Vident: Heading In An Alternative Direction

October 29, 2015

[The following "ETF Issuer Perspective" is sponsored by Vident.]

Vident has been growing its presence in the ETF industry for the past few years, but recently, it has branched out in new directions. The firm has launched its own subadvisory firm, added index development operations and expanded its ETF focus to include the alternatives space. Here, Vident CEO Nick Stonestreet discusses the changes at the firm.

Vident launched its first fund two years ago. How are things going?
So far we're pleased. We've had three successful ETF launches in the last two years. They include a very-broad-based U.S. equity ETF, a U.S. fixed-income and an international equity ETF. It was a good entrance into the ETF world, and each strategy has attracted over $400 million in assets.

You've started two new entities, Vident Investment Advisory and WeatherStorm Capital. What was behind that decision, and what do they do?
After we launched our ETFs, there were a few areas that we wanted to enhance for our investors. First, we wanted to enhance our index design capabilities. So we launched WeatherStorm Capital, which does both index design and is also creating alternative solutions for us.

Second, we wanted to enhance our ability to track and trade our indices. We started Vident Investment Advisory, a trading subadvisory firm, to better implement our strategies.

We've vertically integrated and we're now able to fully construct indices, and then we're able to manage our ETFs as well. By adding WeatherStorm and Vident Investment Advisory (VIA), we've taken real steps to control a lot more of the variables of being an ETF company.

The subadvisory space puts us in closer touch with market makers. We're very much on top of how our ETFs are trading on a daily basis, because when you're a subadvisor, you're actually going through the create-and-redeem process and the rebalances. With market events like what happened on Aug. 24, 2015, and the concerns with the actual trading of ETFs, we just wanted, for the sake our investors, to be a lot closer to that process.

So has Vident opened up its design and trading capabilities to other firms?
Yes, other firms started to contact us about subadvising for them. By the end of the year, we'll be a subadvisor on approximately 20 ETFs—the Vident funds and then quite a few others that have come aboard. We believe we are meeting a real need in the marketplace.

We've also had large institutions reach out to us with regard to our design capabilities. A few large wire houses and insurance companies that want to get into the ETF space have actually been bringing their ideas to us and asking us to design indices for them and help them launch their own ETFs. They won't be under a Vident brand, but we are working with several well-known institutions. There'll be more on that early next year when we launch our first co-branded strategy.

Why did you use the WeatherStorm brand to enter the liquid alternatives space?
The Vident ETFs are really more broad, traditional ETFs, so we decided to go with a separate brand for alternatives. The name WeatherStorm comes from the idea of helping investors "weather the storm." You'll see more of the hedged solutions, both traditional LP structured hedge funds and liquid alternatives coming out of WeatherStorm.

The first WeatherStorm solution we released is the WeatherStorm Forensic Accounting Long-Short ETF (FLAG). That's one we brought in and redesigned as a long/short ETF.

We're not really shifting focus away from traditional ETFs and going toward alternatives, it's more of broadening out the palette to meet more investor needs.

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