Q4 2019 Earnings Call

Koppel I've talked about our ambitions in our in our strong platform and responsible investing if there's a way to to grow that incrementally we would be certainly open to that in the past I've talked about our strong position in credit markets.

Promo do bank loans, and how you'll bonds, but the the the idea that that can provide a natural springboard for us into the private credit space is also something that we have looked at and continue to pursue.

But as always will be be price sensitive was we competitive as we look at potential opportunities. There a third thing we've talked about I think I mentioned this on a call earlier. This year is is the growth of our of our private client business or wealth management business, where we've seen a good organic growth.

And where we think there could be opportunities to to benefit by participating in the industry consolidation among wealth management firms, increasing our global increasing our footprint across the U.S. and creating avenues for selling our wealth management strategy. So those are the.

<unk> I would focus on I would identify as focus areas responsible investing private credit in in in various forms and then a wealth management businesses.

In.

It's kind of status on that.

Yeah that remains a good business for us those are private offering. So we don't provide a lot of detail on how that business is progressing but it's these are strategies offering diversification out of concentrated stock positions into.

Broadly based equity portfolios and you would imagine.

As the.

The market cycle matures and people have a large gains that those strategies continue to have.

Broad appeal.

Great. Thank for taking my questions have great Thanksgiving.

Thank you.

We have time for one more question I'll call today.

Your last question comes from Brian , but dollar with Deutsche Bank. Your line is open.

Great. Thanks, very much forgive me in most of my questions have been asked and answered, but maybe maybe Tom if you could just or maybe one more on the active VTS a approvals.

Just in terms of the two different models that that have been approved the you know the precidian mono versus the the T. Rowe amount on maybe just your perspective on wood in investment managers might do if they're keeping that information proprietary in ER, which appears to be the.

Structure of the T. Rowe mono and then how you're clear hedge motto would would would fit in into that and whether you see.

The demand or you're not to pick a winner or lose or anything like that but whether when you get to what extent you see demand in feature to future demand in what you're clear hedge amount or would you for that type of structure.

Sure.

So I guess, maybe first to say that what I think people who are now but just to clarify none of these things are actually approved in the marketplace and there are.

Sell some significant steps involved.

With our Nextshares initiative, we got a a.

We got an Exemptive order issued I think in December of 2014.

And we launched our first product in February of 2016, So I can't say, what the time window will be for these other strategies, but but that was our experience and we also got a listing and trading approval in the November December 2014 timeframe and I don't.

I believe any of these.

Concepts have listing and trading approval and I think for many of them. There is not even an application. That's been filed so I think it'll be awhile before these are.

Still come to market I think there've been some speculation that these might be in the market before the end of a 2019, I think thats not going to happen.

In terms of a clear hedge and were clear hedge we're funds utilizing the chlorides might that might fit into this.

We are up we are broadly in the camp of of disclosing a proxy portfolio. So in that sense similar to what you're calling the t. Rowe price proposals. These four different ideas that.

Got preliminary approval last week.

What's different about our approach is.

Is that.

We include up a second stapp not only disclosing up a proxy portfolio, but adding a second step.

Whereby.

Market makers, Ken lay off the the basis risk that as the relative performance risk.

Between the disclose proxy portfolio in the funds are underlying assets.

By transacting with the fund itself through up through a tough swap type arrangement. The so based on this sort of belt and suspenders approach to achieving better trading efficiency.

Our case that we're making to the FCC is that.

Funds relying on the the clear hedge method because of this this to staff or belt and suspenders approach to ensuring.

Hi trading.

Can be comfortably applied in places, where the FCC has not today than comfortably applying.

These other concepts, which would be us funds that own things other than us equities and cash or things that trade.

On U.S. exchanges, plus cash which is the the way the market is currently limited so thats our case and also our case is going to be that because of this belt and suspenders two stage approach that even in U.S. equity where all these other ideas are approved.

Our approach can be expected to trade better during periods of of market stress.

Because we're not in effect asking market makers to up to place blind bats on the relative performance of the of the known proxy portfolio versus the unknown portfolio that they're also going long and short in so it's up.

Think of it as a two step process one of which is very similar to this recent round of approvals.

But the other with this ability that we are providing where market makers could lay off the relative risk between the the the unknown Fund holdings and the known proxy portfolio was none of these other.

Ideas incorporate and that is that that is subject to a patent was issued to us.

About a year ago so.

So well see how it goes a we've been in this and this game for quite a long time I think we've learned a lot and are up or optimistic that we can put that learning to good use and hopefully see that translate into an approval and market success for funds utilizing the clear has method.

That's great color and just I guess I'm in terms of the investment managers going down this path in the future do you think they would prefer to have proxy portfolios with it they could develop those.

And thereby keep the their information private or proprietary to their their shops.

Well I think the the the underlying premise of of all these ideas is that.

Disclosing your whole your holdings everyday which is the current fully transparent MTF model is not consistent with proprietary active management. So if I'm I'm, telling the world what my holdings, our everyday I don't consider that proprietary and if I if I do that.

They're a at least a couple of adverse effects on on me the investment advisor or my clients. One is other people can buy in test by seeing my my changes in daily Holdings can learn to anticipate my trades and potentially front run my trades and drive up my trading costs, and then drive down returns. The other one is to the extent that.

On a disclosing.

It doesn't affect my intellectual property that is oh.

My model portfolio, giving that away to the market for free.

I am inviting other people to take advantage of that by offering.

The same or similar strategies at a at Lowe's lower price points similar to a generic drug you don't want to give away that you don't want to give away the the formula and put it out and then unprotected form which is what a fully transparent EPS due but also year, providing significant information about if it's a if it's a bond portfolio how your how you're feeling about the world in terms of.

How you're shifting your duration exposure, how you're shifting your your credit exposure in a way that.

Could give insights and given sites to your competitors that they could potentially use to improve their performance potentially and harm. Your performance. So it's do you believe and pride proprietary management and do you believe there's a something that's worth protecting about that if you do.

Fully transparent structure, we think fall short all of these ideas, including our own are seeking to provide the benefits of truly proprietary active management to end customers enough in an ETF form which is not heretofore been available.

Great Thanks to the color.

Yes. Thank you.

Okay.

This concludes today's earnings call I want to thank everybody, who will participate in a call today and we'll look forward to speaking with you next quarter. Thank you very much.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.