WisdomTree Narrows Breakeven Gap To $2.4 Billion

July 31, 2009

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WisdomTree pinpoints breakeven for profitability at about $1.3 billion less than the previous quarter.


After a $1 billion increase in assets and flat expenses in the second quarter, WisdomTree Investments is now estimating it needs about $2.4 billion more in assets under management in order to break into profitability.

The forecast by the exchange-traded funds sponsor and index provider came before markets opened on Friday during a conference call with analysts and investors regarding the recently ended quarter.

The night before, WisdomTree released its full earnings report for the quarter, highlighted by a nearly 28% reduction in losses from the same period a year earlier to $5.2 million. (For a full report on the firm's second-quarter results, see story here.)

Amit Muni, WisdomTree's chief financial officer, noted Friday that assets currently are around $4 billion at the firm. Based on cost and fee structures, he estimated that in order to gain profitability, the New York City-based asset manager needs to attract some $6.4 billion in total assets.

That would leave a gap of around $2.4 billion for WisdomTree to break into the black. In the previous quarter, Muni had estimated that shortfall to be about $3.7 billion in total assets.

Along those lines, the company has received an increased level of questioning from investment bankers and other financial representatives lately regarding either partnerships or taking some form of equity stake, said WisdomTree Chief Executive Jonathan Steinberg.

WisdomTree has been widely rumored in the past to be a hot takeover target by larger asset managers. Steinberg has been quite open that while the firm prefers to remain independent, it won't completely shut the door on any attractive offers.

Piqued Interest

Still, he says now with BlackRock's recent deal to buy Barclays Global Investors for some $13.5 billion, interest by other asset managers without holdings in ETFs seems to have increased.

"We haven't had any formal offers for the company," said Steinberg. "But there definitely has been an increase in activity ... "

He added that WisdomTree was in talks to raise "a modest amount" of additional capital. "These (formal) negotiations are ongoing and we expect to have additional information later this quarter," said Steinberg.

Two other interesting items of note came up during the question-and-answer session in the early morning conference. One was a reference by an analyst to rumors that Fidelity Investments was looking to increase its presence in ETFs, possibly with a purchase of a smaller sponsor.

Up until now, actively managed mutual funds leader Fidelity has resisted moving into the largely index-based ETF arena. But it does have one foot in the field with its Nasdaq Composite Index ETF (NasdaqGM: ONEQ).

Steinberg was asked directly if Fidelity was one of the groups that had approached WisdomTree. He responded again that no formal offers had been made. And while not addressing specific names, the CEO did say that no particular firm or group had stepped forward.

The other topic raised was the issue of increasing WisdomTree's assets through expansion into new types of funds. Steinberg did point out that the firm was exploring several new options, including expanding its recently inked deal with MacroMarkets to help support a new ETF.

MacroMarkets is the firm that has created so-called "teeter-totter" funds, the latest of which was the first-ever ETF to track home prices. (See related story here.)


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