RevenueShares, the ETF provider with a six-fund lineup of revenue-weighted strategies, has partnered up with a China-based venture capitalist firm in a deal that looks to not only help the ETF sponsor expand its footprint in the U.S., but also to plant the seeds of ETF development in China.
Suzhou Industrial Park Kaida Venture Capital—a Chinese private equity firm specializing in funding high-tech and financial companies across China—is paying $7 million for a 22 percent stake in VTL Associates, RevenueShares’ parent company, VTL’s Chairman Vince Lowry told IndexUniverse.
The deal really serves a twofold purpose: The money is designated primarily to boost RevenueShares’ marketing and sales efforts—something the company has done very little of in the past two years or so, Lowry said. RevenueShares launched its first ETFs five year ago.
But VTL’s willingness to give up a stake to a Chinese venture capital firm also reflects the firm’s commitment to bringing RevenueShares ETFs to China—an ETF market that is barely in its infancy, Lowry said.
Just last week, a Shanghai-listed ETF targeting the same Nasdaq-100 Index that underlies the $35 billion U.S.-listed PowerShares QQQ Trust (NasdaqGM: QQQ) launched in China, sponsored by Guotai Asset Management—a move that Lowry says speaks to the growing Chinese opportunity for ETF sponsors.
Growing Its Lineup And Presence
Coming off the fifth anniversary of its first ETFs launched in February 2008, RevenueShares found itself at an inflection point where it had to ramp up marketing and sales efforts given increased competition. But to do so, it needed outside investment.
“When we first launched our ETFs in February 2008, we caught just about the last tick up in the market, and the next three or so years were very tough markets to work in,” Lowry said. “But we still managed to get more than $600 million in assets, and now those assets are at about $530 million.”
The firm, which also has about $550 million in separate-account revenue-weighted strategies for large pension plans, manages about $200 million for other ETF companies—such as Yorkville, the firm behind the Yorkville High Income MLP ETF (NYSEArca: YMLP), and a few others, Lowry said.
“In all, we have about $1.2 billion under discretionary management and about a little over $1 billion is RevenueShares [ETFs and SMAs],” he said. “We are now looking for seed capital because most of that has been funded by VTL itself up to now.”
“Unlike the rest of our competition, it was all financed by us internally,” Lowry noted. “We noticed our competitors have been able to really ramp up their offerings and do a lot more marketing than we have. We really haven’t done much marketing at all for the last two years.”
The search for a partner started domestically, but VTL says that while it talked to a lot of U.S. companies, it failed to find someone who shared its vision. It was then that VTL was introduced to the Chinese private equity group, which Lowry said immediately “got it.”
“Growing the market in China is one of the major reasons we chose them as partners,” Lowry said. “They think Chinese investors will really embrace ETFs, particularly revenue-weighted. We were willing to give up part of our company for an opportunity to get into that market.”
Lowry himself is headed to China sometime this summer to promote the idea, sponsor seminars and reach out to Chinese investors with the goal of expanding understanding about ETFs.
Chinese Investments Looking For US Opportunities
It’s worth noting that this deal is also emblematic of the Chinese firm’s intention to expand into U.S.-based growth opportunities.
It’s been widely reported recently that many Chinese firms and Chinese government institutions have been looking for investment opportunities in the U.S. as they look to diversify exposure away from U.S. debt.
RevenueShares, as noted, currently sponsors six ETFs with a combined $530 million in total assets under management. Its biggest strategy is the RevenueShares Large Cap ETF (NYSEArca: RWL), with $184 million in assets.
The firm, which launched its first ETF in 2008, is known for reweighting popular S&P indexes by top-line company revenues rather than by market capitalization. And it said it has more strategies it’s getting ready to put in the pipeline.
VTL, the parent company, is a developer of custom indexes in equities as well as fixed income.
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