Closely-tracked ETF manager Ark Invest, led by star US fund manager Cathie Wood, has moved to buy Rize ETF, a London-based white label ETF platform. The deal, which industry insiders have known has been in the pipeline for a good six months, represents a big change of direction for Ark, which has been battling against redemptions from its once popular ETF products.
It is a major event for Rize ETF, of course, which was carving out a space in the competitive European ETF distribution market. Rize ETF operates on a third party ETF platform basis, working with various fund managers to get their ETF products out into the European market.
Rize ETF has 11 funds on its platform
Currently Rize ETF has 11 funds on its platform, mostly following strong thematic stories. It was previously owned by AssetCo, founded by Martin Gilbert, who was the former chair of Aberdeen Standard Investments. AssetCo is known to be looking at Rize ETF for the launch of ETFs under its River and Mercantile active fund management brand.
Many industry forecasters have been predicting an increase in engagement with ETFs by investors in Europe, which has continued to trail behind the larger and more sophisticated US market.
While there has been some participation in the ETF market on the part of large institutions, the industry has continued to encounter problems in getting retail investors to adopt ETFs more widely in their portfolios.
Currently ETF assets in the US outnumber those in Europe by a factor of around 7-1. Hopes are now being pinned on the rise of so-called active ETFs, which would allow active fund managers to launch funds as listed ETF products. This is an option being explored by many US fund managers.
A launch pad for European ETFs
The acquisition of Rize ETF also provides Ark with its own valuable launch pad for European ETFs. Rize ETF is to be renamed Ark Invest Europe. Gilbert’s AssetCo bought 63% in the company in 2021 for £16.5m. Since then it has said that Rize ETF was “materially behind plan” and that the entire business was not developing fast enough.
Rize ETF’s largest ETF is currently the Rize Sustainable Future of Food UCITS, with £171.4m in AuM. Rize Cybersecurity and Data Privacy comes second at £113m in AuM. All of the ETFs on the Rize ETF platform meet with EU regulator’s Article 8 or Article 9 sustainability requirements, which is not easy to procure.
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Ark Invest diversifying
Ark Invest looks to be diversifying at a time when its popular US-listed ETF products are suffering outflows. This has been caused by rising interest rates in the US which are making bond bets more attractive for big investors. Ark Invest will be competing in a European market which continues to be dominated heavily by the big names in the business like Amundi and DWS, and where very low fees have been the order of the day.
Wood said she believed that the European ETF market would present Ark Invest with a strong growth opportunity as it seeks to target newer and younger investors in the region with lower cost investment products. Stuart Forbes, co-founder of Rize ETF, called the deal “a collaborative exchange of global asset management best practices, insights and tactics.”
The acquisition deal for Rize ETF includes an earn out provision which has been capped at £5.25m. This will operate over five years.
