KraneShares, the new ETF firm focused exclusively on China,
thinks it can muscle its way into U.S. investors' consciousness
in the coming years. Brendan Ahern, the New York-based executive
spearheading the company's U.S. marketing efforts, stressed that
the firm's physical presence in China gives it a unique
perspective on communicating the Chinese story.
It has seven
in registration at the SEC, including a few that look quite
interesting:a "dim sum" bond fund that will own bonds with all
kinds of ratings; and an equities fund that's organized around
China's much-talked-about "Five-Year Plan"-the latter a quirky
product that's akin to putting a capitalist wrapper around one of
the lasting vestiges of Chinese socialism.
Ahern, given regulatory constraints, wasn't able to shed much
light on the outlook for the upcoming products when he spoke
recently with IndexUniverse.com Managing Editor Olly Ludwig, but
this much is clear:Investors won't have to wait too much longer.
Judging by the prospectus, the KraneShares CSI China Five Year
Plan ETF should be live by early July.
Paint the picture in broad brush strokes of what
KraneShares is all about, because it seems a bit audacious that
you think you can muscle into the world of big ETFs like the
iShares FTSE China 25 Index Fund (NYSEArca:FXI) and the SPDR
S&P China ETF (NYSEArca:GXC).
Our mission and vision is that we are a company that believes in
China. We're looking to promote the Chinese economy, capital
markets, companies and their goals to U.S. investors. Secondarily,
we're focused on delivering Chinese investment opportunities to
U.S. investors. And lastly, we're very much focused on educating
the U.S. investor, not only about just the capital markets, but
really about China and its great, robust culture, the people and
Let's talk asset classes for a minute. You've filed
mostly for equity funds and one bond fund. How wide of a net are
you going to be casting here? Would you go into commodities and
try to focus on futures listed on different exchanges than what
we've seen so far in the ETF industry? How do you differentiate
I think a big aspect is including the voice of the client in
everything we do, and that we see demand for China that can be both
direct and indirect, as well as the potential for multi-asset-class
One of the funds that caught our eye here at
IndexUniverse in your filings so far was the "Five Year Plan"
ETF. What is it about the Five-Year Plan that's compelling? Why
should we care about it?
I don't think I can answer that-we really can't touch on anything
in and around the filings.
Fair enough. And if I ask you if that Five Year Plan ETF
should be thought of as a sector play or a broad China play for
core holdings, you might not be able to answer that
That's right. I can't talk about that either.
Let's pull back for a little more 30,000-foot
perspective:Talk for a moment about your founder and CEO. Where
did he get the audacity to carry this off?
Our founder, Jon A. Krane, actually lived in China for a number of
years. I think for anybody who travels to China, you see the
tremendous growth that's taking place and the strong desire of the
people to grow their nation and their economy. It becomes
infectious. After he returned to the U.S., he wanted to bring that
opportunity set to U.S. investors. That led to the establishment of
You're not the first:There's iShares with FXI; Guggenheim
with its AlphaShares indexes designed by Burton Malkiel; and GXC
from State Street, perhaps one of the most inviting securities
covering that space. So how do you make the case? Yes, your boss
has this great perspective on China. But why should investors
listen to him when there are already all these other products out
Remember, we do have an office in Beijing. A lot of what's spoken
about China is coming from people based in the U.S. Several
weekends ago, Barron's had a big article on emerging markets, and
all of the ways to play that were from U.S. firms.
We, on the other hand, like the idea of bringing that local
voice, those boots on the ground, taking what they're seeing and
translating that into products for U.S. investors. So we just think
we have a very different orientation. We're certainly leveraging
our Beijing office and the relationships we have on the
A lot of these China sector funds, for whatever reason,
haven't really caught on with investors in the States. The only
one that's actually somewhat successful is probably CHIQ. Going
forward, how are you planning on educating U.S. investors? How
will you change your pitch regarding getting people to consider
that there are more viable ways to play China?
The lack of success in the sector products that are out there today
just shows the lack of focus. When people have questions on China,
we want to be that expert, we want to be that valued counsel to
share with them what the people in China are actually
saying-providing that boots-on-the-ground perspective.
Now, aside from the many people who make the bullish case
for China, such as Jim Rogers and Burt Malkiel, there are some
who are profoundly skeptical. I'm thinking of people like Jim
Chanos. I'm not trying to speak for him here, but I could quickly
cook up a lot of reasons why I wouldn't touch China with a
10-foot pole, e.g., the place has endemic corruption; there's a
massive pollution problem; they've got a water-shortage issue
like probably no one else on the planet; people talk about the
empty cities; trains to nowhere. How do you field these kinds of
objections? It seems it's not too hard to start thinking, "Wow,
maybe I shouldn't be so bullish." Maybe you don't want to avoid
China entirely, but you don't necessarily want to go all-in,
Our belief is that U.S. investors are under-allocated to the
second-largest economy in the world.
Is this a float-adjustment issue you're alluding to, or
I think it's that there just hasn't been a true voice providing
that education on the capital markets. A lot of what's in the
media, on a daily basis, is a misperception that we look to provide
a countervailing voice to. For example, look at the recent GDP
growth numbers that came out. It was only 7.7 percent, and all
these articles that are being written are saying, "Oh, what a
In mid-March of last year, the government said, "We're going to
be targeting 7.5 percent GDP growth." So, should people be
surprised by the economic number that was released? No. It just
shows a lack of focus on educating U.S. investors and that, if
anything, emboldens us to the opportunity we have to work with U.S.
investors in raising their awareness.
IU.com:One of the things we noticed right away in the
registration statement was the indexing firm. CSI is a company
that has boots on the ground, right? It's a China-based firm,
right? Might you be able to comment a little bit on
Unfortunately, that's one of the subjects I can't speak to.
On a personal level, what's your role in this whole
boots-on-the-ground initiative that's now gathering
I'm heading up the U.S. side of our efforts. I've joined from being
with a leading provider of ETFs, where I've spent over 12 years. My
entire professional life has been around exchange-traded funds.
How audacious is KraneShares' audaciousness? Do you want
people to be thinking "KraneShares" when they think about China
in five or 10 years from now?
Without question we do. KraneShares isn't well known today, but we
think we can change that very quickly.
I was just reading an article that mentioned nine out of 10
Americans cannot name a single Chinese company. These are some of
the biggest companies in the world. And when people do talk about
Chinese companies, how many of those are in a negative light? The
So, we'll be providing a very different voice than what's now in
the media, helping to educate people. And I know that given the
nature of a lot of organizations, they don't have the singular
focus that we hope to provide.
Permalink | 'copy; Copyright 2009 IndexUniverse LLC. All rights
Don't forget to check IndexUniverse.com's ETF Data
2013 IndexUniverse LLC
. All Rights Reserved.