How Did You Get Into the ETF Industry?
Nik Bienkowski: I was born in Tanzania, have an Australian accent, a Polish father and a Canadian passport. My intention was to move to Canada and join an investment bank after getting my CFA and then to end up in New York. I moved to Canada in 1999 (where I met my wife), got offered four jobs, getting starry-eyed when Macquarie Bank offered me a position working in Mining M&A. In 2002 I ended up moving to Australia and through University connections, I was introduced to Graham Tuckwell and we worked together on the launch of the world’s first Gold ETF with World Gold Council. So, I wanted to be in New York at an investment bank, but sometimes life doesn’t go to plan!
Hector McNeil: I skirted around the periphery of ETFs when I was COO at Jiway Holdings, a start-up stock exchange which was a joint venture between OM Group, now part of the Nasdaq group, and Morgan Stanley. We considered adding ETFs to the platform in the late 1990s and early 2000s when ETFs were very early on in Europe. We decided against it, which was probably a big mistake.
I then moved to run business development for Susquehanna International for four years and I helped establish their market making offering. The big thing we did, which was ground breaking for the ETF market generally, was we agreed a landmark deal with iShares, the first of its type, to provide a contractual market making for them. Previously their market spreads were wide and not competitive but under the model we created, a first of its kind, we were able to be much more competitive.
From there I joined ETF Securities as a founder and owner. I was the third person there after Nik. We owned approximately 10% each and we took assets from start-up levels to around $26-27 billion when we left. In 2009-2010 it was the fastest growing asset manager globally and Top 10 in absolute AUM terms.
That year we recovered from the financial crisis and added Japan and US listings. Nik who is the ‘N’ in HAN is one of my closest friends and all our ETF success have been pretty much a joint effort & we make an almost unstoppable team.
At what point did you realise this was going to be a huge market and it was a long-term career?
NB: We could always see the potential of the ETF market. It was probably in the early 2000s when we could see this was going to be a massive industry – we weren’t sure it would be $5 trillion and growing but could see it would be significant & exciting to be involved in.
Even when we joined ETF Securities, none of us really thought it would be above $1bn, let alone $25bn, and a global business. It was a bit of luck and a bit of timing, but we worked ridiculously hard also made good decisions. Working with the majority owner Graham Tuckwell and my co-Managing Partner Hector was a privilege and massively rewarding. We did some great things together and created something of real value. We also recruited and developed a great team and many of them are now in senior positions scattered across the global ETF industry.
What was it about your work ethic or the firm itself that made it successful?
HM: When Nik and I got to ETF Securities there were only a handful of us in two small rooms and no clients or investors knew what gold ETCs or even what ETFs were, and certainly no one knew ETF Securities so we were starting from a standing start.
We invented gold ETFs which was pretty game changing, and that was quickly followed by oil, platinum, palladium, coinciding with the boom in commodities around the mid-2000s. So, it was the right product at the right time, but to be successful execution needed to be done well too. We were the only meaningful start-up in Europe in ETFs: everyone else was/is a large bank or asset manager – we were nimble and could do things differently.
Gold was around $250 an ounce when the first Gold ETF was listed and was in the doldrums for a long time, but then Gold rose over the years to $1300 which helped generate huge interest in the product. It was a great time to develop a product that people could use to hold physical gold in a safe and efficient manner and traded the same as an equity and could be held brokerage accounts.
There was a time when our gold holdings were the equivalent of one the largest central bank positions, we referred to it as ‘the people’s central bank’!
After a lot of success fairly early on & lucrative exits, how do you stay motivated?
HM: You’ve got to keep yourself busy, following lucrative exits at ETF Secs & Boost/WisdomTree Europe we had to think about what to do next and what investments to make and when you look around at things to invest in we couldn’t see a better opportunity than the ETF market – it is growing at such a fast rate, the valuations for ETF businesses are extremely high, and personally we both loved the industry and wanted to stay involved at the centre of it. Therefore it made sense for us both to go at it again.
From our perspective, HANetf is the one ETF business we want to keep for a long time, hopefully until retirement age (15+ years).
Ultimately, ETF issuers are incredibly exciting and interesting. As an industry we are only scratching the surface – the wrapper provides a better technology than mutual funds, and will replace them over time. We’ve won the passive battle, but there are still many others to go, like in the thematic, active and smart beta spaces. We can push the envelope there like we did with gold, commodities, ETFX (Canvas) and short & leveraged..
What have you learnt about success?
NB: You have to be prepared, if you are going to be successful, be patient. If you think you can launch an ETF and it will be an overnight success and gain lots of assets fast you may be disappointed. If it was that easy, lots more people would do it- entrepreneurs, asset managers and so on. But if you have a strategy and you believe in the products – and you have to believe in the products – then you are creating conditions where you can achieve big things. Of course, success needs to happen outside of work as well and taking time to get a balance between family, sports and building businesses is a skill that takes time to learn.
HM: The only things you can control, in this business, is working hard and smart. You can’t do anything about luck, market timing or geopolitics.
Staff are key. I’ve always looked for people who have got a good get-up-and-go attitude. They want to learn – they don’t just believe in HAN but also in the broader industry. I work with people I can teach something to – I sometimes say I’m giving them a real-time MBA because it’s not very often you can work in an industry and see a business go from its early stages to the growth stage to the scale stage and exit and leave a very visible legacy. When I go to events now, I see people who I brought into the industry and they are my alumni in a way, as it’s not a very big industry.
What has been your most challenging moment so far?
NB: Starting any new business is always challenging, but also exciting. However, the most challenging moment was during the financial crisis at ETFSecs, when we had billions of dollars of unsecured swaps with AIG which only collateralised if AIG debt went to junk rating & they were only ever going to be AA- or gone – no journey in between.
Ironically at the time we had also had the most secure products in the world which people flocked to – physical metals in a vault that were unaffected by the meltdown – but we also had futures tracking commodity products like oil and broad commodity indices, which are backed by swaps. AIG was at the heart of the financial storm – we joke now that the AIG share price during that period was the same as my ECG – and we felt we were two mins from going under. Our crisis management made the company. The way we managed it was extremely well received as we communicated daily with clients by conference call until resolved and it made the company, as the next year we were one of the fastest growing asset managers in the world.
And what was the most positive moment?
HM: There are so many of them, but probably the first billion at ETF Securities, and at Boost/WidsomTree – and listing the first products when you launch a new company is always exciting. We’ve created over 500 ETPs and ETFs together so there have been a lot of great experiences, including listings in Australia, Tokyo, Mexico and the NYSE and of course Europe. It’s also been good to think about exiting those businesses, growing something from nothing and getting paid good cash to sell the shares!
Since you mentioned retirement, do you think you’ll ever stop working?
HM: It would be nice to have a better work/life balance. I’ve got three teenage kids, and I own a rugby league club – the London Skolars, which is a semi professional team which plays in the 3rd tier of the game in the UK.
I always admire the guys at Flow Traders: they built a great company, exited gradually, listing their business, remaining significant shareholders and on the board, but gradually working their way out, hiring great people to do their roles, going in a couple days a week. I would like to replicate that.
Businesses go through distinct phases: you hire people, launch products, the revenue starts, then grows, you get to profitability and eventually you reach a steady state – that’s when you start thinking about your role. My skills are in getting things going. My challenge is to get this business to a steady state and see it fly. We feel we sold out of our earlier companies too early, too cheap – you only know you’ve sold a share too cheaply with hindsight. But don’t get me wrong, they weren’t bad decisions, but we learn along the way. I also feel we couldn’t have done HANetf without those experiences and battle scars.
What trends do you foresee in the ETF industry?
NB: ETFs are only going to grow further – as an industry we have the potential to get much, much bigger. Over time ETFs are going to take more and more market share from mutual funds as the power of ETFs to deliver investment ideas is better understood.
I see more stock exchanges getting involved in ETFs – especially in emerging markets. These exchanges all want greater publicity and market access and ETFs are a great way to do this – both establishing their own ETF market segments, and also launching ETFs in Europe that track their main indices. We recently did something very similar with Kuwait – bringing the first pure-play Kuwait ETF to Europe and listing it on 3 exchanges.
As the market grows and moves away from market cap we’ll see more thematic, active and more companies joining the ETF party, but will have to be more specialized and offer something different – whether it be smart beta, thematic, active or new asset classes. That’s where asset managers who specialize in a specific asset class, region or strategy will have an advantage and will bring their strategies to market as ETFs.
Broadly speaking, ETFs fit very well into the culture of instant gratification, immediacy and digitisation – they are quick and easy to trade and because they are transparent and liquid, can be used to build portfolios in ways that simply can’t be achieved with mutual funds. This is why the new generation of investment distributions (Robo Advisors, model portfolio providers, and micro-investing services) are all using ETFs. Cultural and social change is as important in creating growth in ETFs as the products and infrastructure.
HM: I think the European ETF market will be big if not bigger than the US. It will take three to five years to get similar momentum, but it will be at least as big. Europe has at least 1.5 times the population of the US and the same wealth demographic. It makes perfect sense.
I also think the ETF wrapper will take over the mutual fund wrapper as it’s a better technology, the same as has happened with mobile phones versus landlines, electric versus diesel cars and so on.
The next stage for me in product terms is probably active (transparent & non-transparent),niche, smart beta and thematic ETFs. We have a few of all of them in the pipeline. Active ETFs have only about $100 billion in assets and from a consumer perspective they want to have choice & access to all investment options and will demand these ETFs for their portfolios. Every sort of payout strategy available, they will want it in ETFs.