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Natixis plans active non-transparent ETF launch

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The US awaits the first launch of a semi or non-transparent ETF and one of the firms working on getting its product off the drawing board is investment giant and active fund manager Natixis Investment Managers, with USD1 trillion in assets.

The US awaits the first launch of a semi or non-transparent ETF and one of the firms working on getting its product off the drawing board is investment giant and active fund manager Natixis Investment Managers, with USD1 trillion in assets.

Natixis was the first asset management firm to licence the offering from the NYSE.

“We are a multi-affiliate fund manager, buying other asset management companies and telling our story through central distribution to the US, Europe and Asia,” says Nick Elward, SVP, Head of Institutional Product and ETFs.

Natixis is headquartered in Boston and Paris and has some 4,000 employees. It is known for its active management style, in equities, fixed income or alternatives and it launched an ETF business in 2016, with the Natixis Seeyond International Minimum Volatility ETF (MVIN) launched in 2016 and the Natixis Loomis Sayles Short Duration Income ETF (LSST) launched in 2017.

However, it remains somewhat uncomfortable with using active managers in the transparent ETF structure. “Not many of our active managers are comfortable with disclosing their holdings daily because someone might front run their positions,” Elward explains.

“These ETFs [MVIN and LSST] were our first foray but we knew that active transparent was not enough so our goals are now fixed on active non transparent.”

Until the arrival of the semi or non-transparent ETF at the end of last year, the rules on ETFs dictated that an ETF portfolio had to be revealed to the market by 9.30 AM ET every trading day, thereby allowing the market makers to set their books in order. 

The new structures come in two different guises: the proxy account approach, such as that offered by the NYSE and licensed by Natixis, which allows for part of the portfolio to be disclosed, or the structure offered by Precidian (partly owned by Legg Mason, which last week was bought by Franklin Templeton) which allows live NAV calculations. 

The idea with the second structure is that it will help market makers create their own models, without revealing the underlying portfolio. Precidian is widely predicted to be the first to launch with the new structure.

The proxy approach from Natixis would mean that they would reveal a proxy portfolio which contains some of the stocks that they own, while others would be proxies for what is in the portfolio, chosen to allow market makers to understand how that portfolio might move that day.

Filing for the launch of this product happened in December and the SEC has up to 240 days to respond so a Natixis launch may not happen until the second half of the year.

“We strongly believe in active management,” Elward says. “And we have many portfolio management teams that can provide alpha to investors but, in order to provide more choice, our portfolio managers shouldn’t be restricted to only offering mutual funds and separately managed accounts.”

Elward says that many investors really like ETFs, and their rise has been a global trend. “The ETF vehicle type has grown pretty dramatically over the last couple of years.”

In their quest to find a non-transparent or semi-transparent option for their ETF launches, Natixis did due diligence on all the IP providers who were in market.

“We liked the NYSE’s approach as the best for providing transparency where we can and being non transparent where we have to be,” Elward says. “The NYSE has a simple approach and we also liked the fact that the NYSE is at the heart of a lot of the ETF ecosystem.”

Natixis and the NYSE are joining forces to provide a great deal of education to US professional investors, describing how the new structure will work.

Elward noted, “Through active non-transparent ETFs, if we can successfully offer our investors alpha at the investment level and a form of alpha at the vehicle level – tax efficiency, lower cost, less cash drag – those are two really valuable propositions that together can help a lot of investors live better financial lives.”

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