The last time ETF Express talked to Laton Spahr, president of SS&C ALPS Advisors, the firm had recently launched its first semi-transparent ETF, the ALPS Active REIT ETF, achieving a number of firsts as the first semi-transparent ETF listed by Nasdaq, and the first ETF to use Blue Tractor’s Shielded Alpha ETF wrapper.
“The Blue Tractor technology has worked really well, even as we have seen more volatility in the markets,” Spahr says. “All the pricing and the spreads that people were curious about have worked really well and our authorised participants are satisfied with what they can see, and the portfolio managers are satisfied with what the market cannot see – which is the most important victory.”
Subsequent ETF launches for SS&C Alps have included active value with HVAL and thematic with JRNY but the latest products to dominate the team at SS&C Alps are a pilot programme which will list an alternatives asset allocation model.
“We have spent the last 12 months building new modalities for us to put into the asset allocation models,” Spahr says, explaining that this will be the first alternatives allocation model with an RIA on some of the big custody platforms.
“It’s coming against the background of volatility and higher interest rates,” Spahr explains. “This means that advisers are looking to alternatives for diversification. The innovative element here is that it will bundle private funds, mutual funds and interval funds in the same model with an eye to alternative strategies that have a low correlation with US equities.”
Alternatives in this context are non-listed securities and include hedge funds and private equity funds. The end of this first quarter should see an announcement on the first client in, drawn from the RIA community.
“I think its classic to what we are able to do within SS&C,” Spahr says. “When I joined we were a silo, sponsoring ETFs and mutual funds and a few closed end funds and what has transpired as we look around the organisation is that we have these great infrastructure relationships with the biggest hedge funds in the world, the biggest mutual funds in the world and the greatest ETF issuers in the world and as they innovate we are able to meet them where they are at with the SS&C technology and look at it through the eyes of an investment manager.
“It sounds simple, but it is a change in perspective – we are looking at it from a lateral view and then we can innovate.”
Spahr says there are lots of ways forward, but the integration of alternatives and private assets held in less liquid assets and finding ways to blend those with public liquid wrappers has presented a technology problem.
“The more we can automate it, the more it can function like a public wrapper and once it’s similar in the subscription/redemption speed – once they are moving, you can integrate the gears. Before it was a machine that couldn’t synchronise.”
Spahr describes the process as more of an engineering problem than a physics problem and that there is still work to be done. “We are also able to do it at a price to the client that is disruptive because alternatives have been expensive for ever. Anything illiquid or in short supply has pricing power.”
The new product has to work within foreign master feeder structures, has to incorporate the specialised administrative systems behind alternatives and have a low correlation with public equity markets. “In the ‘90s, mutual funds were esoteric, then they weren’t and for the vast majority alternatives was a ‘do not admit’ word but someday it might be for everyone.”
Spahr says that the development of this new product comes from a reassessment of what type of assets should be included, from the perspective of what the next decade will look like.
“One of the joys of this new job for me managing an entire asset manager is that there is lots of innovation necessary to improve individual outcomes for clients,” he says, noting that in SS&C’s latest reported earnings Alps was one of the faster growing pieces. “We are optimistic that we can continue to contribute over 2022.
“One thing that is important to me is that it is a collaborative effort around SS&C as we found people and entities in SS&C that unlock creative new ideas.”