- 3 weeks ago
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00:00I want to start big picture with, Brian, how long were you guys talking? How quickly did this
00:04deal come together? Yeah, I mean, if you think about what Goldman's trying to accomplish in
00:08this industry, our asset manager is really focused on solving complex problems for clients,
00:14right? We do that through our SMA, direct indexing business, our evergreen alternatives business,
00:18and our active ETF business. We've been growing our organic strategy on the active ETF side. We
00:24obviously closed the innovator transaction earlier this year. And then having a relationship and
00:28knowing the NEOS team for years throughout, we saw that as a unique opportunity as well.
00:34It fits with our culture from a client first perspective, and also with our strategy as far
00:39as solving complex needs for clients. So let's talk about NEOS. I'm going to be honest, I kind of lost
00:45track of you guys after you came out. I looked up and I'm like, they have $32 billion. This is
00:49really
00:49amazing because you came in with these option overlay ETFs. So you weren't first. So you were
00:55kind of me too-ish. The market was already there. You charged a little more, but you were able to
01:02just get assets as an indie. That is very difficult. I'm assuming that's the sort of go-getter attitude
01:09and hustle you saw in them, not just, oh, they have a couple of products, but the fact that they
01:14could pull that off. As a veteran in the ETF industry, you probably know how hard that is.
01:18Was that one of the things that you were after is the talent and hustle they had?
01:21Yeah, absolutely. Like I said, the culture, Troy's leadership, his co-founder Garrett, as well as the
01:27rest of the team there, which by the way, will be joining Goldman Sachs. We're thrilled to have that
01:32talent coming on board. They're incredible. And to your point, Eric, they've built a really phenomenal
01:37business. For me, it goes back to when you think about what investors are trying to do, they're looking
01:42for a job to be done. The job might be, I need income. The job might be, I need downside
01:48protection. The job might be markets are creeping up towards all-time highs. And so how do I start
01:53to put money to work while also have some assurances to maybe get some protection of the
01:57downside? Those are the areas where I think true innovation is happening within the ETF space.
02:02And obviously, Nios has been pioneers in that space. And to your point, investors have trusted
02:06them and their capabilities. And that's why they've grown the way that they've grown.
02:10Well, Troy, let's bring you into this conversation because your platform packages and makes
02:14available, these complex institutional level strategies for a broader, a wider audience.
02:19And you've amassed $32 billion in AUM. What can you tell us about who uses the products right
02:24now? Can you give us a breakdown of institutional versus retail investors?
02:27Sure. So what we see is usually around 20% of our shareholders are in there, are more institutional,
02:34advisor-based. But we have a huge base of direct buyers. That could be individuals buying from
02:40their individual accounts. That could be family offices. But we have this huge base of people
02:45coming directly to us and buying the products, whether they're finding us online, watching a
02:50webinar, or seeing, you know, different shows that we're on and stuff like that.
02:55Well, I think one of the reasons all the money came in is that if you compare your option overlay
03:00ETFs for the S&P and the NASDAQ 100, which are where a lot of the money is, they've really
03:05done a good
03:05job beating some of the popular products like JEPI. If you can beat the market later, usually you can make
03:10a case.
03:11What are you doing that gives that extra return? Are you basically just like less defensive and a
03:15little more aggressive and people want that extra juice because you don't want to be so defensive in
03:20a sort of rising market? So the way we look at it, we really look at ourselves as a solutions
03:25provider. So yes, we do have two larger ETFs that focus on S&P and NASDAQ, but we have 19
03:31ETFs total.
03:31We have a bunch in the alternative space, Bitcoin, Ethereum, real estate, and we really look at
03:37ourselves as a solutions provider. So when you think about those S&P or NASDAQ products,
03:41they might have great performance versus others, but it's really all about the active overlay that
03:47can manage that in different market volatility periods.
03:51So as we talked about, NEO's has these two blockbuster products, QQQI and SPYI, the high
03:58income strategy based on the S&P 500 and the NASDAQ 100. 78% of NEO's assets, Brian, are in
04:04these two
04:05funds. Do you worry that the success of these products will lead to increased fee competition
04:09in the category? I mean, it's only a matter of time before there's a Me Too, another product,
04:13another issuer coming out, doing the same thing at lower fees. Yeah. I mean, we welcome competition
04:19in the industry and it's good for investors to have that. The fact is the derivative income
04:24category has grown at north of 80% a year for the last five years. It now exceeds $170 billion.
04:31And what's really going on there is what are investors trying to achieve within their portfolios?
04:36Maybe they're moving away from a dividend strategy. Maybe they used to use bonds to get that income and
04:40they're thinking about a different way to get that application. I don't think that fee is the only
04:45deciding factor. In fact, I would suggest that in this industry, it's not often that you just pay the
04:51lowest price and that's the best. What's the outcome you're trying to achieve? And then make sure you pay
04:56a reasonable price for that. And obviously, there's a spectrum of capabilities out there. And to Troy's point
05:01earlier, providing that solution for investors, that's the key. So this is your second acquisition.
05:07You acquired Innovator, I don't know, about a year ago. Now you acquired Neos for 18 times multiple
05:14on earnings fee revenue. That's double what you paid for Innovator. And I'm just curious how that
05:19negotiation went. Sounds like you held your ground. What was that like between, you know,
05:25when Goldman calls, gives you an offer? How does that work out? Like how long does negotiation take?
05:31Um, there's a lot of phone calls. There's a lot of meetings between, uh, you know, the partners at
05:36Neos and Brian and his team. But I think when we met Goldman, we really saw a firm that had
05:41the same
05:42vision as, as, as we do. Um, and they are a solutions provider and providing these solutions
05:46under the same umbrella makes a lot of sense to us. Right now, you're going to market these
05:51separately, right? They will still be under the Neos branding, right? So, so a couple of, a couple of
05:55things. So first of all, we closed the Innovator deal on April of this year. So we announced
05:59it late last year, but that's still relatively new and continuing to grow. In fact, when we announced
06:03that it was at $28 billion, they've exceeded $36 billion in assets at this point. As far as the
06:08multiples, I'm not quite sure the math that we're doing there, but I don't think that's exactly on
06:13point for where we're specifically at. What we really want to focus on is, um, both the Innovator
06:18brand and the Neos brand have followings. They've established their presence in the marketplace.
06:23And the idea is for Goldman to kind of support that, provide the foundation, but for them to be
06:28this special kind of thing that they've built with their clients and what they're trying to
06:32accomplish. And so we're now in a, in a, in a period where, um, there needs to be a proxy,
06:37um,
06:37on the Neos, um, transaction. Um, we hope that that goes through. We'd encourage shareholders to,
06:42uh, to kind of vote their shares on that one. And then once we have that, then we'll move forward
06:46as far as how we want to, um, deal with the brands and all that sort of stuff. But again,
06:49the point
06:50being, we respect the team that they built, the culture, the relationship that we've established
06:54over these, uh, these, these many months of, uh, of discussions and we continue to, uh, think that
06:59that'll be going forward. Yeah. But in ETF years, it's like two years. So we had to change your time
07:04dimension when you go into ETF. But you know, it's a small world. We all know each other. We've been
07:08sitting on panels with you at conferences for years. So, and, and speaking of that, I remember,
07:13I'm old enough to remember when Goldman launched GSLC. This is a multi-factor smart beta ETF at nine
07:19basis points. I think back in 2013 and boom, it became a huge hit. It was like, oh my God,
07:24Goldman really came in. Goldman active for Vanguard fees. It was a big hit and they started to get
07:30assets and then boom, like a, on a dime, they just seem to stop caring. And here comes JP Morgan
07:36just starts to pass them and other firms, but mainly JP Morgan. You were there leading that way.
07:43Goldman just went quiet for like five or six years. Is this part, this acquisition strategy,
07:48because you kind of like lost time and you've got to make up for that lost time to get back
07:53on the
07:53sort of like leaderboard and, and, you know, within shouting distance of JP Morgan?
07:57Lost time implies that there's an end to this game. What we're focused on is, is serving our
08:02clients. We've seen the industry evolve quite a bit when GSLC came out that, you know,
08:07that continues to be our flagship quant capabilities delivered at an unbelievably attractive kind of
08:12price point for that strategy. But the industry's evolved active now, a big part of what's
08:17happening. You know, the active industry is accomplishing substantial percent of the overall
08:22flows. And so to have these things, like we said earlier, the differentiated solutions that we can
08:28provide to investors, that's our strategy. We make sure that culture lines up with what we're doing,
08:33the products line up with what we're doing. And we feel really good about where we're positioning
08:36ourselves with derivative income category, the derivative income category. We feel like we have one of the
08:41most complete income ranges in the industry. And of course, the defined outcome category with the
08:48innovator capability and our flagship active capabilities, which we've continued to launch.
08:52Our organic strategy is right on schedule as well. So we're, we're continuing to work hard to serve
08:58clients in that way.
08:59Eric, you mentioned about crypto earlier with Bitcoin. There's a crypto linked option here too,
09:03right?
09:03Yeah, they have a couple sort of covered call Bitcoin ETFs in here, including one that has a billion
09:08dollars. By the way, I was like, what? It yields like what? 25% ish. And this is like Bitcoin
09:13for
09:13like boomers, right? It's like training wheels where you get, you give up a little upside, but you get a
09:18little more yield. And so I assume that's who's buying this, but is that part of why you didn't
09:23launch your Bitcoin premium? Because Goldman filed for one. Now you're going to scrap that and just use
09:27theirs.
09:28Maybe Troy.
09:29Yeah.
09:29Yeah. I'll say for BTCI, for our Bitcoin product, I think it reaches more than just boomers. We talk to
09:34a
09:34lot of people that are just starting their investing life cycle and investing in products
09:39like this. And it gives them a different way to harness the volatility of Bitcoin and earn some
09:43income while they're doing that and potentially capture some of the upside. So for us, it's been
09:48a great product. We've seen great flows into it. So we're very excited about BTCI.
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