New ETF platform aims at institutions and hedge funds

A host of big-name finance industry figures are backing a new exchange traded fund platform, Tema ETFs, that aims to help hedge fund managers create ETF versions of their vehicles.

Tema, which also received funding from three venture capital groups, also plans to launch an in-house range of “institutional grade” actively managed thematic ETFs.

Tema has financial backing from luminaries including Martin Gilbert, the former chief executive of Aberdeen Asset Management, now known as Abrdn; Michael Spencer, founder of interdealer broker ICAP; Jonathan Rubinstein, former co-chief executive of Bridgewater Associates, the world’s largest hedge fund manager, and now a director of Amazon and Robinhood; and Jane Gladstone, formerly of Evercore Partners.

The New York-headquartered company says it also has financing from venture capital groups Index Ventures, Accel and Zinal Growth. Although it declined to disclose the scale of the funding, Tema said it was the largest early-stage VC investment in an ETF platform.

Although thematic ETFs have mushroomed in recent years, the vast majority have been passive and predominantly aimed at retail investors.

“Thematic ETF investing to date has primarily focused on simply providing access. We believe the next phase for thematic ETFs will focus on the quality of access,” said Maurits Pot, founder of Tema.

Pot argued that the in-house ETFs would be “institutional grade” because of their focus on risk management.

“Active management starts with risk management, the nexus being capital preservation before capital risking. Thematics is mostly a risk-on trade, yet most thematic ETFs don’t emphasise any focus on risk management,” Pot said.

“Tema intentionally avoids crowded spaces and themes such as income, digital assets, consumer, tech and cannabis,” he added.

Its roster of ETFs, due to list later this month on the New York stock exchange, is scheduled to include several little-tapped themes including the first US ETF targeting luxury goods, as well as funds focused on reshoring, regulated monopolies and alternative asset managers. Fees will be around 70 basis points.

Pot said the regulated monopolies ETF would be similar to Chris Hohn’s Children’s investment Fund, a high-profile hedge fund that seeks out “high-quality companies with sustainable competitive advantages”.

It is likely to target companies in sectors such as rating agencies, utilities and technology, as well as aerospace and US stock exchanges, both of which Pot described as “duopolies”.

When it comes to luxury goods companies, “half of them have not made money in the last five years, the others have made loads,” Pot said — to him an argument in favour of active management.

The second leg of Tema’s planned rollout involves developing infrastructure to help hedge fund managers to enter the ETF market, in order to “democratise access to private assets”.

Pot said Tema had already held talks with three high-profile hedge funds, although the inherent liquidity of ETFs meant they would only be suitable for strategies based on public equity and debt.

“Hedge fund managers are not interested in building the infrastructure for themselves. They don’t want to worry about compliance, regulation and marketing,” Pot said.

Active ETFs are gradually carving out a niche in the traditionally passive ETF world. Globally, they held $523bn at the end of February, according to data from ETFGI, a consultancy.

While this was just 5.4 per cent of the industry’s overall tally of $9.6tn, it was twice the market share as of the end of 2019, when active ETFs held $161bn, helped by the number of active ETFs rising by a record 414 last year.