FactorShares, the ETF sponsor behind a quintet of leveraged
spread funds and a trio of resource-focused equity funds now in
registration, was acquired by a new white-label exchange-traded
fund company that aims to help clients bring to market just about
any sort of ETF imaginable. Terms weren't disclosed.
GencapVentures LLC-a new firm headed by former MacroMarkets
Chief Executive Sam Masucci, and involving a number of ETF industry
veterans-plans to help clients bring funds to market under the
Securities Act of 1933 and the Investment Company Act of 1940,
including both passively and actively managed '40 Act ETFs. Gencap
might even help clients launch ETNs.
At first blush, New York-based Gencap looks a lot like Oklahoma
City-based Exchange Traded Concepts or Bethesda, Md.-based
AdvisorShares in that the new firm aims to help others bring ETFs
to market, as do ETC and AdvisorShares. But the breadth of what
Gencap plans to offer may put it in a class by itself-something
Masucci stressed in a telephone interview and an email exchange
with IndexUniverse. Masucci's account was confirmed by other
individuals familiar with the matter who spoke to IndexUniverse on
condition of anonymity.
"For any investment manager that wants to get into the space and
doesn't want to spend a few million bucks and wait three years to
get involved, we're going to build the necessary infrastructure and
have it all available for them," Masucci said.
"We are building the most complete and comprehensive ETF product
and services platform," he added.
Business plans like Gencap's, ETC's and AdvisorShares' hint at
what the future of the ETF industry may look like. With nearly
1,500 U.S.-listed ETFs with almost $1.2 trillion in assets now
competing for advisors' and investors' attention, the days of
easily rolling out funds may be over. Instead, marketing funds may
now require much more strategic and logistical forethought before
launch, and firms such as Gencap are ready to provide such
That new reality may well be on the front burner given the
volatile swings in the markets and the weak and uneven economic
recovery, which has arguably caused a slowdown in ETF launches in
the past few months and probably even helped doom a number of
seemingly interesting ETFs to closure. In short, investors and fund
sponsors seem to be hunkering down in hopes the recovery becomes
Masucci said his firm will be compensated with a combination of
a flat fee for its services, and will also receive an undisclosed
ongoing stream of pay linked to expense ratios of funds it helps
bring to market.
Gencap confirmed the transaction in a press release on
Gencap will use the regulatory permission that FactorShares
already has to market both '33 Act funds and passively managed '40
Act funds. An entity related to Gencap, Active Relief LLC,
also recently filed a regulatory petition to obtain permission to
market actively managed '40 Act funds, Masucci said.
Using pre-existing "exemptive relief" makes Gencap seem
particularly similar to Exchange Traded Concepts, which rose from
the ashes of FaithShares, an ETF company that never really got much
traction marketing index funds that screened securities for various
Christian ethical and moral values.
ETC began its journey using FaithShares' exemptive relief, and
is headed by the same CEO, Garrett Stevens. One of the three funds
ETC has brought to market so far, the Yorkville High Income MLP ETF
(NYSEArca:YMLP) has gathered $44.2 million in assets, according to
data compiled by IndexUniverse. That's a sum that might constitute
a "proof of concept" for ETC's "ETF-In-A-Box solution" service.
While Exchange Traded Concepts has also applied for exemptive
relief to market active ETFs- a pocket of the ETF world
AdvisorShares is exclusively focused on-Gencap appears to
have an edge over its two competitors as it relates to '33 Act
funds and, by extension, the world of futures-based ETFs.
Futures-based ETFs are a fast-growing piece of the ETF world
that has gathered more than $106 billion, or almost 9 percent, of
all ETF assets, according to data compiled by IndexUniverse.
Futures investing owes much of its development to academic work
done by two Yale scholars, Geert Rouwenhorst and Gary Gorton, who
argued in a 2005 paper that commodities were a bona fide asset
class with returns that are negatively correlated with those of
stocks and bonds.
The ETF wrapper has helped speed that development, as the
success of securities such as the multicommodity PowerShares DB
Commodity Index Tracking Fund (NYSEArca:DBC) clearly demonstrate.
DBC has $5.89 billion in assets, according to data compiled by
More relevant to Gencap's plans, futures investing is generally
not as well understood among investors and advisors as is the world
of plain-vanilla '40 Act funds. Also, '33 Act funds involve an
extra regulatory step involving the exchanges asking for permission
from the Securities and Exchange Commission to allow a specific '33
Act fund to trade.
Apart from dealing with the SEC, Gencap is gearing up to
represent clients' needs with other regulatory bodies as well,
including the Commodity Futures Trading Commission, FINRA and the
National Futures Association.
"We are all very experienced in dealing with the various
regulatory areas," Masucci said, singling out the "19b-4"
permission that exchanges must obtain from the SEC before a fund
Fund sponsors of futures-based funds say getting 19b-4
applications approved is the most onerous regulatory hurdle at the
SEC, bar none.
An Experienced Cast Of Characters
To pull off everything Masucci says he is promising, he is
surrounding himself with a number of ETF industry veterans,
including Bob Tull, the chief operating officer at both
FactorShares and MacroMarkets, who will assume the same title at
Gencap. Tull will focus on product development.
Additionally, John Flanagan, who served as a tax consultant for
FactorShares and also as chief financial officer for MacroMarkets,
will join Gencap to head up tax-related matters, including
generating in-house "K-1" tax forms that are required for
Additionally, Mark Esposito, the CEO of Dallas-based trading
firm Esposito Global, will be part of the project as well.
Esposito's firm will be retained to perform various functions,
including fund distribution, subadvisory work on funds, index
replication on '40 Act funds and-in addition to Interactive
Brokers-even portfolio management on '33 Act futures-based funds,
MacroMarkets is now dormant, Masucci said, but he said the
capabilities the firm had in bringing to market strategies that
couldn't work in '33 Act of '40 Act wrappers-such as investments
focused on housing or, say, GDP growth-will be brought to bear if
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