New ETF platform aims at institutions and hedge funds

Tema ETFs' roster of ETFs, due to list later this month on the New York Stock Exchange, is scheduled to include several little-tapped themes including the first U.S. ETF targeting luxury goods, as well as funds focused on reshoring, regulated monopolies and alternative asset managers. Fees will be around 70 basis points.Bet_Noire/iStockPhoto / Getty Images

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A host of big-name finance industry figures are backing a new exchange-traded fund (ETF) platform, Tema ETFs, that aims to help hedge fund managers create ETF versions of their vehicles. Tema, which also received funding from three venture capital (VC) groups, also plans to launch an in-house range of “institutional-grade” actively managed thematic ETFs.

Tema has financial backing from luminaries including Martin Gilbert, the former chief executive of Aberdeen Asset Management, now known as Abrdn PLC; Michael Spencer, founder of interdealer broker ICAP Global Broking Holdings Ltd.; Jonathan Rubinstein, former co-chief executive of Bridgewater Associates LP, the world’s largest hedge fund manager, and now a director of Amazon.com Inc. and Robinhood Markets Inc.; and Jane Gladstone, formerly of Evercore Inc.

The New York-headquartered company says it also has financing from VC groups Index Ventures, Accel and Zinal Growth Partners Ltd. Although it declined to disclose the scale of the funding, Tema said it was the largest early-stage VC investment in an ETF platform.

Although thematic ETFs have mushroomed in recent years, the vast majority have been passive and aimed predominantly at retail investors.

“Thematic ETF investing to date has primarily focused on simply providing access. We believe the next phase for thematic ETFs will focus on the quality of access,” says Maurits Pot, founder and chief executive officer of Tema.

He argues that the in-house ETFs would be “institutional-grade” because of their focus on risk management.

“Active management starts with risk management, the nexus being capital preservation before capital risking. Thematics is mostly a risk-on trade, yet most thematic ETFs don’t emphasize any focus on risk management,” Mr. Pot says.

“Tema intentionally avoids crowded spaces and themes such as income, digital assets, consumer, tech and cannabis,” he adds.

Its roster of ETFs, due to list later this month on the New York Stock Exchange, is scheduled to include several little-tapped themes including the first U.S. ETF targeting luxury goods, as well as funds focused on reshoring, regulated monopolies and alternative asset managers. Fees will be around 70 basis points.

Mr. Pot says the regulated monopolies ETF would be similar to Chris Hohn’s Children’s Investment Fund Foundation, a high-profile hedge fund that seeks out “high-quality companies with sustainable competitive advantages.”

It is likely to target companies in sectors such as credit-rating agencies, utilities and technology, as well as aerospace and U.S. stock exchanges, both of which Mr. Pot described as “duopolies.”

When it comes to luxury goods companies, “half of them have not made money in the past five years, the others have made loads,” Mr. Pot says – to him an argument in favour of active management.

The second leg of Tema’s planned rollout involves developing infrastructure to help hedge fund managers enter the ETF market in order to “democratize access to private assets.”

Mr. Pot says Tema had already held talks with three high-profile hedge funds, although the inherent liquidity of ETFs meant they would only be suitable for strategies based on public equity and debt.

“Hedge fund managers are not interested in building the infrastructure for themselves. They don’t want to worry about compliance, regulation, and marketing,” Mr. Pot says.

Active ETFs are gradually carving out a niche in the traditionally passive ETF world. Globally, they held US$523-billion at the end of February, according to data from ETFGI LLP, a consultancy.

While this was just 5.4 per cent of the industry’s overall tally of US$9.6-trillion, it was twice the market share as of the end of 2019, when active ETFs held US$161-billion, helped by the number of active ETFs rising by a record 414 last year.

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