:19:38,600 Speaker 1: fiddility contra frind Okay, that's so big you can front 412 00:19:38,680 --> 00:19:40,560 Speaker 1: run it probably makes some money, But what about like 413 00:19:40,600 --> 00:19:43,280 Speaker 1: the anything lower than that, Does it really matter? It does? 414 00:19:43,680 --> 00:19:46,080 Speaker 1: You're talking not only front running, free riding, right, because 415 00:19:46,080 --> 00:19:48,359 Speaker 1: I have the ability to free ride you now, Bond 416 00:19:48,359 --> 00:19:51,600 Speaker 1: portfolios are unique because nobody's sitting at this table has 417 00:19:51,600 --> 00:19:54,520 Speaker 1: the ability to trade baskets and bonds in real time. Right, 418 00:19:54,600 --> 00:19:57,840 Speaker 1: It's about access. Equity is actually very easy to access 419 00:19:57,840 --> 00:20:00,160 Speaker 1: on exchange. So if I show you what I'm going 420 00:20:00,200 --> 00:20:02,280 Speaker 1: in my equity portfolio, I can mimic that. I can 421 00:20:02,320 --> 00:20:05,439 Speaker 1: go home on a spreadsheet and mimic that in fifteen minutes. 422 00:20:05,960 --> 00:20:10,520 Speaker 1: So I would say that again, it is there are 423 00:20:10,520 --> 00:20:12,760 Speaker 1: other things that can happen in an e t F 424 00:20:12,840 --> 00:20:14,520 Speaker 1: that do not happen in a mutual fund. E t 425 00:20:14,640 --> 00:20:17,159 Speaker 1: F are two sided vehicles because you have the ability 426 00:20:17,160 --> 00:20:19,479 Speaker 1: to both buy or sell these. If I can go 427 00:20:19,560 --> 00:20:21,560 Speaker 1: out in an e t F and as your example, 428 00:20:21,600 --> 00:20:24,080 Speaker 1: you're fully transparent, I have the ability to go out 429 00:20:24,080 --> 00:20:27,000 Speaker 1: and borrow those securities, and you're charging fifty basis points 430 00:20:27,040 --> 00:20:30,640 Speaker 1: for that fund and actually redeem the shares in your 431 00:20:30,640 --> 00:20:33,440 Speaker 1: force to give me the underlying component securities. I'm now 432 00:20:33,720 --> 00:20:36,600 Speaker 1: long the under underlying component securities short the e t 433 00:20:36,760 --> 00:20:39,280 Speaker 1: F and I become the fund manager. So so there 434 00:20:39,320 --> 00:20:41,119 Speaker 1: are a lot of things that you need as to 435 00:20:41,280 --> 00:20:44,080 Speaker 1: protect when you're trying to protect that intellectual property for 436 00:20:44,119 --> 00:20:47,760 Speaker 1: that manager. How does the mutual fund industry feel about 437 00:20:48,119 --> 00:20:52,480 Speaker 1: you now? Frankly, most of the people were talking to uh, 438 00:20:52,520 --> 00:20:54,439 Speaker 1: we have we're not really making my partners and I 439 00:20:54,480 --> 00:20:58,360 Speaker 1: aren't making outgoing phone calls to people. The traffic is incoming, 440 00:20:58,600 --> 00:21:00,199 Speaker 1: so I can tell you yesterday we just signed up 441 00:21:00,240 --> 00:21:07,280 Speaker 1: another fifty billion dollar asset manager and right now, but 442 00:21:08,280 --> 00:21:10,439 Speaker 1: I guess that can I list some that are that 443 00:21:10,520 --> 00:21:11,800 Speaker 1: you have, go ahead, just let me know if any 444 00:21:11,800 --> 00:21:14,080 Speaker 1: of these are wrong. There's some big boys on here, uh, 445 00:21:14,240 --> 00:21:20,200 Speaker 1: JP Morgan, black Rock, Nationwide, Gamco, American Century, Good Belly, Columbia, 446 00:21:20,200 --> 00:21:25,160 Speaker 1: Thread Needle, Movin, Goldman Sachs as Wellman Sachs. I've heard 447 00:21:25,160 --> 00:21:27,800 Speaker 1: of them. Yeah, there's a comple there's names that aren't 448 00:21:27,800 --> 00:21:30,080 Speaker 1: on there. But yes, uh, you know, those are all 449 00:21:30,119 --> 00:21:32,520 Speaker 1: people that have license and and that should be telling 450 00:21:32,520 --> 00:21:35,400 Speaker 1: to you. And these are incoming phone calls. These are 451 00:21:35,400 --> 00:21:37,800 Speaker 1: not us going out and actively pushing this. They understand 452 00:21:37,800 --> 00:21:39,880 Speaker 1: the value of exactly what we've created here. I would 453 00:21:39,920 --> 00:21:42,639 Speaker 1: point out though, that there is a difference between licensing 454 00:21:42,680 --> 00:21:44,760 Speaker 1: and launching, so I think that's kind of like worth 455 00:21:44,760 --> 00:21:46,520 Speaker 1: bearing a mind. And there was kind of like an 456 00:21:46,560 --> 00:21:49,920 Speaker 1: interesting sort of development on that last week where Investco, 457 00:21:49,960 --> 00:21:53,240 Speaker 1: which I believe had licensed the model a long time ago, 458 00:21:53,800 --> 00:21:56,520 Speaker 1: they kind of came out with their own model um 459 00:21:56,680 --> 00:21:58,760 Speaker 1: that they're now filing with the sec to to try 460 00:21:58,800 --> 00:22:00,920 Speaker 1: and get approval. So think it'll be very interesting to 461 00:22:01,000 --> 00:22:02,640 Speaker 1: kind of see how many of these kind of like 462 00:22:02,840 --> 00:22:04,679 Speaker 1: put their money where their mouth is. Like if they 463 00:22:04,720 --> 00:22:06,400 Speaker 1: all want to sit back and see how these work, 464 00:22:06,480 --> 00:22:08,520 Speaker 1: then no one's going to be the first mover. So 465 00:22:08,680 --> 00:22:11,679 Speaker 1: American Century has some filings out there, Gamco has some 466 00:22:11,760 --> 00:22:14,280 Speaker 1: filings out there. Be interesting to see kind of like 467 00:22:14,560 --> 00:22:17,080 Speaker 1: when those come to market, whether others sort of follow 468 00:22:17,440 --> 00:22:20,480 Speaker 1: and like let's let's just just quickly, uh, we never 469 00:22:20,520 --> 00:22:23,239 Speaker 1: license to Invesco. So so did the point. Yes, there 470 00:22:23,240 --> 00:22:26,280 Speaker 1: are comparative structures out there, but um, you know, we 471 00:22:26,560 --> 00:22:28,720 Speaker 1: think that we have the right mouse trap, and I 472 00:22:28,720 --> 00:22:30,920 Speaker 1: think it's pretty telling, you know, the people have chosen 473 00:22:30,920 --> 00:22:34,720 Speaker 1: this structure. Here's the bigger, gigantic issue you're facing, in 474 00:22:34,760 --> 00:22:37,240 Speaker 1: my opinion, which is that you know, if you look 475 00:22:37,280 --> 00:22:39,399 Speaker 1: at the numbers right past couple of years, a trillion 476 00:22:39,440 --> 00:22:42,080 Speaker 1: out of discretionary equity bond managers doing okay. But let's 477 00:22:42,119 --> 00:22:45,560 Speaker 1: just look at stock pickers, A trillion out, a trillion 478 00:22:45,640 --> 00:22:48,439 Speaker 1: has gone into et F and index funds passive and 479 00:22:48,440 --> 00:22:52,600 Speaker 1: then maybe that smart data right which is we'll sell 480 00:22:52,680 --> 00:22:56,480 Speaker 1: rules based index fund I guess my question is a 481 00:22:56,520 --> 00:22:58,640 Speaker 1: lot of that is because they look at the reports 482 00:22:58,640 --> 00:23:00,760 Speaker 1: of index versus active and they see that like two 483 00:23:00,800 --> 00:23:03,520 Speaker 1: thirds of managers can't beat their benchmark on the equity side, 484 00:23:04,040 --> 00:23:07,240 Speaker 1: and then if the ones that do can't persist, and 485 00:23:07,520 --> 00:23:11,159 Speaker 1: that's really some rough sentiment that seems to be spreading. 486 00:23:11,600 --> 00:23:14,920 Speaker 1: Can you overcome that or is that not a concern 487 00:23:15,000 --> 00:23:16,879 Speaker 1: because you think there's enough fans out there are of 488 00:23:16,920 --> 00:23:19,199 Speaker 1: active despite all that that really just wanted in a 489 00:23:19,200 --> 00:23:23,359 Speaker 1: better structure. I think that your again to your point, 490 00:23:23,880 --> 00:23:26,760 Speaker 1: there are certain managers out there performed very very well, 491 00:23:26,840 --> 00:23:28,800 Speaker 1: and there are the other managers who do not perform 492 00:23:28,920 --> 00:23:33,040 Speaker 1: very well. I think that the UM this vehicle is 493 00:23:33,080 --> 00:23:36,480 Speaker 1: going to enhance all the managers, so they're going to 494 00:23:36,520 --> 00:23:38,520 Speaker 1: pick up efficiency. So when you're trying to compare a 495 00:23:38,560 --> 00:23:40,960 Speaker 1: guy to a benchmark and you say, hey, he's missing 496 00:23:40,960 --> 00:23:44,760 Speaker 1: his benchmark, but he's gotten embedded. He's starting fifty basis 497 00:23:44,760 --> 00:23:47,399 Speaker 1: points behind the behind the curve. So if I can 498 00:23:47,440 --> 00:23:49,600 Speaker 1: move him up and let them start at the same point, 499 00:23:49,880 --> 00:23:53,080 Speaker 1: let's see what happens going forward. UM. I personally think 500 00:23:53,080 --> 00:23:54,560 Speaker 1: that there are a lot of managers out there, active 501 00:23:54,600 --> 00:23:57,080 Speaker 1: managers that I would like to have access to UM. 502 00:23:57,160 --> 00:23:59,240 Speaker 1: You know, we're mentioning some of these people today that 503 00:23:59,560 --> 00:24:02,000 Speaker 1: the major already of UM the United States do not 504 00:24:02,119 --> 00:24:05,760 Speaker 1: have access to a Goldman UH you know account right. 505 00:24:05,840 --> 00:24:08,399 Speaker 1: So so if you have that on exchange, and you 506 00:24:08,480 --> 00:24:13,400 Speaker 1: have UM their expertise UM offered an active shares et 507 00:24:13,520 --> 00:24:16,440 Speaker 1: f rapper, it may be very interesting. And again I'm 508 00:24:16,440 --> 00:24:19,159 Speaker 1: not buying you, Dan McCabe. I get to buy the 509 00:24:19,200 --> 00:24:23,000 Speaker 1: Goldman and the Goldman product, that's what the would be. 510 00:24:23,119 --> 00:24:25,040 Speaker 1: Let's unpack Goldman for a minute, because I think this 511 00:24:25,080 --> 00:24:28,040 Speaker 1: gets to another question, which is that Goldman has you say, 512 00:24:28,040 --> 00:24:31,880 Speaker 1: active active shares, right, they have something called active Beta, 513 00:24:31,960 --> 00:24:35,000 Speaker 1: which is their Smart Beta line. G SLC is one 514 00:24:35,040 --> 00:24:38,000 Speaker 1: of the best selling multi factory ETFs. It's nine basis 515 00:24:38,040 --> 00:24:41,119 Speaker 1: points of a cost, it's UM looks like an active 516 00:24:41,160 --> 00:24:43,200 Speaker 1: mutual fund, and that it's pretty close to the benchmark, 517 00:24:43,240 --> 00:24:46,440 Speaker 1: doesn't take huge risks. It's the Goldman name, it's rules based, 518 00:24:46,440 --> 00:24:50,119 Speaker 1: which is more popular. UM. Is it possible that smart 519 00:24:50,160 --> 00:24:53,800 Speaker 1: Beta has just sucked up all the oxygen that discretionary 520 00:24:53,880 --> 00:24:56,399 Speaker 1: thinks is there? I don't think so. I think that 521 00:24:56,480 --> 00:24:58,960 Speaker 1: you're gonna find it. To your point to me, Smart 522 00:24:59,000 --> 00:25:01,600 Speaker 1: Beta is just active indexing, right, They're going to be 523 00:25:01,680 --> 00:25:05,000 Speaker 1: guys and it's rule based. You know, in an active 524 00:25:05,040 --> 00:25:07,760 Speaker 1: shares product, you can actually make determinations in rule time 525 00:25:08,040 --> 00:25:10,520 Speaker 1: and you're not constrained by any rules. So I think 526 00:25:10,520 --> 00:25:11,800 Speaker 1: that there are going to be guys out there that 527 00:25:11,880 --> 00:25:16,000 Speaker 1: have the ability to add value in real time because 528 00:25:16,040 --> 00:25:18,840 Speaker 1: of news events or whatever else may be happening. Yeah, 529 00:25:18,920 --> 00:25:20,960 Speaker 1: I mean, I think the the interesting thing when we 530 00:25:21,080 --> 00:25:23,520 Speaker 1: do see a sort of some products start to launch, 531 00:25:23,560 --> 00:25:26,040 Speaker 1: and particularly we see some of the structures that are 532 00:25:26,040 --> 00:25:28,960 Speaker 1: currently with the SEC also get approved. It's kind of 533 00:25:29,000 --> 00:25:31,800 Speaker 1: how that sort of dynamic a competition then kind of 534 00:25:31,880 --> 00:25:34,160 Speaker 1: plays out. And when I talk to investors, they point 535 00:25:34,200 --> 00:25:36,800 Speaker 1: out that what they're really interested in is not active 536 00:25:36,840 --> 00:25:39,639 Speaker 1: shares per se, no offense, It's it's the strategies that 537 00:25:39,720 --> 00:25:42,840 Speaker 1: could come through on on the active shares intellectual property. 538 00:25:43,080 --> 00:25:44,320 Speaker 1: So I think it's gonna be interesting, you know, if 539 00:25:44,359 --> 00:25:46,159 Speaker 1: we do have some of these other structures approved and 540 00:25:46,240 --> 00:25:48,359 Speaker 1: if they are also licensed, some of them we believe 541 00:25:48,400 --> 00:25:50,240 Speaker 1: are going to be more proprietary, some of them will 542 00:25:50,280 --> 00:25:53,680 Speaker 1: be looking to license exactly kind of like what which 543 00:25:53,800 --> 00:25:56,320 Speaker 1: kind of asset managers choose to go with? Which structure, 544 00:25:56,359 --> 00:25:59,440 Speaker 1: because I think that more than that, the underlying structure 545 00:25:59,440 --> 00:26:01,600 Speaker 1: will the term then uh, you know who is buying 546 00:26:01,720 --> 00:26:04,520 Speaker 1: what and could ultimately determine the success of these structures. 547 00:26:04,840 --> 00:26:06,800 Speaker 1: And you know, we had Ropes and Gray on E 548 00:26:06,880 --> 00:26:12,199 Speaker 1: T F i Q every Wednesday at one pm, UM, 549 00:26:12,400 --> 00:26:14,600 Speaker 1: and they had a report out saying that you could 550 00:26:14,640 --> 00:26:17,160 Speaker 1: convert a mutual fund to this new structure. I knew 551 00:26:17,200 --> 00:26:19,040 Speaker 1: you were gonna ask that question once you said Ropes 552 00:26:19,080 --> 00:26:23,280 Speaker 1: and Gray. Um, you know, do you think we'll see 553 00:26:23,320 --> 00:26:25,119 Speaker 1: some of that? Do you think because this idea of 554 00:26:25,160 --> 00:26:27,160 Speaker 1: putting out something that's a little cheaper than your mutual fund? 555 00:26:27,200 --> 00:26:29,400 Speaker 1: I can see it getting messy with your current base, 556 00:26:29,880 --> 00:26:31,560 Speaker 1: Whereas if you just switch them all over to this 557 00:26:31,680 --> 00:26:34,119 Speaker 1: better vehicle, Yeah, you're gonna have to self cannibalize a 558 00:26:34,119 --> 00:26:36,159 Speaker 1: little bit, but you're probably gonna do that anyway. Um, 559 00:26:36,240 --> 00:26:38,320 Speaker 1: I could see that being a logical move for them. 560 00:26:38,359 --> 00:26:41,840 Speaker 1: It's happening in Canada, uh more consistently, and it's happened 561 00:26:41,840 --> 00:26:43,440 Speaker 1: in the US. First trusted that a couple of times 562 00:26:43,440 --> 00:26:46,080 Speaker 1: with the Clothes and Fund, so apparently it's legal. Do 563 00:26:46,160 --> 00:26:49,000 Speaker 1: you think we'll see this? I absolutely do think we'll 564 00:26:49,040 --> 00:26:51,399 Speaker 1: see this. UM. I don't know the time frame of that, 565 00:26:51,680 --> 00:26:53,560 Speaker 1: but I can tell you that we've spoken to at 566 00:26:53,600 --> 00:26:55,440 Speaker 1: least five or six clients that are looking at it, 567 00:26:55,720 --> 00:26:57,760 Speaker 1: and I know of five or six different law firms 568 00:26:57,880 --> 00:26:59,879 Speaker 1: other than Ropes and Gray they are also looking at 569 00:27:00,400 --> 00:27:03,840 Speaker 1: at days on behalf of clients. UM. You know, to 570 00:27:03,920 --> 00:27:06,040 Speaker 1: your point, it makes perfect sense. I mean, if I 571 00:27:06,160 --> 00:27:09,520 Speaker 1: have a mutual fund that uh, you know, potentially um, 572 00:27:10,000 --> 00:27:13,240 Speaker 1: it's been maybe even a little bit stale. UM, I 573 00:27:13,359 --> 00:27:15,560 Speaker 1: can actually convert it over to an et F model, 574 00:27:15,880 --> 00:27:20,560 Speaker 1: pick up more efficiencies, UM, you remove the transfer agency 575 00:27:20,640 --> 00:27:23,800 Speaker 1: costs and other things, uh, and get to scale immediately 576 00:27:23,840 --> 00:27:26,399 Speaker 1: on the platforms. So I think that there are a 577 00:27:26,480 --> 00:27:28,879 Speaker 1: lot of reasons guys are looking to do that. To 578 00:27:29,040 --> 00:27:31,120 Speaker 1: that point, I do think that's that's probably a great 579 00:27:31,119 --> 00:27:33,280 Speaker 1: idea for them. I do wonder how many have the stomach. 580 00:27:33,600 --> 00:27:35,120 Speaker 1: If you're not in the E T F Terror dome 581 00:27:35,200 --> 00:27:37,840 Speaker 1: dealing with Vanguard every day, it's it's a rough place, 582 00:27:37,920 --> 00:27:40,000 Speaker 1: and I'm not sure if you're used to just having 583 00:27:40,080 --> 00:27:41,760 Speaker 1: this nice life, if you can do those kind of 584 00:27:41,840 --> 00:27:44,080 Speaker 1: like it's like cutting off your own hand. UM. I 585 00:27:44,160 --> 00:27:45,800 Speaker 1: don't know how many have the stomach to do that. 586 00:27:45,880 --> 00:27:48,320 Speaker 1: I guess we'll see. So I want to go back 587 00:27:48,400 --> 00:27:53,359 Speaker 1: to seven out of whiteboard, drawing a mouse trap, the 588 00:27:53,400 --> 00:27:57,760 Speaker 1: better mouse trap? What changed from then to like actually 589 00:27:57,800 --> 00:28:00,560 Speaker 1: what you've been able to get through at the SEC? Well, 590 00:28:00,720 --> 00:28:03,119 Speaker 1: to be fair, I think the SEC wanted additional bells 591 00:28:03,119 --> 00:28:05,200 Speaker 1: and whistles than we originally have put on it, and 592 00:28:05,320 --> 00:28:08,080 Speaker 1: they also constrained the universe of securities that we could 593 00:28:08,280 --> 00:28:11,639 Speaker 1: um use out of the gate um. But frankly, it 594 00:28:11,800 --> 00:28:14,119 Speaker 1: was really very very similar to what we drew up 595 00:28:14,480 --> 00:28:17,840 Speaker 1: over a decade ago. Um, frank if it works. You know, 596 00:28:17,920 --> 00:28:19,800 Speaker 1: what we always try to do when when we're designing 597 00:28:19,800 --> 00:28:22,760 Speaker 1: products is to make them as clean and simple as possible. 598 00:28:23,040 --> 00:28:25,680 Speaker 1: But we're talking about here the all the proxy structures 599 00:28:26,080 --> 00:28:30,639 Speaker 1: proxy is you know you um, I'm laughing because you 600 00:28:30,680 --> 00:28:33,280 Speaker 1: know we recognize that just means it's not actually what 601 00:28:33,560 --> 00:28:36,040 Speaker 1: the fund is. And if you're telling me I'm not 602 00:28:36,080 --> 00:28:38,200 Speaker 1: going to have the right pricing, my pricing is gonna 603 00:28:38,200 --> 00:28:40,480 Speaker 1: be incorrect. And I'm gonna tell you something that isn't 604 00:28:40,520 --> 00:28:42,960 Speaker 1: the fund. But I want you to make an efficient market. 605 00:28:43,400 --> 00:28:45,760 Speaker 1: You're you're gonna have a little bit of difficulty. We're 606 00:28:45,800 --> 00:28:49,120 Speaker 1: giving you the actual price, and we're giving you access 607 00:28:49,160 --> 00:28:52,360 Speaker 1: to the underlying fund for creation of redemption purposes. So 608 00:28:52,840 --> 00:28:56,120 Speaker 1: um again, create something simple like we did with g 609 00:28:56,280 --> 00:28:59,040 Speaker 1: LD or currency shares over the years, and it will work, 610 00:28:59,080 --> 00:29:03,080 Speaker 1: and it'll work through every market environment. Again, McCabe Proceeding Investments, 611 00:29:03,120 --> 00:29:05,680 Speaker 1: Thanks so much for joinings on Trillians. Thank you very much, Michel, 612 00:29:05,680 --> 00:29:15,680 Speaker 1: Thank you as always, thanks for listening to Trilliance until 613 00:29:15,720 --> 00:29:17,600 Speaker 1: next time. You can find us on the Bloomberg terminal, 614 00:29:17,840 --> 00:29:21,959 Speaker 1: Bloomberg dot com, Apple podcast, Spotify, or wherever else you'd 615 00:29:22,000 --> 00:29:24,440 Speaker 1: like to listen. We'd love to hear from you. We're 616 00:29:24,480 --> 00:29:28,320 Speaker 1: on Twitter, I'm at Joel Webber Show, He's at Eric 617 00:29:28,400 --> 00:29:31,600 Speaker 1: faul Tunis, and you can find Rachel at Rachel Evans. 618 00:29:31,720 --> 00:29:36,880 Speaker 1: Underscore in y Trillions is produced by Magnus Hendrickson. Francesca 619 00:29:36,960 --> 00:29:39,440 Speaker 1: Leedy is the head of Bloomberg podcast Fight