Jim Ross’ New Non-ETF Venture

July 27, 2020

Jim RossJim Ross helped the American Stock Exchange develop and launch the world’s largest ETF, SPDR S&P 500 ETF Trust (SPY). He went on to play a major role in the growth of the ETF industry for nearly 28 years at the helm of State Street Global Advisors’ ETF business. (He was the ETF.com Lifetime Achievement Award winner in 2016.) Ross recently retired from his full-time position at State Street, although he has remained on as a senior consultant to the CEO.

However, it didn’t take long for Ross to begin a new chapter, one removed from ETFs. He talks with ETF.com about his new role with a special acquisition company (SPAC). We also talk about  how the financial industry has dealt with the pandemic disruptions. This week, Ross will be speaking at the virtual ETFGI Global ETFs Insight Summit, beginning Tuesday and running through Thursday from 2:30 to 5:30 p.m. ET.

ETF.com: That was fast! What happened to your retirement? I thought you’d be on a Bahama island right now, with a straw hat on.
Jim Ross: I'm not doing anything crazy full time. But I'm definitely doing a little more than I had anticipated. I’m just too young to completely hang up.

After retiring, I signed on to become an official advisor for the firm, Fusion Acquisition Corp., which has evolved now into a SPAC, something I wasn’t familiar with. SPACs had some trouble in the financial crisis, not unlike a lot of things, but the structure is different today, and improved. They really made it much more appealing to the investors, which is why I think you're seeing a lot more interest in them.

And as a private company, it allows you to talk to investors about what you plan to do, versus an IPO, where you really don’t get to do that. You can't really talk, and try and explain the numbers. You just put the financials in and go. It’s very interesting and different to me, because it’s much more in the investment banking realm, which I didn’t get to do a lot of at State Street.

ETF.com: What’s the basic structure? You acquire money. You create this fund, if you will, and then you go out and acquire companies? Is it that simple?
Ross: It’s not that simple. Most people think it’s kind of a venture fund, where we can go out and invest in 50 companies. We raised, in the end, a total of $350 million, which goes into a trust account, and sits there. I think they're in Treasuries or whatever. Raising the money was pretty straightforward. The difference from a venture fund is that we have to go public within 18 months with the company, or we give the money back. Or we ask for an extension, which can happen.

So, now we’re talking to private companies, and trying to gauge their interest in a public investment through a SPAC. The alternative is that they may want to stay private. A lot of private companies want to stay private. We have a significant amount of global experience on the team surrounding fintech, and I obviously have some asset and wealth management experience. We’re really bringing all of our experience to this.

ETF.com: What kind of companies are you focused on?
Ross: Fintech and wealth technology companies, some of the back-office stuff for some of the RIA platforms and things like that, and then asset management. I think everyone assumes it’s going to be asset management, and that I'm going to do something that has an ETF thing. That’s probably the furthest from the truth.

ETF.com: You go to the companies as opposed to the companies pitching you?
Ross: It happens both ways. We get reverse interest from companies all the time. Many think we’re a venture fund, putting $50 million in you, $100 million in someone else, and so on. That’s not what this is.

ETF.com: RIAs are seeing investors come to them, offering to buy minority stakes, or selling to private equity firms. Do you see more of that happening?
Ross: It depends on what the RIA wants to do. Some RIAs are extremely happy with any size they have. It’s really a question of what their succession plan is, and how they look at that. If you're 68 years old, and you don’t have the next thing in place for clients, they're going to be like, “OK, hold on. What do I do in five years when you're gone?”

ETF.com: Let’s touch a little on ETFs, particularly the new semitransparent active ETFs. Your thoughts?
Ross: What is it actually providing for people? Is it going to deliver an active outcome that’s going to benefit sales? Will the market evolve? They're going to be heavily marketed, no question. These firms know how to sell their product. But distribution can still be a challenge for some of them.

There's a chance they're going to be very successful, offering a new way of doing mutual funds. That’s not proven yet.

It’ll be a question of whether advisors are comfortable using these ETFs. Are their spreads going to be in line with what they should be? But the biggest question is going to be, Can these things outperform?

ETF.com: How have you seen this financial service industry reacting over the last few months with the pandemic disruptions?
Ross: A lot of this business could have been done virtually before. State Street has 39,000 people. And they had 96-97% of them working from home on remote technology.

Interestingly, the feedback from clients is that they feel they're getting better service. Now remember, State Street’s a daily production environment. They price now. They move money. That’s what they do. And they do it every day for tens of thousands of clients. To have 96-97% of their people working from home, and delivering to clients, is just amazing.

Like anything, when you're forced to do something, you're going to find a way of doing it. Early on it was clunkier. You really weren’t calling a client on March 20 and saying, “Hey, did you want to buy my new ETF?” But it got to a point, very shortly after that, where the clients wanted to hear from you, about, first of all, what was going on in the market.

It got to a point where it was really twofold. One, you're talking to your clients, whether advisors or institutions, about how working from home is going. And two, you're talking about the benefits of potentially using this stack of ETFs and this portfolio today. Do you want to get more conservative? Do you want to go look at factors? Things like that.

The industry got back to “business as usual” quickly even though you were doing it very differently, because you could. One thing that really benefited the industry is that markets came back. I’m not so sure if the markets stayed where they were on March 20 that all of this would be doing as well right now. You’d have a lot more pressure on the businesses that just lost 40% of their revenue streams.

What we’re doing with this SPAC addresses this. We’re looking at tech, because tech is changing everything. And the people who are surviving this the best right now have really good technology. It’s that simple.

Contact Drew Voros at [email protected]

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