ETF Movers & Shakers: Adam Patti

[This is part of an 11-part series we will be publishing each weekday until it is complete. The ETF Movers & Shakers feature appears in the March edition of ETF Report: Previously published: Mick McLaughlin; Mark Makepeace; Jeffrey Gundlach; Michael Crinieri; Reggie Browne; Nadig & Balchunas]

Adam Patti, chief executive officer of IndexIQ, is best known from launching what turned out to be the largest alternatives ETF in the industry, the IQ Hedge Multi-Strategy Tracker (QAI | C-73). The fund, with more than $1 billion in assets, is popular for its solid asset base and real liquidity—rare traits in the absolute-returns space.

Adam Patti

As a hedge fund replication vehicle, QAI has a reputation more for capital preservation than appreciation, which has been the traditional role of hedge funds. With markets volatile this year, alternatives ETFs could be hot, and Patti, as he loves to say, has the S&P 500 of the hedge fund space in QAI.

The success of QAI, and IndexIQ—as an ETF issuer with $1.55 billion in AUM across its funds—could certainly justify Patti's place on our list. But there is another, maybe even bigger, reason that truly shook up the ETF industry.

In late 2014, Patti sold IndexIQ—somewhat of a surprise—to New York Life, which runs an asset management business, but is obviously a big, old-line insurance company. We think that sale was one of the things that tipped off the rest of the mainline fund industry that they needed to get into the ETF space now, and that the cost of doing so was spiraling ever higher. As a result, 2015 was a massive year for seeing big companies launch in this space, and IndexIQ being sold to New York Life ignited that.

"The purchase of IndexIQ by New York Life really kicked off what I call 'ETF Industry 2.0,'" Patti said. "This was an inflection point, where we transitioned the industry from an initial growth phase—which was really dominated by inexpensive beta exposure using simple indexes—to more solutions-oriented products designed for specific outcomes, more asset allocation-type strategies."

And along with this product evolution, he adds, is a changing industry landscape.

"Certainly everyone was circling the industry," he said. "Now these big, traditional mutual fund companies feel they need to get in, because their customers are demanding ETFs for their portfolios."

Despite the change in ownership, Patti points back to the firm's products. "QAI is a very important product," he said. "It's the type of product that should be used by all investors as a core holding to dampen their volatility and diversify their portfolio."

"But the reality is, if you look across even our existing product suite, we have products that are equally as good that we simply haven't given the time to in terms of the marketing and sales process," Patti noted.

Now with the extensive sales and marketing depth New York Life brings, that is certainly changing.