Democratizing Alternatives: Industry Veterans Launch New Hedge-Fund Style ETF
The veterans at Emles Advisors poured $60 million into the new product to create a "best of both worlds" for individual investors.
By Grace Chung
Michael Nagle/Bloomberg
Emles Advisors this week launched an ETF based on a long-short hedge fund style strategy, which will focus on sectors such as industrials, consumer discretionary, and materials.
Managed by Nathan Miller, a former portfolio manager for NGM Asset Management, Citadel Investment Group, and RBC Capital, the actively managed fund — Emles Alpha Opportunities ETF — marks the seventh ETF launched by Emles since its founding last October. The new fund is the second alternative-based ETF, and follows the firm's launch of its Protective Allocation fund.
"A hedge fund type product and a publicly available ETF is the best of both worlds," said Miller. Founded by veterans Gabriel Hammond and Dave Saxena, who worked together at Hammond's previous venture Alerian Capital, Emles was built on the premise of providing non-traditional investments that cater to both institutional and retail investors. "As a hedge fund you're essentially not allowed to go to retail investors at all," said Miller. "We're running a hedge fund-type product with the goal of outperforming the market through the cycle. That's not a product you find in ETF form — [where] there's better liquidity, there's better tax structures for investors, and there's transparency."
The idea of "democratizing" alternatives has been an area of growing interest for asset managers seeking to get their products to a wider audience beyond institutions. Earlier this year private equity giant KKR invested in iCapital Network to provide individual investors with access to private markets. Blackstone invested in the fintech platform two years earlier; it now offers products designed for retail investors in real estate, credit, and hedge funds; the segment accounted for eight percent of its private equity assets under management early last year.
Despite the demand, only about five percent of retail capital in the U.S. was allocated to alternative investments, according to a May 2020 report by BCG. But the market is ripe for opportunities. Global financial wealth reached a record $250 trillion last year, in spite of economic uncertainties arising from the pandemic, according to a BCG report published this week. The report also argued that a key opportunity for asset managers will be offering investment funds and alternatives such as private equity and hedge funds to retail investors, including what it calls the simple-needs segment, or the mass affluent. These investments have long been out of reach of individuals.
"This the natural evolution for the MLP [master limited partnership] marketplace and as the hedge fund marketplace continues to evolve." Hammond said. "The biggest challenge is on the structuring side. Because these products haven't been made before, because market makers, APs, don't traffic in these products, there's a lot of novelty," when it comes to regulatory, execution and other issues "We think this is the way everything is going to move over time and we want to be ahead of it."
Hammond and Miller, who invested $60 million in the new product, started the firm as an ETF platform.
"This is another example of putting our money where our mouth is," said Hammond. "We've seen gaps in the marketplace and if there's a product or an asset class or a strategy that we find attractive and we want to find the right structure for ourselves, we think that there's going to be appetite on both the institutional and retail side."
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