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Cathie Wood’s Ark Invest has acquired a London-based exchange traded fund company in its first big push into Europe, as the Wall Street investor battles persistent outflows from her stable of US funds.
Ark, which manages some $25bn in assets through Ark Investment Management, has bought Rize ETF, which manages more than $450mn across 11 European funds designed around themes including the future of food, cyber security, environmental impact and cannabis.
The deal brings Wood into partnership with Martin Gilbert, a veteran dealmaker and former chair of Aberdeen Standard Investments, whose company AssetCo previously owned Rize. AssetCo’s active equity asset management arm subsidiary, River and Mercantile, will launch its own ETFs on Rize’s platform.
Wood said the investment group was betting on rising demand from European investors for thematic ETFs — a nascent market compared with the US. According to data from provider ETFGI at the end of July, assets in US ETFs amounted to $7.6tn, compared with $1.7tn in Europe.
Wood told the Financial Times on Wednesday that a quarter of subscriptions to the company’s research came from Europe. “The top question we have [received] from investors is ‘why can’t we access your strategies in Europe’,” she said.
“Active equity ETFs [in Europe] are really just now starting to roll out,” she added.
The acquisition, announced on Tuesday night, also marks a push into a new region as the company navigates a stark downturn in its US portfolio as a result of rising interest rates and inflation.
Wood, one of Wall Street’s best known investors, is known for her punchy bets on fast-growing companies in sectors from robotics to space exploration. Ark’s $8bn Innovation ETF, its most popular product, has delivered annualised returns of 10.8 per cent since it was launched in 2014.
But performance has soured since the start of 2021, as valuations for many technology stocks have been hit by increases in US interest rates.
Kenneth Lamont, senior fund analyst for passive strategies at Morningstar, noted that all but one of Ark’s US-domiciled ETFs have suffered net outflows this year, collectively losing $689mn, according to data provider ETFGI.
Rize has attracted inflows of $29.6mn so far this year after gathering $47.9mn in 2022, according to ETFGI. However only its Cybersecurity Data Privacy ETF and Future of Food ETFs currently hold assets of more than €100mn.
Wood expects to launch a range of active Ark funds in Europe by the end of the year.
Rize, which will be renamed Ark Invest Europe, was founded in 2019. Gilbert’s AssetCo business acquired a 63 per cent majority stake in Rize for £16.5mn in 2021 and later invested a further £5.25mn.
However, AssetCo wrote down the value of Rize this year, saying the business remained “materially behind plan”. Although there was potential in the business, it was emerging “later and slower” than initially hoped, the company said.
AssetCo’s decision to sell Rize in little more than two years since it acquired the business underlines the difficulty facing smaller boutiques trying to establish a European presence, where inflows are dominated by large global players like BlackRock, Amundi and DWS.
Ark paid AssetCo £2.6mn upfront for its 70 per cent stake in Rize, and has agreed to a deferred payment of £2.6mn and an earn-out provision capped at £5.2mn over five years.
Gilbert told the FT there was “huge logic” for the deal which maintains River and Mercantile’s access to the platform. “It is a win-win for both sides,” he said.
The deal will be Ark’s first real push into Europe, and comes after Swedish broker Avanza launched a mutual fund for local investors managed by Ark Investment Management earlier this year.
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