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FactorShares gets acquired, but the real story is the launch of a 'white label' ETF firm called Gencap.
FactorShares, the ETF sponsor behind a quintet of leveraged spread funds and a trio of resource-focused equity funds now in registration, was acquired by a new white-label exchange-traded fund company that aims to help clients bring to market just about any sort of ETF imaginable. Terms weren’t disclosed.
GencapVentures LLC—a new firm headed by former MacroMarkets Chief Executive Sam Masucci, and involving a number of ETF industry veterans—plans to help clients bring funds to market under the Securities Act of 1933 and the Investment Company Act of 1940, including both passively and actively managed '40 Act ETFs. Gencap might even help clients launch ETNs.
At first blush, New York-based Gencap looks a lot like Oklahoma City-based Exchange Traded Concepts or Bethesda, Md.-based AdvisorShares in that the new firm aims to help others bring ETFs to market, as do ETC and AdvisorShares. But the breadth of what Gencap plans to offer may put it in a class by itself—something Masucci stressed in a telephone interview and an email exchange with IndexUniverse. Masucci's account was confirmed by other individuals familiar with the matter who spoke to IndexUniverse on condition of anonymity.
“For any investment manager that wants to get into the space and doesn’t want to spend a few million bucks and wait three years to get involved, we’re going to build the necessary infrastructure and have it all available for them,” Masucci said.
“We are building the most complete and comprehensive ETF product and services platform,” he added.
Business plans like Gencap's, ETC’s and AdvisorShares’ hint at what the future of the ETF industry may look like. With nearly 1,500 U.S.-listed ETFs with almost $1.2 trillion in assets now competing for advisors’ and investors’ attention, the days of easily rolling out funds may be over. Instead, marketing funds may now require much more strategic and logistical forethought before launch, and firms such as Gencap are ready to provide such services.
That new reality may well be on the front burner given the volatile swings in the markets and the weak and uneven economic recovery, which has arguably caused a slowdown in ETF launches in the past few months and probably even helped doom a number of seemingly interesting ETFs to closure. In short, investors and fund sponsors seem to be hunkering down in hopes the recovery becomes smoother.
Masucci said his firm will be compensated with a combination of a flat fee for its services, and will also receive an undisclosed ongoing stream of pay linked to expense ratios of funds it helps bring to market.
Gencap confirmed the transaction in a press release on Tuesday.
Gencap will use the regulatory permission that FactorShares already has to market both ’33 Act funds and passively managed ’40 Act funds. An entity related to Gencap, Active Relief LLC, also recently filed a regulatory petition to obtain permission to market actively managed ’40 Act funds, Masucci said.
Using pre-existing “exemptive relief” makes Gencap seem particularly similar to Exchange Traded Concepts, which rose from the ashes of FaithShares, an ETF company that never really got much traction marketing index funds that screened securities for various Christian ethical and moral values.
ETC began its journey using FaithShares’ exemptive relief, and is headed by the same CEO, Garrett Stevens. One of the three funds ETC has brought to market so far, the Yorkville High Income MLP ETF (NYSEArca: YMLP) has gathered $44.2 million in assets, according to data compiled by IndexUniverse. That’s a sum that might constitute a “proof of concept” for ETC’s “ETF-In-A-Box solution” service.
While Exchange Traded Concepts has also applied for exemptive relief to market active ETFs— a pocket of the ETF world AdvisorShares is exclusively focused on—Gencap appears to have an edge over its two competitors as it relates to ’33 Act funds and, by extension, the world of futures-based ETFs.