Q3 2021 Wisdom Tree Investments Inc Earnings Call

Good day, and thank you for standing by and welcome to the Wisdom tree third quarter earnings call.

At this time, all participants are in listen only mode.

After the presentation, there will be a question and answer session.

To ask a question during the session you will need to press Star then one on your telephone keypad.

Please be advised that today's conference maybe recorded.

If you require operator assistance during the call. Please press Star then zero.

I'd now like to hand, the conference over to your host today, Jessica somebody wisdom tree head of corporate Communications and public relations. Please go ahead.

Good morning, before we begin I would like to reference our legal disclaimer available in todays presentation.

The presentation may contain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995, a number of factors could cause actual results to differ materially from the results discussed in forward looking statements, including but not limited to the risks set forth in this presentation and in the risk factors.

Section of the Whitney <unk> annual report on Form 10-K for the year ended December 31st 2020, and quarterly report on Form 10-Q for the quarter ended June 30th 2021.

We can treat assumes no duty and does not undertake to update any forward looking statements.

Now it is my pleasure to turn the call over to wisdom tree pregnant and C O L Jarrett lilien.

Okay.

Thanks, Jeff and welcome everyone.

I'm going to kick it off today with some color on the momentum in our business and then turn it over to Brian to go through the results in more detail and to provide an update on expense guidance and then John will give some closing thoughts before we open it up to Q&A.

Wisdom tree its positive momentum continued through Q3 with another quarter of organic growth and strong execution against our longer term strategic initiatives.

The $550 million of net inflows in the third quarter marked our fourth straight quarter of net inflows, but the real story is the increasing breadth and depth of our flows and product lineup.

Year to date wisdom tree is growing at an annualized organic growth rate over six 5% with twice as many of our funds, having inflows and outflows in Q3 that fund inflow outflow ratio for Etfs and UCITS increased to 2.7 to one.

And so far in October the ratio is running well over three to one with over 1 billion in net inflows, marking our best month of the year. Our U S business is generating organic growth of 13% in the third quarter marked the fifth consecutive quarter of net inflows include.

<unk> organic growth in 'twenty, one of the past 26 months.

Success has been marked by recent strength in our fixed income suite, but sustained strength in our equities franchise, including our U S efficient core fund, which just got its five star rating from Morningstar in September and recognition in the Wall Street Journal about its potential use as the cornerstone.

Of an investor's portfolio.

In Europe UCITS momentum continues with 12 consecutive months of positive flows driving over one 2 billion of inflows year to date and taking a U M. In our UCITS suite over 3 billion, our physical gold suite revamp has proven successful with core gold swisscom.

Old and hedge gold products, taking in $180 million of flows in 2021 so far year to date, our top 10 in flowing funds are a nice mix of UCITS informatics, industrial metals, and new launches, including gold and carbon.

Overall, new fund launches have been a point of strength. This year with 14, New fund launches in 2021 and more on the way of note is our carbon ETP in Europe, which launched on August 27th and grew to $165 million in AUM by the end of the quarter that momentum.

<unk> has continued through October and the fund now has over $220 million in AUM the pipeline for new product launches remains robust in both the U S and Europe and I look forward to sharing additional successes with you next quarter.

We also continued to gain traction with our managed models business. There's a long sales cycle here, especially relative to single ticker Etfs and mandates are hard to win but with success comes stickier and more recurring inflows to date, we have reported on some of those hard to win successes most notably.

With Merrill Lynch last year, and with Morgan Stanley last quarter, but we also have a strong pipeline, where we hope to announce another large wire house win in another major or a a win soon we.

We're still ramping up engagement at Merrill and Morgan and the new wins haven't yet closed but through September 30th roughly 10% of our U S. E. T. F inflows are already coming through wisdom tree managed models to be clear. Our Etfs are also part of other home office and customize.

And I'm, referring to flows coming solely from wisdom tree models. If we were to include these other models, where we are also having some significant success the numbers would be substantially higher bottomed.

Bottom line, we have been investing in our models business for some time and this investment is paying off models are already a meaningful contributor to net inflows today, and we see an even greater opportunity in future periods.

Lastly, I want to share with you some of our success and momentum in the crypto landscape first in mid October the wisdom tree enhanced commodity strategy fund was the first ETF to add bitcoin futures as part of the fun mix.

Second we maintained our strong position in crypto ETP ETE piece in Europe, with both bitcoin and Easter and additional strategies like crypto baskets in the product development pipeline.

The crypto rally extends in the fourth quarter, there's upward momentum in crypto related management fees from both market move and organic growth, but the momentum has continued even outside etp's. His wisdom tree partnership with Onramp and Gemini and our shared initiative to bring crypto to.

<unk> got its first model win this quarter Federal life announced the launch of our variable annuity product that implement a wisdom tree model comprised of nearly two thirds direct crypto and a third disruptive technology Etfs. We are excited to get this product to market and look forward to further improve.

Mentation with additional partners in the future all.

All in all we have momentum and we are generating strong organic growth as I said last quarter and will say again this quarter and look forward to saying next quarter, we are executing well on all fronts.

Now, let me turn it over to Brian to bring it all together with the numbers.

Thank you Garrett.

Beginning on slide five our September 30th with $72 8 billion.

A decrease of 2% versus the prior quarter driven by negative market movements, partly offset by net inflows.

Our average AUM was $74 6 billion.

A third consecutive record quarter.

We generated in excess of $500 million of inflows during the quarter.

Largely into our international equity U S equity products.

We had outflows from emerging markets products and commodities saw mixed results with outflows in precious metals.

By inflows into oil and our recently launched carbon product, which attracted $155 million of flows in just over one month.

It's Jarrett had previously mentioned.

<unk> with Citi Etfs have generated positive inflows for five consecutive quarters in 21 of our ETF currently have over $1 billion in AUR.

Are you in currently stand at $76 9 billion.

4 billion greater than where we ended the quarter due to market appreciation and inflows.

In fluids in October are approaching $1 billion.

With $3 7 billion year to date.

Next slide please.

Before discussing our financial results I'll bring to your attention immaterial revisions that have been made to previously reported advisory fees and fund management expenses to align with our current presentation.

These revisions were made by us voluntarily to retain an apples to apples comparison of our revenue and gross margin trends.

These line items have been reduced by equal and offsetting amount and record.

Present, the netting of expense reimbursements collected on behalf of a third party.

Each had been reported growth in our income statement.

We have also revised previously reported gross margin percentages.

Operating income margins and our fee capture for this change.

There is no impact to previously reported net income.

The information is shown to the right summarizes the changes as it relates to last quarter's results.

We have included in the appendix, a slide showing the impact on prior quarter and annual periods.

Next slide.

Revenues were $78 million, an increase of 3% from the prior quarter due to higher average AUM and a slightly higher fee rate.

Adjusted net income was $16 3 million or 10 cents a share.

Unchanged from the prior quarter.

This quarter, we recognized an impairment charge of $15 million in connection with the termination of our New York Office lease.

As well as a noncash after tax gain of $1 7 million.

For our future gold commitment payment.

And 500000 and other net nonoperating losses.

Next slide.

Our operating income margin was 31% and our gross margin was 86% for the quarter largely unchanged from the prior quarter.

The chart to the left demonstrates the operating leverage of our business model as we've seen meaningful margin expansion as our average wind levels have grown over time.

Our gross margin guidance requires an update due to the previously mentioned accounting change that impacted our advisory fee and fund management lines in our income statement.

Gross margin for the fourth quarter is expected to fall within a range of 80% to 81%.

We typically incur rebalancing costs in the fourth quarter, and therefore anticipate our gross margin falling towards the lower end of this range.

Next slide please.

Our operating expenses were up three 5% for the quarter.

Due to higher incentive compensation and fund costs.

Compensation expense was $22 million during the quarter and our discretionary spending with $10 6 million.

We are updating our expense guidance with additional details soon in the next slide.

Next slide please.

Compensation levels are determined based upon a variety of factors, including our operating performance and net flows.

Year to date, we have generated revenue growth of 22% versus the comparable prior year period.

Our operating income has grown 58%.

Our operating margins have expanded from 23% to just shy of 30%.

We have also generated about $3 7 billion of organic inflows through today.

This performance has us increasing our full year compensation guidance from $85 million to between 88 and $89 million.

As you can see in the chart on the left.

Our compensation to revenue ratio of 29% essentially.

Unchanged from our actual ratio in the prior year.

This updated guidance assumes steady state market conditions, and any meaningful changes whether up or down could have an impact on our year end compensation levels.

We are taking our discretionary spending guidance down.

From $49 million.

44% and $45 million.

The savings are largely from lower sales expenses due to the persistence of the pandemic.

But also include marketing and other discretionary items.

We're also realizing occupancy and depreciation savings from the recent termination of our New York Office lease.

This reduction in guidance more closely aligns our anticipated fourth quarter spend with the prior quarters and should not have an impact on our organic growth.

Third party distribution expenses are projecting higher than our original guidance.

The performance of our Latin American platform has exceeded expectations.

We are now anticipating the spend to be about $7 5 million for the year.

The changes in guidance within compensation discretionary spending.

And third party distribution, largely offset with no meaningful change in our overall expense level.

We are also anticipating an uptick in our fourth quarter tax rate to 22%.

Due to a change in mix of the earnings contribution of our U S and European businesses.

And as a final reminder, our gross margin guidance for the fourth quarter is being updated ranging from 80% to 81% due to the previously mentioned accounting change that impacted our advisory fee and fund management line in our income statement.

That's all I had.

I'll now turn the call over to Jonathan.

Thank you Brian.

As Jarrett and Brian each outlines wisdom tree had another strong quarter.

I am pleased with the success that the firm is having regarding flows as we look to extend our streak of inflows through the fourth quarter and into 2022.

The six 5% of organic growth of inflows reflect a significant upward change from recent prior years, but I see further upside as recent model wins ramp up and we continue to win new model mandate. That's in addition to potential flow acts.

Celebration.

On the operational side, we've executed very well this year and are really leaning into the remote first business model with our New York lease termination back in September we found that remote first has significantly widened the pool of employee candidates and I'm very bullish on the talent, we have been bringing on.

Our strong execution year to date has generated nearly 700 basis points.

Operating margin expansion versus last year.

However, I would note that our expense guidance for 2021 also includes roughly $4 million of costs related to our digital asset initiatives. So our core business is actually more profitable than the reported results.

At the same time that digital asset spend has already unlocked new revenue streams.

We're already generating 4 million run rate revenue from crypto Etp's in Europe in the U S. We see a big opportunity for advisers to give their clients crypto exposure through models and separate accounts and finally, we remain bullish on future opportunities around.

As it took innovation and our wallet initiative.

The key takeaway of this quarter and really the past several quarters is that unlike years past or success today is being driven by the breadth and depth of our product lineup as I said, we are executing well and we are investing in both today's growth as well as tomorrows I'm very excited about.

Wisdom tree is headed.

Now before moving into the analysts' Q&A, we're going to try something new this quarter.

In the past, we've engaged with our individual shareholders in a more informal manner and we found smart people, who are strategic and long term in their thinking.

These individual investors are very important to us it wisdom tree and they are not only shareholders, but in many cases, they're also wisdom tree clients.

This quarter, we contracted with state technologies Cofounded by Wisdom tree alum that task out to better engage with our individual shareholders. So operator, if you could please turn the call over to our new head of Investor Relations Jeremy Campbell, We will answer a few questions from our shareholders.

Before opening up the call to our sell side analysts.

<unk>.

I would now like to turn the call over to Jeremy Campbell head of Investor Relations for questions from the same platform.

Thank you Liz and good morning, everybody, we're going to be doing the se platform next quarter. So for all your individual shareholders. We're sitting in today, we invite you to participate next quarter.

We're going to take one question from our shareholders right now and then we're going to do a couple of analyst questions and then back to a shareholder question and then open it up to the remaining analyst questions in the queue.

Johnno question number one how do you see the bitcoin ETF res playing out can you share more about how wisdom tree is investing to benefit from the growth of the crypto currency space.

Thanks, Jeremy and good question really it's a two part question. So how do we see the bitcoin ETF marketplace playing out.

When we approach new products, our philosophy is.

Launching the best structures, the best structures lead to the best experiences.

We felt and we feel today strongly that a 100%.

Bitcoin futures is not the best execution.

Simply.

The possibility really the likelihood of contango, which could meaningfully hurt returns.

It's why we chose to go with a physical.

Finally, a bitcoin.

And I'm very confident that physical will come to the market I expect that it will play a big role in client portfolios for those that are looking for bitcoin exposure and wisdom tree will play a big role within the physical market highly confident wisdom cures a lot of experience in crypto.

Lee owning the underlying with our.

Bitcoin and cerium launches over the last couple of years before I transition, though to this.

Second part of the question I will say on a positive.

I think that the success that you saw in the U S market.

Will be a catalyst for faster institutional and wealth management adoption in Europe as the institutional market can really see that.

U S participation put in a floor and really was a catalyst for higher prices a bitcoin.

But transitioning to the second part of the question, which is how are we investing to benefit from the crypto space.

You know the investment started about three years ago in Europe, when we were preparing to launch our first bitcoin ETP.

And the knowledge that we gained from that was just extraordinary.

And the nice thing is we've already started to.

Recoup or get like $4 $5 million of run rate revenue against our.

Crypto exposures.

But.

As Jarrett.

Said earlier on the call.

Poke about.

<unk>.

The baskets, we have further development of crypto Etp's in Europe, we're going to be launching basket products I think before the end of the year. We're very excited about that also we.

We're in the U S. The first ETF to get Bitcoin futures into the ETF with our broad based.

Commodity fund GCC. Unfortunately, the FCC only gave us a one day lead over full bitcoin, but still.

Part of the investment that we're making.

We also talked about on.

On the call and really prior calls.

Our investment in partnership with Onramp, the workflow company for <unk> to incorporate crypto into their book of business.

And.

I actually think in the U S market because of the difficulty of the regulators. The SMA may be a preferred vehicle for the financial intermediary to access crypto. So we're very pleased with what we're doing there and in fact as you heard earlier, we had our first win with federal life.

And then I guess lastly in terms of investments in my portion of the script.

I discussed that in the guidance that we gave for discretionary spending it included $4 million for our digital asset.

<unk>. So in addition to product that includes.

<unk> dollars for the development of our wallet application and our token is gold and treasury exposure, so which should all be coming out.

Early next year, so really I think these investments position wisdom tree very well for crypto and <unk> going forward.

Great lives, if we can take some analysts' questions.

Our first question comes from Robert Lee with K B W.

Good morning. This is Mario <unk> filling in for Rob. Thank you for taking my question.

So my first question is on the crypto model with Onramp and Gemini.

Was hoping you could talk about the construction of these models and also sort of what the relationship is with Onramp and Gemini and then secondarily. If you could elaborate on the economics of this relationship.

Is it based on assets or a flat rate any color that you could provide there.

So this is Jeremy Schwartz, our global head of research.

And I've been working very closely with the Onramp team on some of these efforts.

The exciting part about Onramp. So there is a few different components. So onramp is helping enable the direct access to crypto through their platform.

We have we launched and announced that we have a plus crypto motto portfolio series for advisors.

They can come in and see those sort of prebuilt models on our model adoption center. The Mac. The crypto models are there you can see what what's in them. If you are a financial advisor and they are sort of three components of those models. There is a traditional 60 40.

Add 5% to bitcoin, there's an 80 20 that add 5% Bitcoin and then there's what we call our disruptive growth model that has some fanatics and bitcoin and ether.

The fed life announcement actually get a customized model a lot of the model relationships. We had wanted it they look at your off the shelf, but then they wanted to tweak it for their specific use case and we have really two model for fed like one that has the crypto focus and one that is say traditional equity bond allocation and there'll be more to come.

From that fab life relationship, but for US it's really just the ETF business, we have etfs as part of the models, Idaho or benefit from the flows of the Etfs there.

Pork.

Atop of that traditional ETF models, there will be other opportunities with onramp.

We have invested in onramp in their very early stage financing.

So we have a participation in the company and we look to do more there.

But there.

There is a there there could be some other opportunities for revenue in the future as well, but right now it's a traditional ETF relationship.

Yeah, and just adding one other thing main federal life.

It is our first real win and it's early in the relationship with Onramp and we expect more wins to come in the coming quarters.

Okay.

Great. Thank you so much if I could if I could ask one more on.

Your managed model portfolios I know you talked about Merrill Lynch.

Morgan Stanley as well as some anticipated wins in the near future could you talk about any other distributors that are currently offering the portfolios and then I'll.

So elaborate on the nature of these distribution relationships.

Maybe in your experience so far how they tend to ramp in the <unk>.

Timeline for that.

Yes. This is jarrett lilien it might take a part of that to start.

Right now we've disclosed.

Merrell last year Morgan Stanley This year really the names that we disclose we have to do in conjunction with our models partners. So I'm not looking to disclose other names right now, but in talking about the ramp up.

There are two really important points to make here first the type of sales.

And then the ramp up but let me actually start with the type of model sales sit there are.

First of all.

There is what we do where we work with advisors and we will come up with help them develop a custom model.

We're doing that with several advisors today and again more in the pipeline. We also build our own models and we then get those on with partnerships onto third party model platforms and Thats like what we've done with Merrill and Morgan Stanley.

That is what I referred to in my prepared remarks about that being.

10% of our flows this year coming from those type of partnerships, but theres also another kind of model sale and Thats something we do every day as well, which is winning positions in existing adviser or home office models.

And that's actually substantially more AUM that comes in through models into wisdom tree in terms of ramping up.

On the first two categories I talked about customizing with an adviser or getting onto a wire house platform. It on their third party model platform.

There are two real successes that you have to have there. One is just the home office when getting that partnership in place developing the model and getting it onto the platform and that's sort of victory number one but that on day, one doesn't really get you any AUM.

Then what you need to do is work with your partner and then work with all of the advisers on that platform to get them up to speed in the model and get them to be users of the model and that is what we're starting to see now is that early traction.

And it's growing traction so it's significant it's meaningful now to our flows.

But we are gaining more traction we expect it to ramp further and we expect it to be a more significant contributor going forward.

Our next question comes from Brennan Hawken with UBS.

Yes.

Good morning, Thanks for taking my questions.

John You spoke about you were seeing about the bitcoin ETF developments in that market.

In the in the answer to the first question I wanted to just maybe follow up a little bit about that.

Avoiding contango with derivatives certainly is logical.

But are there any other markets that you could use as an illustration.

Either for us or when you are speaking of regulators, where you see physical etfs that might not necessarily purely be on exchange, but are still used in etfs and therefore, there is a precedent.

For the physical market and maybe even use cases, where contango can cause problems with derivative oriented etfs.

<unk>.

We think.

And I apologize.

Had a little trouble hearing.

We had a bitcoin.

Bitcoin in our.

Broad commodity funded there we have the ability to toggle up and down exposures and so you can manage your contango.

Our reported that we'll be adding it into our managed futures.

And.

And then you're obviously you saw that we're dealing with the models in the separate accounts. So there is a lot of effort to bring with very difficult exposures to the broader market in a compliant.

Wei a tremendous amount of education to the intermediary market.

A little distinction when you're dealing with retail with bitcoin.

Then atticism to it they're just completely.

Committed those that are committed to see it.

Something that's going to 50000 to 500000 of coin and they just know it in their hearts on the institutional side, it's more of just an asset allocation with them, 1% to 3% to put it into a broad asset allocation.

No.

I may have missed a little bit of your the nuance of your question. So could you just if I missed something could you just repeat it yes.

Yeah sure. Thanks, John I'm, sorry, if the phone line broke up a little bit.

Yes, so what I was curious about was whether or not there is.

A a good use case or or a case study, where you could point to other markets, where there are derivatives etfs versus physical Etfs and contango actually creates adverse.

Outcomes.

When you're when you're explaining the virtues of physical quota.

[laughter] yeah.

So.

The most obvious would be U S. So in the oil market. It has proven to be a very disappointing construction for up with the market.

So it just depends if you can have physical we think physical is better.

And that.

And in certain cases, like let's say gold you could have gold futures, but most gold investors actually want the physical.

So we have plenty of examples it's not hard to educate the market certainly different.

And the intermediaries are very sophisticated and they understand I'm pretty confident that the.

Full bitcoin exposures that are futures based will have a tough time accessing the platforms.

Jeremy Schwartz would you like to add more detail to that.

I mean, I think the only thing I would just reemphasize, we're already doing physical bitcoin and ethereum in Europe and our team in Europe has a broad expertise on commodities, both with physical and futures and we think there's opportunity to continue to innovate in commodities with physical which we're doing in Europe and continue to do.

Some more interesting opportunities going into the end of the year on physical commodities, but this is a well known issue and it's also why we have talked about GCC started this enhanced growing process. Europe also has an enhanced role broad commodity fund, it's sort of well known this issue.

And so I think where we are taking the steps to address both with physical and with its better rolling process in Europe and the U S.

We think eventually condensate the regulators will will come to see that for you.

And are the regulators I'm sure market participants are receptive receptive to these nuanced divergences in the data are you finding so far that the regulators are as well or are they a little bit have they been more rigid in their approach to this.

We are very.

Good relationships with the regulators.

They.

They had some concerns we're addressing their concerns it's hard to.

See how they will.

Allow for a less.

Good user experience be the only way to access this.

Since the funds the full bitcoin future funds have launched you're starting to see in the press that theyre getting up to there.

Ah contract limits and so.

You are actually seeing that the contango is real and it's going to.

Grow over time as you are forced to go past the one month contract. So again, we have a tremendous amount of confidence that it will come to market and that we will be first with the physical and that physical will play a big role in the future.

Great Thanks for that.

Thank you.

I'd like to turn the call back to Jeremy Campbell for similar to take questions.

Hey, thanks.

Say question number two from our shareholder base is Jonno, what do you see as the biggest biggest growth drivers for wisdom tree as we look into 2022.

So first of all you could tell from the tone of the call. We have a lot of momentum in the business. So.

The core business is growing very very strongly.

Very excited about the 13% organic growth in the U S. We haven't seen numbers like that in quite some time and we are and what we said earlier, it's we're doing without any hawk bonds and so we see that there could even be further upside to those numbers.

When you look under the Hood.

Of Europe's flows, though they are slightly negative for the year.

Our UCITS suite in Europe had organic growth year to date of 90%, taking 1 billion two five.

Flows I mean, I feel very strongly that our UCITS suite is going to continue to grow very very quickly.

And I guess.

When we talk about like hot funds.

Our funds.

Tied to market sentiment there is really a sense of growing inflation expectations, our global franchise around crypto gold and broad commodities positions us very well for us.

Heightened inflation expectations, which could lead to faster.

Solid growth in the six 5% organic growth that we're showing so I'm very bullish on the core but if you really pushed what has me most excited for 2022.

We've spoken about in the past and I'm anxious for time to pass through we can do it well.

We're launching native to the blockchain or wallet application, plus cocainize assets like gold and treasuries.

I would say that.

It's beyond excitement for just 2022 this may be the most excited I've ever been that wisdom tree and this includes the hay days of Dx, Jay and hedge being an early pioneer in something as game changing as blockchain enabled financial services.

For wisdom tree. This is the beginning of a global consumer centric responsible defy business. So I think that is where my greatest excitement is and I'm looking forward to giving you more details next quarter and next year.

Great.

Take some more analyst question.

Our next question comes from Michael Cyprus with Morgan Stanley.

Oh, Hey, thanks for taking the question I apologize if you already hit this I hopped on late but I just wanted to.

Just talk a little bit about the token is treasury and.

Gold products that I believe you were starting you had filed already with the SEC and we're looking to launch maybe you could just give us an update on some of the initiatives there and remind us like how those products work and how you see the overall ecosystem evolving do you see any of the other folks out there looking to do something similar.

So.

Yeah.

I have to you can only say so much.

We filed the treasuries, which is really getting the 40 act onto the blockchain native.

So when you think about why do investors or retail why are they so excited about crypto.

They like the exposure, but there's an ease with which you can move around the globe.

Gold tokens have the ability to really go global so right now we have a gold business, which is local in Europe.

I've said in the past that when you put gold done properly onto the blockchain, we have an opportunity with the wallet detour gold into currency use gold to pay for.

Where things so saving goals to invest in gold transaction gold.

We're trying to offer this ecosystem.

System of digital assets or this ecosystem of this.

<unk> World more choice so that way you can stay in this ecosystem and make get interest instead of just.

Playing crypto so we see that there'll be a big evolution, we're starting with sort of the foundational exposures.

Exposures of gold in treasuries, but we're gonna be we want to be a big player in this and so I think really if I'm looking.

Etfs for 30 years, almost 30 years old now I think the next 30 years, you're going to be talking about.

Regulated tokens, it's going to prove to be the new wrapper.

And we want to be really sort of first through the door. So.

At the moment, that's all I can say, except that we're making progress on all of these initiatives and looking forward to actually launching the next year.

Great and maybe just a follow up question on the somatic and ETF products, maybe you could just give us a little bit of an update on some of the traction youre seeing there and what the pipeline looks like for us for bringing new products to the marketplace and in certain categories.

Jeremy do you mind.

Taking the conversation on the match. So you do have to be a little careful about talking about future products of.

Of course.

Thanks, Jonathan.

<unk> for the question and kind of said the exciting growth organic growth rate out of Europe that 90% growth rate a lot of that is coming from the growth and fanatics.

And you look at.

It really wasn't something we really had as a franchise three or four years ago. I mean, it's really been et cetera. In the last few years, one of the sort of blockbuster for US has been our cloud computing WC LD in the U S. We launched it.

September 2019, with with NASDAQ and Bessemer venture partners, but bessemer being the premier cloud computing venture firm.

That fund is growing to 2 billion globally between the U S and Europe in Europe, they've had a lot of success with artificial intelligence a battery value chain.

Type type strategy sort of ESP efforts in Europe have been very strong and that's where you saw sort of carbon recently is in some ways the spirit of some.

<unk>, but her commodity focused thematic.

And.

And I think we're going to continue to do more.

We're trying to do things globally. So we're going to learn from Europe, and do more things like that.

And in the U S as well, where we don't have any exposures they have but.

Yeah I think this is one of the if you think about the transition of how people use etfs sectors are a big category with fanatics are a way to new sectors and a more interesting way and you've seen that with cloud and we did cyber security together. This year, that's been one of our faster ramp ups both have had good.

First year success.

A little bit under $100 million and the combined U S and global Cyber security, we did a bio Revolution fund WGNA and the U S. It's early but we think it's got a unique value proposition I forget we're excited to do a lot more in the somatic space.

And I'll just add that.

This is really put the U S business.

And for Europe. This is really diversifying for US you know really get this.

The growth the area of equities, which is.

Something that we've been trying to do more of over the last few years I'm sure you had an add on question.

Yes, sorry.

You're up there I was just going to ask on a separate topic, if I could squeeze in one more just around the crypto European ETF products you guys were a little early on that and I'm. Just curious if you had any sort of update on some of the distribution initiatives I know the AUM and flows there have been a little more lackluster since you look to bring to the U S and he sort of lessons learned.

From your experience in Europe, as you think about bringing this product over to the U S.

So the regulators with crypto or sort of a mixed bag. So we're talking about doing baskets. So that's a positive meeting.

How hard it is to get a bitcoin launched in the U S. So when will they get let you do ether or others. So it is very very challenging.

But I think the so there's a positive from the regulator standpoint, the market for crypto that really tends to be.

To date almost exclusively retail.

So there is a big advantage to the U S market, where you have a much bigger direct to retail set of channels or.

Our products in Europe are.

Our products in Europe have to go more through sort of institutional and wealth management channels and there is a an educational process and again for the institutional market. Its not the same set of passion.

It's more about.

<unk> learning about.

The merits of crypto as an asset class and then getting an entry point and then for them, it's just a 1% to 3% allocation.

But I can only say that the.

Gage minutes of the institutional market has been very strong.

<unk> heightened.

The U S launches.

What I'm, hoping to see faster growth in Europe.

Great. Thanks for taking my questions.

Our next question comes from Quito, some with Northcoast.

Good morning, guys and great job on the quarter in terms of.

Overall market share for wisdom tree, perhaps John if you could give a little bit color in terms of.

How his wisdom tree doing in terms of its influence compare to the verticals in which it plays in the ETF markets at play as compared to the competitors.

Jeremy you want to start.

So it's really that demand.

Yes.

One of the families. We've been talking about fanatics and that's a growing share business talk about models, which is one of the ways. We think we can get broader more then diversifying the business, we talked about the breadth and depth of the flows. This year. The model effort that wasn't premier's model effort is one of the ways, we're getting broader Alex.

Patients and helping grow share I think one of the families and Gary talked about this in his remarks, but I think one of the places that we have a huge opportunity perhaps one of our biggest opportunities is our efficient core family with N T effects and we've expanded that we started the year at $400 million in <unk> and now have $800 million in there.

Family sort of doubling and that is competing for unique core data.

One of our I think our biggest opportunity sets, there and can ramp significantly from that.

And so I think we're we're in some ways.

Going after these bigger categories with market sharing trying to diversify the flows with the managed model.

Jerry do you have any additional things to say there.

Yes, the only thing I'd add is.

Market share is something that we look at very closely because there is our absolute performance, which we're thrilled with the maintenance.

It's been actually a building momentum for a couple of years now that I don't think is entirely recognized so we're very happy with the absolute growth but of course, we also look at market share and that's it.

It's very nuanced in how you look at it but you have to look at where we play. So for instance in our product development sort of approach, we're not thinking about.

Being a me too low fee beta shop.

We're looking for more innovative differentiated.

Products and I think we're doing a great job we've launched.

As we said earlier 14 really solid products. This year more to come that's even a change from the last couple of years, but in the market share, where we play and where we compete we're doing extremely well.

Great. Thanks, and then as a follow up there in terms of the discretionary cost obviously lower than we expected this quarter. It sounds like that's going to be the same for next quarter I guess.

Sustainable as we look out to 2022 that we have a new level of discretionary cost.

Yes. This is Bryan I think we should just payable any discussions on 2022 until next quarter, we'll have a wholesome update for you at that point.

Fair enough. Thanks.

Okay.

Our next question comes from Robert Lee with K B W.

Hey, This is Mario again, thank you for taking my follow up I actually also had a question on expenses.

But I guess.

If you could provide any color on how we might think about kind of expense growth moving forward overall, and then I know you had talked about some.

Note savings do you expect that you might be able to retain knees or might they be offset by.

Increased marketing expenses going forward.

So so again.

Yes.

Yeah, sorry, I wasn't sure if I was on mute.

Remote first savings, we should be able to retain those.

We had disclosed that the total savings when you disclosed the total savings we were benchmarking that against them.

Full year 2020, it's just easier to quantify that way, but if you look at our remote first savings specifically with respect to occupancy or space or at least.

Depreciation and fixed assets and leasehold improvements and that kind of stuff.

We anticipate that that spend is about $3 $5 million less than what those line items were in 2020.

And when we provide that guidance, we're taking into consideration. The fact that we do anticipate getting into new space in New York, albeit at a much smaller footprint.

But that's what we would anticipate with respect to remote <unk>.

And then Margo I'm, sorry, I forgot the first part of your question. If you could just repeat that again.

Oh I was just asking about 2022 expenses that I will ask another quarter.

Okay.

I appreciate that thank you.

[laughter].

Our next question comes from Ryan Bailey with Goldman Sachs.

Yes.

Good morning.

I'm, sorry, Paul what might perhaps be a simple question here and please correct me if my history is wrong, but I think wisdom tree has always been a business that's evolved.

From being an index create onto a pioneer in the ETF space in particular is smart beta.

Question is are we at the cusp of that sort of next evolution of the business and if we would roll forward say five years, his wisdom tree and going to be a <unk> business that has etfs or an ETF business, that's pirate pioneering deep.

Or is that just completely the wrong characterization.

So.

Thanks for the question. So wisdom, she really has been a business that has evolved they started as a financial media company individual investor transitioned to Etfs.

When I saw how transformative they work for the investing process.

D.

I would say that.

I'm sort of personally all in on <unk>, I say that because I believe it's going to meaningfully change the user experience with a positive.

And from a business standpoint transform the economics of financial services. So I believe that over the next five years, we will be recognized as a <unk> business that has.

An ETF business or said a different way.

We're in the business of transparent exposures, whether we're doing it in a.

Regulated tokens worked through Etfs, I think they'll prove to be quite complementary now with.

30 years into Etfs, and the mutual fund industry mutual funds are still very very strong I'm very bullish on Etfs, but.

When I think about it.

Wisdom tree sort of stacks in the competitive set that we were somewhat early in Etfs with <unk>.

13 years ask your state Street seven years after Ishares.

Are we sort of had the chance to be first through the door with this new wrapper. So I think.

I really see a massive opportunity I think thats, what will be defined at defined ads over time of day.

<unk> company.

Got it.

Just to sort of make sure I'm thinking about this right by.

By having.

<unk> a well established.

<unk> scaled ETF business at the moment, you kind of have the mechanism.

Or at least the.

Platform based in order to stop pioneering defy.

So one they're very complementary what are the things that got us. So excited about this sort of neck journey was how well our core business mapped to the future. So there is you know.

We said that we were spending this year $4 million on digital assets.

We're taking trying to be as efficient as possible go into some of the margin questions. We're really asking a number of people to sort of.

Q hats.

We're transitioning to building a pure digital asset team and probably have maybe eight or nine people in that space now.

It's very very helpful. The expertise that we have is the third largest gold manager in the World makes what we're gonna do want Gould tokens.

Work the same for treasuries.

One of the things that defy needs.

And really we're pitching this adds responsible defy which means regulated defy.

The market needs to get things through regulators and really it is one of our strengths.

I think the regulators who viewers wisdom tree in this new world as a <unk>.

Trusted solutions provider and so we're really trying to work out the issues because obviously the standards can't be different in a digital asset world you need to be.

Maintain the foundational principles of regulation of know your customer.

Anti money laundering disclosures and all of those things that make financial services trustworthy half to come over to the new World order of distributed Ledger Tech and so we think we can be sort of that bridge brand that can pull this off.

Got it. Thank you that's very interesting.

Thank you.

I'm showing no further questions in queue at this time I'd like to turn the call back to Jonathan Steinberg for closing remarks.

I just wanted to thank everybody for your interest and participation on the call. We look forward to speaking to you next quarter have a.

Great day, everybody and a great weekend bye bye.

This concludes today's conference call. Thank you for participating you may now disconnect.

Yeah.

Okay.

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No.

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Okay.

No.

Yeah.

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[music].

Good day, and thank you for standing by welcome to the Wisdom tree third quarter earnings call.

At this time, all participants are in listen only mode.

After the presentation, there will be a question and answer session.

To ask a question during the session you will need to press Star then one on your telephone keypad.

Please be advised that today's conference maybe recorded.

If you require operator assistance during the call. Please press Star then zero.

I'd now like to hand, the conference over to your host today Jessica wisdom.

It wasn't a tree head of corporate communications and public relations. Please go ahead.

Good morning, before we begin I would like to reference our legal disclaimer available in today's presentation. This presentation may contain forward looking statements within the meaning of the private Securities Litigation Reform Act.

Of 1995, a number of factors could cause actual results to differ materially from the results discussed in forward looking statements, including but not limited to the risks set forth in this presentation and in the risk factors section of the wisdom drink annual report on Form 10-K for the year ended December 30.

First 2020 and quarterly report on Form 10-Q for the quarter ended June 30th 2021.

Wisdom tree assumes no duty and does not undertake to update any forward looking statements.

Now it is my pleasure to turn the call over to wisdom tree, President and C O L Jarrett lilien.

Thanks, Jeff and welcome everyone.

I'm going to kick it off today with some color on the momentum in our business and then turn it over to Brian to go through the results in more detail and to provide an update on expense guidance and then John will give some closing thoughts before we open it up to Q&A.

Wisdom tree its positive momentum continued through Q3 with another quarter of organic growth and strong execution against our longer term strategic initiatives.

$550 million of net inflows in the third quarter marked our fourth straight quarter of net inflows, but the real story is the increasing breadth and depth of our flows and product lineup.

Year to date wisdom tree is growing at an annualized organic growth rate over six 5% with twice as many of our funds, having inflows and outflows in Q3 that fund inflow outflow ratio for Etfs and usage increased to 2.7 to one.

And so far in October the ratio is running well over three to one with over 1 billion in net inflows, marking our best month of the year. Our U S business is generating organic growth of 13% in the third quarter marked the fifth consecutive quarter of net inflows include.

<unk> organic growth in 'twenty, one of the past 26 months.

Success has been marked by recent strength in our fixed income suite, but sustained strength in our equities franchise, including our U S efficient core fund, which just got its five star rating from Morningstar in September and recognition in the Wall Street Journal about its potential use as the cornerstone.

If an investor's portfolio.

In Europe, you said momentum continues with 12 consecutive months of positive flows driving over one 2 billion of inflows year to date and taking AUM in our Houston suite over 3 billion, our physical gold suite revamp has proven successful with CT gold Swisscom.

Old and hedge gold products, taking in $180 million of flows in 2021, so far year to date, our top 10 in flowing funds are a nice mix of UCITS informatics, industrial metals, and new launches, including gold and carbon.

Overall, new fund launches have been a point of strength. This year with 14, New fund launches in 2021 and more on the way up.

Of note is our carbon ETP in Europe, which launched on August 27th and grew to $165 million and AUM by the end of the quarter.

That momentum has continued through October and the fund now has over $220 million in AUM.

The pipeline for new product launches remains robust in both the U S and Europe and I look forward to sharing additional successes with you next quarter.

We also continued to gain traction with our managed models business. There's a long sales cycle here, especially relative to single ticker Etfs and mandates are hard to win but with success comes stickier and more recurring inflows to date, we have reported on some of those hard to win successes most notably.

With Merrill Lynch last year, and with Morgan Stanley last quarter, but we also have a strong pipeline, where we hope to announce another large wire house win in another major are a win soon we're still ramping up engagement at Merrill and Morgan and the new wins haven't yet closed but through September 30.

Roughly 10% of our U S. ETF inflows are already coming through wisdom tree managed models to be clear. Our Etfs are also part of other home office and custom models and I'm, referring to flows coming solely from wisdom tree models. If we were to include these other models.

We are also having significant success the numbers would be substantially higher.

Item line, we've been investing in our models business for some time and this investment is paying off models are already a meaningful contributor to net inflows today, and we see an even greater opportunity in future periods Lastly.

Want to share with you some of our success and momentum in the crypto landscape first in mid October the wisdom tree enhanced commodity strategy fund was the first ETF to add bitcoin futures as part of the fund mix.

We maintain our strong position in crypto ETP ETE piece in Europe, with both big coin and ether and additional strategies like crypto baskets in the product development pipeline.

As the crypto rally extends in the fourth quarter, there's upward momentum in crypto related management fees from both market move and organic growth, but the momentum has continued even outside etp's. His wisdom trees partnership with Onramp and Gemini and our shared initiative to bring crypto to.

<unk> got its first model win this quarter Federal life announced the launch of a variable annuity product that implements a wisdom tree model comprised of nearly two thirds direct crypto and a third disruptive technology Etfs. We are excited to get this product to market and look forward to further improve.

Mentation with additional partners in the future.

All in all we have momentum and we are generating strong organic growth as I said last quarter and will say again this quarter and look forward to saying next quarter, we are executing well on all fronts.

Now, let me turn it over to Brian to bring it all together with the numbers.

Thank you Garrett.

Beginning on slide five our AUM at September 30 was $72 8 billion.

A decrease of 2% versus the prior quarter driven by negative market movements, partly offset by net inflows.

Our average AUM was $74 6 billion.

A third consecutive record quarter.

We generated in excess of $500 million of inflows during the quarter.

Largely into our international equity and U S equity products.

We had outflows from emerging markets products and commodities saw mixed results without flows in precious metals.

By inflows into oil and our recently launched carbon product, which attracted $155 million of flows in just over one month.

It's Jarrett had previously mentioned.

The US listed Etfs generated positive inflows for five consecutive quarters in 21 of our Etfs currently have over $1 billion in AUR.

Our <unk> and currently stand at $76 9 billion.

4 billion greater than where we ended the quarter due to market appreciation and inflows.

Inflows in October are approaching $1 billion.

With $3 7 billion year to date.

Next slide please.

Before discussing our financial results I'm, bringing to your attention immaterial revisions that have been made to previously reported advisory fees and fund management expenses to align with our current presentation.

These revisions were made by us voluntarily to retain an apples to apples comparison of our revenue and gross margin margin trends.

These line items have been reduced by equal and offsetting amount.

And represent the netting of expense reimbursements collected on behalf of a third party, which had been reported growth in our income statement.

We have also revised previously reported gross margin percentages operating income margins and our fee capture for this change.

There is no impact to previously reported net income.

The information is shown to the right summarizes the changes as it relates to last quarter's results.

We have included in the appendix, a slide showing the impact on prior quarter and annual periods.

Next slide.

Revenues were $78 million, an increase of 3% from the prior quarter due to higher average AUM.

And a slightly higher fee rate.

Adjusted net income was $16 3 million or 10 cents a share.

Unchanged from the prior quarter.

This quarter, we recognized an impairment charge of $16 million in connection with the termination of our New York Office Fleet.

Well as a noncash after tax gain of $1 7 million.

For our future gold commitment payments and 500000 and other net nonoperating losses.

Next slide.

Our operating income margin was 31% and our gross margin was 86% for the quarter largely unchanged from the prior quarter.

The chart for the left demonstrates the operating leverage of our business model as we see meaningful margin expansion as our average AUM levels have grown over time.

Our gross margin guidance requires an update due to the previously mentioned accounting change that impacted our advisory fee and fund management lines in our income statement.

Gross margins for the fourth quarter is expected to fall within a range of 80% to 81%.

We typically incur rebalancing costs in the fourth quarter, and therefore anticipate our gross margin falling toward the lower end of this range.

Next slide please.

Our operating expenses were up three 5% for the quarter.

Due to higher incentive compensation and fund costs.

Compensation expense was $22 million during the quarter.

Discretionary spending with $10 6 million.

We are updating our expense guidance with additional details soon in the next slide.

Next slide please.

Compensation levels are determined based upon a variety of factors, including our operating performance and net flows.

Year to date, we have generated revenue growth of 22% versus the comparable prior year period.

Our operating income has grown 58% and our operating margins have expanded from 23% to just shy of 30%.

We have also generated about $3 7 billion of organic inflows through today.

This performance has us increasing our full year compensation guidance from $85 million to between 88 and $89 million.

As you can see in the chart on the left.

Our compensation to revenue ratio of 29%.

Essentially unchanged from our actual ratio in the prior year.

This updated guidance assumes steady state market conditions, and any meaningful changes whether up or down could have an impact on our year end compensation levels.

We are taking our discretionary spending guidance down.

From $49 million.

I mean, 44% and $45 million.

The savings are largely from lower sales expenses due to the persistence of the pandemic.

But also include marketing and other discretionary items.

We're also realizing occupancy and depreciation savings from the recent termination of our New York offices.

This reduction in guidance more closely aligns our anticipated fourth quarter spend with the prior quarters and should not have an impact on our organic growth.

Third party distribution expenses are projecting higher than our original guidance.

The performance of our Latin American platform has exceeded expectations.

We are now anticipating the spend to be about $7 5 million for the year.

The changes in guidance within compensation discretionary spending and third party distribution, largely offset with no meaningful change in our overall expense level.

We are also anticipating an uptick in our fourth quarter tax rate to 22%.

Due to a change in mix of the earnings contribution of our U S and European businesses.

And as a final reminder, our gross margin guidance for the fourth quarter is being updated ranging from 80% to 81% due to the previously mentioned accounting change that impacted our advisory fee and fund management line in our income statement.

That's all I had.

I will now turn the call over to Jonathan.

Thank you Brian.

As Jarrett and Brian each outlined wisdom tree had another strong quarter.

I am pleased with the success that the firm is having regarding flows as we look to extend our streak of inflows through the fourth quarter and into 2022.

Six 5% of organic growth of inflows reflect a significant upward change from recent prior years, but I see further upside as recent model wins ramp up and we continue to win new model mandate. That's in addition to potential flow access.

The ration into high demand Etfs like carbon dramatic and efficient core.

On the operational side, we've executed very well this year and are really leaning into the remote first business model with our New York lease termination back in September we found that remote first has significantly widened the pool of employee candidates and I'm very bullish on the talent we've been bringing on.

Our strong execution year to date has generated nearly 700 basis points.

Operating margin expansion versus last year.

Ever I'd note that our expense guidance for 2021 also includes roughly $4 million of costs related to our digital asset initiatives. So our core business is actually more profitable than the reported results.

At the same time that digital AD spend has already unlocked new revenue streams. We are already generating 4 billion run rate revenue from crypto ETP is in Europe.

In the U S. We see a big opportunity for advisers to give their clients crypto exposure through models and separate accounts and finally, we remain bullish on future opportunities around asset token of nation and our wallet initiative.

The key takeaway of this quarter and really the past several quarters is that unlike years past. Our success today is being driven by the breadth and depth of our product lineup as I said, we are executing well and we are investing in both today's growth as well as tomorrows I'm very excited about.

Wisdom tree is headed.

Now before moving into the analysts' Q&A, we're going to try something new this quarter.

In the past, we've engaged with our individual shareholders in a more informal manner and we found smart people, who are strategic and long term in their thinking.

These individual investors are very important to us it wisdom tree as they are not only shareholders, but in many cases, they're also wisdom tree clients.

This quarter, we contracted with state technologies Cofounded by Wisdom tree alum that task out to better engage with our individual shareholders. So operator, if you could please turn the call over to our new head of Investor Relations Jeremy Campbell, We will answer a few questions from our shareholders.

Before opening up the call to our sell side analysts.

<unk>.

I'd now like to turn the call over to Jeremy Campbell head of Investor Relations for questions from the same platform.

Thank you Liz and good morning, everybody, we're going to be doing the se platform next quarter. So for all your individual shareholders listening in today, we invite you to participate next quarter.

We're going to take one question from our shareholders right now and then we're going to do a couple of analyst questions and then back to a shareholder question and then open it up to the remaining analyst questions in the queue.

Johnno question number one how do you see the bitcoin ETF res playing out can you share more about how wisdom tree is investing to benefit from the growth of the crypto currency space.

Thanks, Jeremy and so a good question really it's a two part question. So how do we see the bitcoin Etfs marketplace playing out.

When we approach new products, our philosophy is.

Launching the best structures, the best structures lead to the best experiences.

We felt and we feel today strongly that a 100%.

Bitcoin futures is not the best execution.

Simply.

The possibility really the likelihood of contango, which could meaningfully hurt returns.

Is why we chose to go with a physical.

Finally for bitcoin.

And I'm very confident that physical will come to the market I expect that it will play a big role in client portfolios for those that are looking for bitcoin exposure and wisdom tree will play a big role within the physical market highly confident wisdom cures a lot of experience in crypto in physics.

Italy owning the underlying with our.

Bitcoin and ethereum launches over the last couple of years before I transition, though to this.

Second part of the question I will say on a positive.

I think that the success that you saw in the U S market.

Will be a catalyst for faster institutional and wealth management adoption in Europe as the institutional market can really see that.

U S participation put in a floor and really was a catalyst for higher prices a bitcoin.

But transitioning to the second part of the question, which is how are we investing to benefit from the crypto space.

You know the investment started about three years ago in Europe, when we were preparing to launch our first bitcoin ETP.

And the knowledge that we gained from that was just extraordinary.

And the nice thing is we've already started to.

Recoup or get like $4 $5 million of run rate revenue against our.

Crypto exposures.

But you know.

As Jarrett.

Said earlier on the call we spoke about.

The baskets, we have further development of crypto Etp's in Europe, we're going to be launching basket products I think before the end of the year. We're very excited about that also we were.

Work in the U S. The first ETF to get bitcoin futures into the ETF with our broad based.

Commodity fund GCC. Unfortunately, the FCC only gave us a one day lead over full bitcoin, but still.

Part of the investment that we're making.

We also talked about on.

On the call and really prior calls.

Our investments in partnership with Onramp, the workflow company for <unk> to incorporate crypto into their book of business.

And you know.

I actually think in the U S market because of the difficulty of the regulators. The SMA may be the preferred vehicle for the financial intermediary to access crypto. So we're very pleased with what we're doing there and in fact as you heard earlier, we had our first win with federal life.

And then I guess lastly in terms of investments in my portion of the script.

I discussed that in the guidance that we gave for discretionary spending it included $4 million for our digital asset initiatives. So in addition to product that includes.

<unk> dollars for the development of our wallet application and our token is gold and treasury exposure, so which should all be coming out.

Early next year, so really I think these investments position wisdom tree very well for crypto and <unk> going forward.

Great lives, if we can take some analysts' questions.

Our first question comes from Robert Lee with K B W.

Good morning. This is Mario <unk> filling in for Rob. Thank you for taking my question.

So my first question is on the crypto model with Onramp and Gemini.

Hoping that you could talk about the construction of these models and also sort of what the relationship is with Onramp and Gemini and then secondarily. If you could elaborate on the economics of this relationship.

Is it based on assets or a flat rate any color that you could provide there.

So this is Jeremy Schwartz, our global head of research.

I've been working very closely with the Onramp team on some of these efforts.

The exciting part about Onramp, so theres a few different components. So onramp is helping enable the direct access to crypto through their platform.

We have we launched and announced that we have a plus crypto motto portfolio series for advisors.

It can come in and see those sort of prebuilt models on our model adoption center. The Mac. The crypto models are there you could see what what's in them. If you are a financial advisor and they are sort of three components of those models. There's a traditional 60 40, not add 5% to bitcoin, there's 80 20 that add 5% bitcoin.

And then there's what we call our disruptive growth model that has some fanatics and bitcoin and ether.

The fed life announcement actually get a customized model a lot of the model relationship. We have we wanted to sort of if they look at your off the shelf, but then they wanted to tweak it for their specific use case and we have really two model for fed life. One that has the crypto focus and one that is a traditional equity bond allocation and there'll be more to come.

From that fab life relationship, but for US it's really just the ETF business, we have etfs as part of the models I'm over benefit from the flows of Etfs, they're poor.

A top of the traditional ETF models, there will be other opportunities with onramp.

We have invested in onramp in their very early stage financing.

And so we have a participation in the company and we look to do more there.

But there.

There is a there there could be some other opportunities for revenue in the future as well, but right now it's a traditional ETF relationship.

Yeah, and just adding one other thing main federal life.

It is our first real win and it's early in the relationship with Onramp and we expect more wins to come in the coming quarters.

Great. Thank you so much if I could if I could ask one more on.

Your managed model portfolios I know you talked about Merrill Lynch.

Morgan Stanley as well as some anticipated wins in the near future could you talk about.

Any other distributors that are currently offering the portfolios and then also elaborate on the nature of these distribution relationships.

Maybe in your experience so far how they tend to ramp.

Timeline for that.

Yes. This is this is jarrett lilien it might take a part of that to start.

Right now we've disclosed.

Merrell last year Morgan Stanley This year really the names that we disclose we have to do in conjunction with our models partners. So I'm not looking to dispose of their names right now, but in talking about the ramp up.

There are two really important points to make here first the type of sales.

And then the ramp up but let me actually start with the type of model sales sit there are.

First of all.

There is what we do where we work with advisors and we will come up with help them develop a custom model.

We're doing that with several advisors today and again more in the pipeline. We also build our own models and we then get those on with partnerships onto third party model platforms, and that's like what we've done with Merrill and Morgan Stanley.

That is what I referred to in my prepared remarks about that being.

10% of our flows this year coming from those type of partnerships, but theres also another kind of model sale and that's something we do every day as well, which is winning positions in existing adviser or home office models.

And that's actually substantially more AUM.

That comes in through models into wisdom tree in terms of ramping up.

On the first two categories that I talked about customizing with an adviser or getting onto a wire house platform on their third party model platform.

There are two real successes that you have to have there. One is just the home office when getting that partnership in place developing the model and getting it onto the platform and that's sort of victory number one but that on day, one doesn't really get you any AUM.

Then what you need to do is work with your partner and then work with all of the advisers on that platform to get them up to speed in the model and get them to be users of the model and that is what we're starting to see now is that early traction.

And it's growing traction so it's significant it's meaningful now to our flows.

But we are gaining more traction we expect it to ramp further and we expect it to be a more significant contributor going forward.

Our next question comes from Brennan Hawken with UBS.

John You spoke about you were seeing about the bitcoin etfs developments in that market.

In the in the answer to the first question I wanted to just maybe follow up a little bit about that.

Avoiding contango with derivatives certainly is logical.

But are there any other markets that you could use as an illustration.

Either for us or when you are speaking of regulators, where you see physical etfs that might not necessarily purely be on exchange, but are still used in etfs and therefore, there is a precedent for the physical market and maybe even use cases, where contango can cause problems with derivative oriented.

Yes.

We think.

And I apologize I had a little trouble hearing you.

We have a bitcoin in our.

Broad commodity funded there we have the ability to toggle up and down exposures and so you can manage your contango. We've it's been reported that we'll be adding it into our managed futures.

And.

And then you're obviously you saw that we're dealing with the models in the separate accounts. So there is a lot of effort to bring with very difficult exposures to the broader market in a compliant way.

<unk>, a tremendous amount of education to the intermediary market a little distinction when you're dealing with retail with bitcoin, there's a fanaticism to it they're just completely commit.

Committed those that are committed to see it.

Something that is going to 50000 to 500000 of coin and they just know it in their hearts on the institutional side, it's more of just an asset allocation with them, 1% to 3% to put it into a broad asset allocation.

No.

I may have missed a little bit of your the nuance of your question. So could you just if I missed something could you just repeat it yes.

Yeah sure. Thanks, John I'm, sorry, if the phone line broke up a little bit.

Yes, so what I was curious about was whether or not there is.

A a good use case or a case study where you could point to other markets, where there are derivatives etfs versus physical Etfs and contango actually creates adverse.

Outcomes.

When you're when you're explaining the virtues of physical quota.

[laughter] yeah.

So.

The most obvious would be U S. So in the oil market. It has proven to be a very disappointing construction for up with the market.

So it just depends if you can have physical we think physical is better.

And that.

And in certain cases, like let's say gold you could have gold futures, but most gold investors actually walk the physical.

So we have plenty of examples it's not hard to educate the market certainly different.

And the intermediaries are very sophisticated and they understand I'm pretty confident that the.

Full bitcoin exposures that are futures based will have a tough time accessing the platforms.

Jeremy Schwartz would you like to add more detail to that.

I mean, I think the only thing I would just reemphasize and we're already doing physical bitcoin and ethereum in Europe and our team in Europe has a broad expertise on commodities, both with physical and futures and we think there's opportunity to continue to innovate in commodities with physical which we're doing in Europe and continue to do.

Some more interesting opportunities going into the end of the year on physical commodities, but this is a well known issue and it's also why we have we talked about GCC started this enhanced rolling process. Europe also has an enhanced role broad commodity fund, it's sort of well known this issue and.

And so I think where we are taking the steps to address both with physical and with its better rolling process in Europe and the U S.

We think eventually compensate the regulators will will come to see that for you.

And are the regulators I'm sure market participants are receptive receptive to these nuanced divergences in the data are you finding so far that the regulators are as well or are they a little bit have they been more rigid in their approach to this.

Listen we are very.

Good relationships with the regulators.

They.

They had some concerns we're addressing their concerns it's hard to.

See how they will.

Allow for a less.

Good user experience be the only way to access this.

Since the funds the full bitcoin future funds have launched you're starting to see in the press that theyre getting up to there.

Ah contract limits and so.

You're actually seeing that the contango is real and it's going to.

Grow over time as you are forced to go past the one month contract. So again, we have a tremendous amount of confidence that it will come to market and that we will be first with the physical and digital will play a big role in the future.

Great Thanks for that.

Thank you.

I'd like to turn the call back to Jeremy Campbell for similar to take questions.

Hey, thanks.

So your question number two from our shareholder base as Johnno, what do you see as the biggest biggest growths for drivers for wisdom tree as we look into 2022.

So first of all you could tell from the tone of the call. We have a lot of momentum in the business. So.

The core business is growing very very strongly.

Very excited about the 13% organic growth in the U S. We haven't seen numbers like that in quite some time and we are and what we said earlier, it's we're doing without any hawk bonds and so we see that there could even be further upside to those numbers.

When you look under the Hood.

Of Europe's flows, though they're slightly negative for the year.

Our UCITS suite in Europe had organic growth year to date of 90%, taking 1 billion two five.

Flows I mean, I feel very strongly that our usage suite is going to continue to grow very very quickly.

And I guess.

When we talk about like hot funds.

How our funds.

Tie to market sentiment there is really a sense of growing inflation expectations. We are global franchise around crypto gold and broad commodities positions us very well for us.

Heightened inflation expectations, which could lead to faster.

All in growth in the six 5% organic growth that we're showing so I'm very bullish on the core but if you really pushed what has me most excited for 2022.

We've spoken about in the past and I'm anxious for time to pass through we can do it well.

We're launching native to the blockchain or wallet application, plus cocainize assets like gold and treasuries.

I would say that.

It's beyond excitement for just 2022 this may be the most excited I've ever been that wisdom tree and this includes the hay days of DHA and hedge being an early pioneer in something as game changing as blockchain enabled financial services.

For wisdom tree. This is the beginning of a global consumer centric responsible <unk> business. So I think that is where my greatest excitement is and I'm looking forward to giving you more details next quarter and next year.

Great.

Take some more analyst question.

Our next question comes from Michael Cyprus with Morgan Stanley.

Oh, Hey, thanks for taking the question I apologize if you already hit this I hopped on late but I just wanted to.

Just talk a little bit about the token is treasury and.

Gold products that I believe you are starting you had filed already with the SEC and we're looking to launch maybe you could just give us an update on some of the initiatives there and I think remind us like how those products work and how you see the overall ecosystem evolving do you see any of the other folks out there looking to do something similar.

So.

Yeah.

I have to you can only say so much.

We filed the treasuries, which is really getting the 40 act onto the blockchain native so.

So when you think about why do investors or retail why are they so excited about crypto when they like the exposure, but theres, an ease with which you can move around the globe.

Gold tokens have the ability to really go global so right now we are a gold business, which is.

Local in Europe.

We have a I've said in the past that when you put gold done properly onto the blockchain, we have an opportunity with the wallet detour gold into currency use gold to pay for.

Where things so save and gold invest in gold transaction gold.

We're trying to offer this.

Ecosystem of digital assets or this ecosystem of this.

<unk> World more choice so that way you can stay in this ecosystem and make get interest instead of just.

Playing crypto so we see that there'll be a big evolution, we're starting with sort of the foundational exposures.

Exposures of gold in treasuries, but we're gonna be we want to be a big player in this and so I think really if im looking.

Etfs, just 30 years, almost 30 years old now I think the next 30 years, you're going to be talking about.

Regulated tokens, it's going to prove to be the new wrapper.

And we want to be really through the first through the door. So.

At the moment, that's all I can say, except that we're making progress on all of these initiatives and looking forward to actually watching the next year.

Great and maybe just a follow up question on the somatic and ETF products, maybe you could just give us a little bit of an update on some of the traction youre seeing there and what the pipeline looks like for us for bringing new products to the marketplace and in certain categories.

Jeremy do you mind.

Taking the conversation on the match. So you do have to be a little careful about talking about future products of.

Of course, so thanks, thanks, Jonathan.

<unk> for the question I had kind of said that the exciting growth organic growth rate out of Europe that 90% growth rate a lot of that is coming from the growth and fanatics.

And you look at.

It's really it wasn't something we really had as a franchise three or four years ago. I mean, it's really been et cetera. In the last few years when does that sort of blockbusters for us has been our cloud computing WC LD in the U S. We launched at September 2019, with with NASDAQ and Bessemer venture partners, but customer being the premier cloud compute.

<unk>.

Enter firm.

That fund has grown to $2 billion globally between the U S and Europe in Europe, they've had a lot of success with artificial intelligence a battery value chain.

Type type strategy sort of ESG efforts in Europe have been very strong and that's where you saw sort of carbon recently is in some ways the spirit of a somatic but commodity focused thematic.

And and.

I think we're going to continue to do more.

We're trying to do things globally. So we're going to learn from Europe, and do more things like that.

And in the U S as well, where we don't have any exposures they have.

But yeah I think this is one of the if you think about the transition of how people use etfs sectors are a big category with fanatics are a way to new sectors and a more interesting way and you've seen that with cloud and we did cyber security together. This year, that's been one of our faster ramp ups both have had.

Good first year success.

A little bit under $100 million and the combined U S and global Cyber security, we did a bio Revolution fund WGNA and the U S. That's early but we think it's got a unique value proposition I forget we're excited to do a lot more in the somatic space.

And I'll just add that.

This is really put the U S business.

And for Europe. This is really diversifying for us really gets us.

The growth the area of equities, which is.

Something that we've been trying to do more of over the last few years I am sure you had an add on question.

Yes, sorry to cut you off there I was just going to ask on a separate topic, if I could squeeze in one more just around the crypto European ETF products you guys were a little early on that and I'm. Just curious if you had any sort of update on some of the distribution initiatives I know the AUM and flows there have been a little more lackluster since you look to bring to you.

And he sort of lessons learned.

From your experience in Europe, as you think about bringing this product over to the U S.

Okay.

So you know the regulators with crypto or sort of a mixed bag. So we're talking about doing baskets. So that's a positive meaning.

How hard it is to get a bitcoin launched in the U S. So when will they get let you do ether or others. So it is very very challenging.

But I think the so there's a positive from the regulator standpoint, the market for crypto that really tends to be.

To date almost exclusively retail.

So there is a big advantage to the U S market, where you have a much bigger direct to retail set of channels.

Our our products in Europe.

Sure.

Our products in Europe have to go more through sort of institutional and wealth management channels.

And there is a an educational process and again for the institutional market is it it's not the same set of passion.

It's more about.

Education learning about.

The merits of crypto as an asset class and they are getting an entry point and then for them, it's just a 1% to 3% allocation.

But I can only say that the <unk>.

Gage weights of the institutional market has been very strong.

<unk> heightened.

The U S launches.

What I'm, hoping to see faster growth in Europe.

Great. Thanks for taking my questions.

Our next question comes from Quito, some with Northcoast.

Good morning, guys and great job on the quarter in terms of.

Overall market share for wisdom create perhaps John if you could give a little bit of color in terms of.

How his wisdom tree doing in terms of inflows comparator the verticals in which it plays in the ETF markets play a compare to the competitors.

Jeremy you want to start.

So it's really not demand.

Yes.

One of the families we've been talking about fanatics.

A growing share business talk about models, which is one of the ways. We think we can get broader more then diversifying the business. We can talk about the breadth and depth of the flows. This year. The model effort that was the Premier agent model effort is one of the ways, we're getting broader allocations and helping grow share I think one of the families.

And Gary talked about this in his remarks, but I think one of the places we have a huge opportunity perhaps one of our biggest opportunities is our efficient core family with <unk> and we've expanded that we started the year at $400 million in NTS X and now have $800 million in the family sort of doubling and that is competing for you.

Unique core data.

One of our I think our biggest opportunity sets, there and can ramp significantly from that.

And so I think we're we're in some ways.

Going after these bigger categories with BARDA sharing trying to diversify the flows with the managed models.

Jerry do you have any additional things to say there.

Yeah, the only thing I'd add is.

Market share is something that we look at very closely because there is our absolute performance, which we're thrilled with it.

It's been actually a building momentum for a couple of years now that I don't think is entirely.

We recognize so we're very happy with the absolute growth but of course, we also look at market share and it's it's.

It's very nuanced in how you look at it but you have to look at where we play. So for instance in our product development sort of approach, we're not thinking about.

Being a me too low fee beta shop.

We're looking for more innovative differentiated.

Products and I think we're doing a great job we've launched.

As we said earlier 14 really solid products. This year more to come that's even a change from the last couple of years, but in the market share, where we play and where we compete we're doing extremely well.

Great Thanks, and as a follow up there in terms of the discretionary cost obviously lower than we expected this quarter. It sounds like that's going to be the same for next quarter. I guess is that sustainable as we look out to 2022 that we have a new level of discretionary costs.

Yeah. This is Brian I think we should just payable any discussions on 2022 until next quarter, we'll have a wholesome update for you at that point.

Fair enough. Thanks.

Okay.

Our next question comes from Robert Lee with K B W.

Hi, This is Mario again, thank you for taking my follow up I actually also had a question on expenses.

But I guess.

If you could provide any color on how we might think about kind of expense growth moving forward overall, and then I know you had talked about some.

Note saving.

You expect that.

Might be able to retain knees or might they be offset by.

Increased marketing expenses going forward.

So so again.

Come on.

Yeah, I'm, sorry, I wasn't sure if I was on mute.

Remote first savings.

Should be able to retain those.

We had disclosed that the total savings.

Close the total savings we were benchmarking that against the.

Full year 2020, it's just easier to quantify that way, but if you look at our remote first savings specifically with respect to occupancy or space or at least.

Depreciation fixed assets and leasehold improvements and that kind of stuff.

We anticipate that that spend is about $3 $5 million less than what those line items were in 2020.

And when we provide that guidance, we're taking into consideration. The fact that we do anticipate getting into new space in New York, albeit at a much smaller footprint.

But that's what we would anticipate with respect to remote <unk>.

And then Margo I'm, sorry, I forgot the first part of part of your question. If you could just repeat that again.

Oh I was just asking about 2022 expenses that I will ask another quarter.

Okay.

Thank you.

Yeah.

Our next question comes from Ryan Bailey with Goldman Sachs.

Yes.

Good morning.

I'm, sorry, Paul what might perhaps be a simple question here and please correct me if my history is wrong, but I think it was industry has always been a business that's evolved.

From being an index create onto a pioneer in the ETF space in particular is smart beta.

Question is are we at the cusp of that sort of next evolution of the business and if we were to roll forward say five years, his wisdom tree and going to be a defy business that has etfs or an ETF business expiring pioneer in deep.

Or is that just completely the wrong characterization.

So.

Thanks for the question. So wisdom, she really has been a business that has evolved they started as a financial media company individual investor transitioned to Etfs.

When I saw how transformative they worked for the investing process.

D.

I would say that.

I'm sort of personally all in on <unk>, I say that because I believe it's going to meaningfully change the user experience for the positive.

From a business standpoint transform the economics of financial services. So I believe that over the next five years, we will be recognized as a <unk> business that has.

An ETF business or said a different way.

We're in the business of transparent exposures, whether we're doing it in.

Regulated tokens work through Etfs, I think they'll prove to be quite complementary now you know, we're 30 years into Etfs and the mutual fund industry mutual funds are still very very strong I'm very bullish on etfs, but when I think about it.

Wisdom tree sort of stacks in the competitive set that we were somewhat early in Etfs. We were 13 years ask your state Street seven years after high shares.

Are we sort of had the chance to be first through the door with this new wrapper. So I think.

I really see a massive opportunity I think that's what will be defined at defined ads over time of day.

<unk> company.

Got it.

Just to sort of make sure I'm thinking about this right by.

By having.

<unk> a well established.

Scaled ETF business at the moment and you kind of have the mechanism.

Or at least the.

Platform base in order to stop pioneering defy.

So one they're very complementary what are the things that got us. So excited about this sort of neck journey was how well our core business mapped to the future.

So there is.

We said that we are spending this year $4 million on digital assets.

We're taking trying to be as efficient as possible go into some of the margin questions. We're really asking a number of people to sort of.

<unk>.

We're transitioning to building a pure digital asset team and probably have maybe eight or nine people in that space now.

It's very very helpful. The expertise that we have is the third largest gold manager in the world mix, what we're going to do on gold tokens.

The same for treasuries and one of the things that defy needs and and really we're pitching this adds responsible <unk>, which means regulated <unk>.

The market needs to get things through the regulators and really it is one of our strengths.

I think the regulators review and wisdom tree in this new world as.

A trusted solutions provider and so we're really trying to work out the issues because obviously the standards can't be different in a digital asset world you need to be.

Maintain the foundational principles of regulation of know your customer and no anti money laundering disclosures and all of those things that make financial services trustworthy.

To come over to the new World order of distributed Ledger Tech and so we think we can be sort of that bridge brand that can pull this off.

Got it. Thank you that's very interesting.

Thank you.

I'm showing no further questions in queue at this time I'd like to turn the call back to Jonathan Steinberg for closing remarks.

I just wanted to thank everybody for your interest and participation on the call. We look forward to speaking to you next quarter.

Have a great day, everybody and a great weekend bye bye.

This concludes today's conference call. Thank you for participating you may now disconnect.