Doing The Day-To-Day Heavy ETF Lifting

April 28, 2017

Strategy Agnostic
“Strategy doesn’t matter for us,” he says. “We focus more on how to best make that strategy work in an ETF wrapper.”

Once the ETF launches, Penserra takes over the daily operational duties. That means juggling portfolio management, cash management and reconciliation, daily risk checks against the benchmark, and creation/redemption activity. It also stays on the lookout for when the portfolio needs rebalancing or ad hoc changes due to corporate actions.

In an industry dominated by big players, subadvisors like Penserra make it possible for smaller asset managers to throw their hat into the ETF ring, too. Launching and operating a single ETF can run $500,000 (or more). But with Penserra, that cost is closer to $20-30K per fund per year.

“We already have the infrastructure and technology in place. So for a smaller client, it’s just plain economics,” explained Lewellyn. “It’s more efficient to rent than to buy, so to speak.”

Penserra makes money either way, he notes: “Our model assumes that one out of every 10 ETFs we subadvise will be a home run, with a couple of singles or doubles.”

Capitalizing On Thematic Plays
Though it subadvises a broad range of equity ETFs—running the gamut from U.S. sectors to emerging markets to factors—Penserra is something of a specialty shop. Many of the funds it subadvises are extremely narrow thematic plays: The PureFunds Video Game Tech ETF (GAMR), for example, tracks a basket of gaming developers and virtual reality firms; while the PureFunds Drone Economy Strategy ETF (IFLY) tracks manufacturers and suppliers to the drone industry.

Lewellyn thinks the ETF industry will only continue to get more and more thematic. “We keep seeing narrower and
narrower, niche-y products,” he said.

Another big trend on the horizon: impact investing. “We’re seeing a lot of ESG-related [environmental, social and governance], ideas right now; some focus more on the E, S or G individually, while others are looking at combinations of the three.”

For all its hard work, however, Penserra has little interest in launching its own ETFs. “It’s expensive, and it’s hard,” said Lewellyn. “Plus we don’t want to compete with our clients. If a problem arises, we never want it to become a question of whose problems we should deal with first.”

Diversity Is 'Healthy'
Penserra’s pedigree is notable, with several key executives hailing from BGI/BlackRock, Northern Trust and Charles Schwab. Founder and CEO George Madrigal spent decades at BGI/BlackRock, before launching Penserra’s broker-dealer vertical in 2007. And Lewellyn helped launch BlackRock’s iShares ETFs, as well as Northern Trust’s and Charles Schwab’s ETF businesses.

Notably, Penserra is a minority-owned business enterprise; a majority of executives at the firm are minorities, and Madrigal himself is Hispanic. Indeed, 42% of the firm’s staff hails from diverse groups—double the prevailing industry rate.

Even the firm’s name, Penserra, is itself multicultural: It comes from the combination of two Spanish words: “pensar” (to think) and “tierra” (world). “The two words [that make up Penserra] speak to a thoughtful approach of a broad landscape,” Lewellyn said. “We felt the name captures both the nature of our firm being majority-owned by minorities and our more institutional view.” 

“Diversity makes for a better, more flourishing work environment,” he added. “It’s a healthy thing.”

 

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