F-Squared In Bankruptcy; Selling Assets

F-Squared’s challenges come to a head with a bankruptcy filing and a proposed deal to sell its assets.

Managing Editor
Reviewed by: Olly Ludwig
Edited by: Olly Ludwig

F-Squared, the Wellesley, Massachusetts-based ETF strategist firm that has been embroiled in a regulatory scandal for much of the past two years, declared bankruptcy today. Additionally, a firm with the same owner as rival ETF strategist Good Harbor Financial has agreed to acquire F-Squared’s assets as part of the bankruptcy proceedings, the purchaser said today in a press release.

F-Squared, known for its proprietary “signals” that trigger tactical portfolio adjustments, remained the No. 2 ETF strategist by assets as recently as the end of the first quarter, according to data collected by Morningstar. Still, F-Squared has bled assets and prestige since U.S. regulators began investigating the firm in October 2013 for presenting backtested returns data as actual returns in marketing material.

Major Setbacks

A series of major setbacks seemed to seal the firm’s fate in recent months, beginning with the resignation of its former Chief Executive Officer, Howard Present. That was followed by a $35 million fine by the Securities and Exchange Commission and, not least, its abandonment by Virtus Investment Partners in spring. Virtus had aggressively marketed F-Squared’s strategies in mutual fund wrappers.

F-Squared had been the very public face of a pocket of the ETF industry that has been growing rapidly. As much as 9 percent of the more than $2 billion in U.S.-listed ETF assets is associated with ETF strategists. Firms like F-Squared market their portfolios to individual advisors who want to outsource money management to outside firms so they can focus on clients’ detailed financial planning.

The agreement for the acquisition of the “intellectual property, investment strategies and investment management contracts of F-Squared Investments” is subject to bankruptcy court approval, the press release said. The purchaser is Broadmeadow Capital, which, like Good Harbor, is a unit of Chicago-based Cedar Capital. Terms of the agreement weren’t disclosed.

F-Squared made its bankruptcy filing today in the U.S. Bankruptcy Court for the District of Delaware, according to the press release.

Olly Ludwig is the former managing editor of etf.com. Previously, he was a financial advisor at Morgan Stanley Smith Barney and an editor at Bloomberg News. Before that, Ludwig was a journalist at the Reuters News Agency in New York.