Okner trillions.
I'm Joe Webber and I'm Eric Belchernas.
Eric, I'm really excited about today's episode, but you're probably even more excited about it.
Yeah, because I have been writing about this topic for like the past month heavily.
And would you want to tell us what that your topic is?
Ever since SpaceX became like, you know, potential IPO biggest ever probably, there's been this really intense interest in okay which ETFs hold private companies. And there's one XOVR which we've gone over several times, the public privates crossover that has a little bit of SpaceX, almost like a little copper wire inside an air conditioning unit, gives the whole unit value. And all these people have flooded this ETF
just to get a tiny little piece of SpaceX. And that really has shown me that there is intense interest to get private companies in the ETF rapper.
How much SpaceX does it help?
It started like ten percent, but as more people came into the fund and the assets grew, the percentage shrunk to late it's like three and so it's I don't think it's worth it at this point to buy that. So as I was researching other ETFs that had private companies. We only found three, but there's tons of mutual funds with private companies, and probably the one that's the most full of like the coolest hot private companies is the
ARC Venture Fund, which is from ARC. It was launched in twenty twenty two, kind of you know, rate sort of on the back end of ARC mania, and this has got some of the it's got SpaceX, it's got open AI, Neurlink XAI, on and on, and the weightings are high, you know, between eight percent, seven percent, six percent. The problem is it's a mutual fund. So it's interesting to me this fund is outperforming the S and P five hundred by forty five percentage points, so it's done
its job. But it's got five hundred million in assets, which isn't nothing. But you know, XOVR has like one point five billion and it's got three percent SpaceX ron BAARN has some mutual funds which similarly also owns some of these private companies, and it has not seen inflows, and Fidelity has a couple and it's seen outflows. So it's kind of like an interesting moment here where you've
got ETFs starting to dabble in this. Mutual funds have done it traditionally, and to me, ARC is perfectly placed because they have the one with the most private companies. But they also were experts in ETFs and so I just wanted to get their take on this because I think there's going to be increasing interest to get ahead of some of these IPOs through the ETF format or if the mutual funds can make the case through that format.
So of course ARC is led by CEO and chief investment offer to Kathy Woods. She's going to be joining us. She's done on the podcast before, but we've never had a couple other members of her team, So joining us also going to be Brett Winton, who's the chief Future Officer at ARC, and Charlie Roberts, who's the chief Investment Structures of Private Equity. These three are the brain trusts behind the ARC Venture Fund ticker A R and k X,
this time on Trillions ARC Venture Fund. Kathy, Brett, Charlie, Welcome to Trillions.
Thank you, it's great to be here.
Yeah, thanks so much for having us. Looking forward to the conversation.
Yeah, very excited to be on your show again. And congratulations. I think you're almost ten years old.
Yeah, there's we're having a debate.
Look like an.
Angry married couple that can't keep track of their anniversary. Kathy, I want to start with you. ARC is really synonymous in my mind with ETFs. So what problem were you trying to solve that you know, the ETF structure couldn't provide when you dreamed up the venture fund.
Well, a few things. Early on, we were looking at the best way to democratize venture capital for our client base, and of course we would have naturally gone to ETFs, given that's pretty much all we do. And then we examined the structure and a big drawback for us, given that we wanted to start a venture capital fund, A big drawback was the fifteen percent ill liquidity clause. You can't have more than fifteen percent in ill liquid assets, and so we just kill an ETF wrapper, and so
we started casting around. I'm going to give Tom Stout, our president and COO, a lot of credit for this. We didn't We wanted to provide venture for our client base, much of which is not accredited, and we happened upon the interval fund structure. So it's not I don't know technically it's a mutual fund. I don't think it is. I think it's an interval fund. But you know, when you're talking about regulation and sometimes you know you've got the mutual funds and the ETFs, both forty Act funds.
The interval fund is a forty Act fund, but I don't think it's a mutual fund. In that fund structure, we've been able to populate it with on average eighty percent private exposure and twenty percent public. We have daily inflows minimum five hundred dollars, quarterly outflows up to five percent of nav and so we need the public positions so that we can provide liquidity if our client's demanded at the end of a quarter.
That is a good point. This is a non diversified closed end management investment company that is an interval fund. And that's why like the Fidelity and Baron funds that own privates, it's in the fifteen percent that said, if it grows beyond, you're allowed to keep it. That's why SpaceX is a little more in Ron Baron's fund. But the long and short of it is an actual mutual fund can't hold more than fifteen percent of liquid or
an ETF. This fund can hold more as an interval closed then fund, and that is why this one kind of is the most interesting to me because it's full of the companies. So that's a good point, thank you.
And just critically it's it's closed in, but it prices at NAV as in there's some closed in funds that are out there. They're like, here's a basket of goods, buy it for what you want, and then it gets bid up and you're you're paying a dollar to get fifteen cents, you know, And that's clearly not a structure we were attracted to either, and so you should think of even remember back when you were interviewing Kathy and we were doing actively managed ETFs, and you know who
does that. Nobody wants actively managed gts. People want me massive ETFs. That's why would you do this? Well, here we it would be really nice if we thought we
could like do real venture exposure in an ETF. But we looked around the entire landscape and as Kathy said, Tom identified the interval fund structure which was originally intended for venture capital but was never used for that, and said, this is the right vehicle to provide everybody with access to first class venture exposure, including Neuralink, SpaceX Xai, Open Ai, Tropic Replet, you know, all of these companies that actually for SpaceX's AI compute adventure to work, you need these
other companies to do very well as well, and so it provides you a full suite of exposure to the first class venture companies.
I think the reason it has mutual fund kind of it looks like one is the five litter ticker. You know, all mutual funds have five litter tickers, Ends and X. But I think more than that, it just seems to be like in this era, like people generally just want everything in an ETF, and there's a lot of people who felt maybe burned in mutual funds in the past. And clothing funds aren't exactly like stellar reputation either because
they traded these big discounts. So I think part of the challenge for fun like this is being in that camp and not being able to use the ETFs halo.
Can I just correct one thing, Eric, We do not trade at a discount or a premium. Ever. We actually we sell at nav and end. Our pricing committee really is working to price the portfolio every day. If there's anything going on in any of the private funds, We're all over it in terms of valuation, whether it's on
the secondary markets or the mutual funds themselves. If we look at their marks at the end of a quarter and we see we're not aligned, we'll go back and do due diligence to either defend our price or or change it so we don't sell at a premium or a discount. It's a huge selling point for us.
Charlie, I want to bring you in because we haven't heard from you yet. How does a strategist who now has an interval fund that you're going to fill with VC or P exposure, how do you go figuring out how do you go about figuring out what exactly you want to put in the fund?
Sure?
Well, if I may also just quickly build off a couple of the points, one that Kathy made and one one that Brett made to Brett's.
While they're related to Brett's.
Point, the you know, we don't have these wild swings in prices, either to the upside or the downside because of the way we do value and price. And a critical point there is, of course that what really matters on the private side as much as anything, as well as doing great research selecting companies. Well, it's all about getting into companies. It's not just like you can go on in exchange and buy the asset you want right.
In fact, if anything, that is perhaps the defining skill set that actually is required to turn ideas into a portfolio, and the companies do not. The portfolio companies, certainly many of that we've spoken to do not want to be in some sort of a structure which allows their price to be dictated by a bid us spread essentially in a you know, supplying demand and to be bid up or bid down because they don't want to be part of the portfolio that's way under and and sort of
get all the negative halo from that. They also just don't want the.
To be seen.
They don't want people to try and back into their pricing in different ways, and they just don't want that volatility and variability.
So that's what I mean.
They're private, right, It's like, why why would I want the house of the public market exactly.
It's right all downside for them from their view, sometimes depends on the stage of the company. The other thing, as well, to Kathy's point, is because we care so much about a very good pricing process and evaluation being appropriate and correct, and that the true market price at the time, factoring in you know, immedia and longer term signals.
So something I sometimes say to people we're discussing the fund that's quite important to bear in mind as well, is as well as wanting to do the right thing and having the right price, we're obviously absolutely incentivized by the market mechanisms around the fund to be right up
the fair way when it comes to price. What I mean by that is, obviously, on one level, it would be good for the fund if you were to presume that we were just acting out of self interest, it would be good for the fund obviously for the price
to continue or scope go up because the performance looks great. However, because we're redeeming and have providing liquidity up to five percent of the fund every quarter, the last thing we want is to be redeeming against the companies whose price we do not believe in and has gone to the upside.
So it's a really important things to think about that mechanism as well, and the fact that we're absolutely incentivized for the price to be right, which is why to Kathy's point, we spend so much, you know, calories and really put in place very good structures which are all third party observed and audited to make sure that the valuation is correct.
I'd love to have Brett and Charlie address the real secret sauce of how we put this portfolio together. And it's a familiar refrain you'll hear from ARC. You hear it all the time. Research research, research, research, and our analysts on the public equities are the same analysts on the private companies. We think these two worlds are coalescing. So maybe Brett or Charlie, you'd like to go through the research angle.
Sure, you know, we in we co wrote a white paper with Coinbase when they were raising their Series B and at the time I remember in conversation with them, They're like, oh, you should invest, and I was like, well, we would love to invest, we just don't have a
client vehicle that allows us to invest. And so from the beginning, because our analysts are focused technology by technology rather than bisector and doing the hard work of figuring out the cost of clients and the unit economic cases for these technologies, they're in conversation with private companies already they have to be in order to do their work.
And so you know, over a decade, we've built up a lot of relationships with these companies that are now in later stage, including you know, the SpaceX's and of course the neuralinks and the Elon companies, but also other kind of AI and and all technology platform focused companies. And so the a difference between what we do and you know, some of the mutual fund structures and certainly some of the closed in fund structures is we're direct
on cap table with the companies. We're in conversation with management. We we underwrite the companies in the same way we do the public portfolio. So there's been plenty of times where we've been like, well, this is interesting, provocative, and it doesn't underwrite. Well, so we're not going to participate because ultimately, you know, we're operating on behalf of our clients to deliver you know, best return possible in these
venture exposures. And so both the credibility we've established in doing innovation research over a decade, the degree to which we've shown that we are a founder friendly and we back founders to the hilt when we really believe that in what they're doing, and kind of our ability to assess and give kind of strategic guidance to companies but also assess whether or not it's a good exposure for
our client really shapes the portfolio that we've developed. And then, like Charlie said, and he's really the tip of the
sphere here. Also, you know, making sure that we can get into and participate in the rounds that we're interested in is a huge, hairy amount of work, and we do so almost uniformly cleanly, direct on cap table, with conversations, directly with management, access to data room, so that we avoid also paying additional fees for SPV exposures or for oh, this is an indirect exposure through some kind of forward agreement with some employee who says he's going to sell
us our shares where you don't actually know if it's going to come true. And so some of these structures it's like, yes, I have exposure to you know, name company X, but do you really have exposure You don't actually know. So we are very certain of our underlying exposures as well.
That's a really important point, Eric, just that if you look at the funds you've mentioned, who hold private not ron barons, of course, and I'm not quite sure about all of them, but invariably, as we have looked at these funds, they are populated, if they own much at all, by SPVs, so special purpose vehicles. And so what's happening is the clients of those funds are paying fees upon
fees upon fees. Sometimes they're triple aer SPVs. And I will tell you, we know this that the private companies in which we're invested, they do not want to be part of SPV vehicles. They do not they want to know their shareholders.
So something like XOVR owns the SpaceX SPV. So somewhere along the lines, somebody took some of the shares of SpaceX that were private and put them into this other vehicle. The ETF then buys that on some kind of an exchange. You guys go out and you're like almost an actual VC investor where you're part of the rounds, so you're skipping the SPV. You're direct And just give me a
little bit of a macro. Look here, if SpaceX has x amount of shares out there held by private people or help privately, what percentage of them are in SPVs, like, is the SPV market big or small? And should you avoid it at all costs or is it sometimes the only way to do it?
Can I just before we answer that question, and I think you'll be interested in this, Eric, from the ETF point of view, we have tried, because we do have direct contact with these companies. We have encouraged, you know, especially our highest conviction names to become a part of our ETFs, and we have close relationships with these companies and they have they have refused us, and it is why you probably see Fidelity owning private companies in its
mutual funds, but not ETFs. So I just wanted to make that clear in terms of the size of the SPV market, it's burgeoning and it's clandestine, I would say, to some extent, but maybe Brett or Charlie you have a better answer than that. It's smile in the scheme of things.
We have actually seen cases of the companies themselves canceling shareholdings two SPVs. So that's one other thing is that it's a rocky boat because of things like that.
They've not there's various aspects they've not liked about it.
There's some other SPVs that we've come across again, as Kathy says, while avoiding them because we're not doing them, but that we've heard of where actually the SPV doesn't even own the underlying asset and there so there is a bit of a wild west. Sometimes not in all cases by any means, but that there has been there
are some examples. I don't think anyone knows exactly what proportion of SpaceX is in SPVs, but it's you know, as the company grows and all of these large late stage private companies, there has been a significant amount of SPV activity by and large across the space and but companies have been shutting down on making that possible around in their cap tables. In fact, many times there are specific reps and warranties against that in late stage private deals.
So that that's another thing, is it's a there's a bit of a race to the bottom aspect to it.
Many times the companies do not know how many layers of SPVs there are. Uh, and I think they're they're onto this now, so they're clamping down more and more on this activity.
Okay, Charlie, I'm guessing that you get the job of approaching and flirting and saying, hey, private company, you're really cute and you know we've got a bag of money over here. Can you tell me how that pitch actually goes down? Clearly, there's a lot of legwork that you've all have established through years of doing the research, But when it actually comes down to like how do we how do we get in on the series X y Z, what's the pitch actually look like? Coming from from you?
Absolutely, you're reminding me of a quote I once heard, I can't remember from whom it was, saying that the best training for being an entrepreneur was to have dated for several years before getting married. So maybe maybe there's a bit of that in this case. Yes, So I think the first thing is this picks up on an
earlier question that I didn't quite get to answering. But one is, as Kathy's mentioned, we are absolutely research oriented, and so we know ahead of time we're pre studying these companies, and so we have a long research wish list, which gets narrowed down into a short list, which gets narrowed down into diligence lists. So because by and large we are not going I mean, in some cases we have actually done companies that are sort of in their
process of coming out of stealth. In fact, we did the first external round for Xai because we're particularly close to that group for instance, and you know, there have been other examples, but typically we're going to companies that have got a bit further along, they have a bit of traction. We know that the company exists, so you know, usually we're investing post series A, sometimes that Series A, but typically BCD plus and pre IPO, et cetera. So
that's the first thing to note. So we have enough grist for the mill of researchers where and we have something we can study. Typically we have some level of traction metrics, we can begin to look at the the growth and the traction and things like this that matter, and and and very often we're also looking at talent and talent flows in our app that's very a big, big factor for it, as as it is on the on the public side or a big market for us.
So so so that's the first thing to know. The next thing maybe to say, is on top of the then the research and the firm view and quite a lot of you know, deep research based conviction or not. We then asset in what is the best if we want to have a conversation with this company, So we've prediscerned out quite a lot of companies. But if we want to then have a conversation to try and understand support what we believe or refute it, we will then reach out to the company. Now, either we'll go direct.
We often have good founder and leadership relationships. Increasingly so we're also going via co investors. And this kind of comes to your question about why would co investors want us in. I think there's a really important point here. We we've thought a lot about this because we're not leading rounds and taking board seats, which is often how vcs add value or occasionally destroy value.
We have Yeah, we.
Definitely have decided well, as a predominantly passive investor, we want to be supportive in other ways.
Now.
The other ways can be follow on funding, for sure, and you know whether we're doing that ourselves or also helping companies get follow on funding. So there's lots of examples where we maintain a rich, broad and deep network of follow and investors so we can call on for our companies when they need to raise again. So that's one kind of obvious one, but a lot of people do, but we hope that's becoming a superpower or is a superpower of it, and our own check sizes are going
up through time as the fund grows. So as you said, at the start, we're around five hundred million a UM, but already that's out of date because the fund's growing so fast. We're now five twenty one as of today, and actually we've been adding. Flows are around ten to twenty million a week at the moment, so the fund is growing fast and we're looking at soon unlocking lots of the folks like the wirehouses and others who have aarm and length of time track record thresholds, so a
lot of those are kicking in. So we add value also ourselves through doing pro rut and super pro utter rounds, and typically if we have conviction, we build into these companies and obviously found doesn't leaders love that because it's a good signal, but it's also more capital. We also
help in other ways. So other ones I can sort of quickly highlight are things like enterprise intros, where we have a fair superpower because we have obviously a lot a network obviously from over ten years of public investing, So there are many cases where we've been able to bring about an introduction between a twenty five person Series A startup and the C suite of one hundred billion
plus dollar enterprise company. And obviously that's you know, pretty asymmetric and can be very useful, and in many cases that's led to revenue making collaborations and deal relationships and other things. So follower investors, enterprise introductions, other introductions, and then it also comes back to where it begins, which
is with research and the open research ecosystem. So we love to tell companies to help companies tell their story and help with them think what is the best means of both make clarifying the story and then also telling it. So we've done that in a very tactical sense with webinars and blogs and things we focus a lot. And maybe it's a good time I can hand the MC back to Brett on market sizing, both top down and
bottom up research. And one thing that we've consistently seen when we do go for these introductions, often via these top desk rvcs, we tend to co invest with. Honestly, very often we see that like a Series A or B company or whatever has used our market sizing or other slides from our research in their own decks, so we're getting to see those sort of played back to
us as it were. So anyway, maybe that's a good time to hand back to Brett on the research driven side and where we get there in the first place. But to summarize, we add value in various different ways.
Sorry.
The final thing I'll say before handing the mic is increasingly we're also looking at magnifying and benefiting companies from our large You can think about this fun directionally, we hope and believe. I mean, it's already got many, many tens of thousands of small LPs essentially through the apps, in some cases some with tiny account sizes like five hundred dollars like ath you said, some with five million, and you know, increasingly we're seeing more institutional and RIA
is coming as well. But directionally, maybe we have a million plus LPs essentially, and that's an audience of allies akin to what Elon, for instance, is seen with Tesla, where you have people who own a model hy and they also have TEESL stock, and you know, you get this feedback loop between the product and the ally and
the stock. And so I think we're beginning to already see the first green shoots of that kind of thing, and we're beginning to industrialize that with things like talent marketplaces where we can repost the jobs to our pretty large audience that the firm has in Kathias.
And just on the research side, one thing, you covered it very well, Charlie, in terms of the whole suite of things that we offer. And I'll circle back to the SPV point. If somebody, you know, we have the top down research and the analysts do really good underwriting of the underlying asset. When we started ARC, I expected that the work we would do would be very similar to venture capitalists. But as it turns out, many venture capitalists never open a spreadsheet, whereas our analysts, you know,
spend all of their time forecasting and modeling. And if somebody invests in an SPV, that's a big blinking signal that they actually haven't had access to the underlying information of what's going on in the company to typically the SPV sponsor of saying, hey, this is what we hear is happening, and they're receiving it like a game of telephone. So there's no real effective way to do actually an
underwrite of a position. And you know from I remember when Uber had its late stage private round and it basically priced at saturation, you know, it pr you know, it was given out to Morgan Stanley Advisors who didn't have information rights and iPod and I think it was
dead money for three years on that round. And so you know, we pride ourselves on actually, you know, holding ourselves to an underwriting standard that delivers what we think is a great return for end clients and so and that can be helpful for companies as well, to say, listen, we're we're also the person that needs to hold your hand into the public markets, and this is how we're going to underwrite the position. So you know you should
not you can do. A company can do damage to itself by raising it too high of evaluation at the wrong time, because it then doesn't set them up to kind of like bring more people onto the boat over time. And so that guidance can be important as well.
So let me ask about the private nature this. So this fund is up I think one hundred and fifty percent since it came out. Obviously that's based on a nav that you give us. You calculate the NAV You obviously need the pricing of the holdings to do that.
How do you price this stuff because like there was some controversy on XOVR, which is the ETF that holds it, which is he never marked to market the SPV that held SpaceX, but everybody knows it's worth like four x what he bought it for, but it's still marked at the old price, which is why I think he had some people coming in almost like buying something in a discount. How do you price the privates as time goes on and can you make a profit without them going public?
I'll start and hand it off. So as I mentioned before, we have a pricing committee and it is monitoring constantly every day secondary markets to see what pricing is is like on the secondary markets, often selling at a discount if it's an employee stock and so forth. As I mentioned other companies we respect, like the Fidelities and the t Rows who have private arms, and our marketing we
can see those on a quarterly basis. We also are looking at public markets and you know, if the market's going through a severe down round, we're probably going to be marking down many of our holdings because other competitors or counterparts are are being priced down in the public markets, so I think. And of course our audit committee and our trust board, they've been with us from day one with the ETFs. They they probably focus on this question more than any other when it comes to this fund.
It is such an important question because we want to get nav right. When people are redeeming at the end of the quarter, we want to make sure that we're as close to the mark as we possibly can be, and we think we are because we don't want to be either giving it away or you know, or or selling it or don't want the person who's redeeming to receive, you know, the equivalent of a discount when there shouldn't be one. So we are maniacal. We have a committee
away from this team. This team is not involved in pricing at all. It's completely separate and distinct and highly disciplined and highly audited. I would say as well.
Yeah, And mechanically, how it works is a company raises a primary round, Well, that's raising x amount of dollars at this valuation. That's a strong signal that that's the valuation and kind of so that sets a mark and then over time as the company does not come back, then it calibrates over to secondary market activity or calibration with public companies whose price to sales ratio is or is it's Mark two that are drifting or pricing down and so, and you know that's essentially the full suite.
But if a company says, hey, we're raising around, even if it appears in pitchbook, we're raising around at this valuation this amount, you know, we need to get confirmation that actually it's really going to go through in the way that it's going to. And so then from the research and investing side, we also provide information to the pricing committee. It's like, you know, they just came to us and this is what they're raising, and this is what they said.
Is kind of like.
How far they are through the raise, and and then that's fed into that team, but it is totally separate from the investing team. And we use you know, a Big four auditor to audit the fund, as well as third party private valuation experts that are also from one of those big firms. When there are tricky cases where we have to put together are they the pricing committee puts together a full document and this is how we're doing it, and how we're pricing it based on this information.
Eric, can I give you one example of how involved this is. We invested in a private company when I believe the valuation was two point seven billion dollars sometime in twenty four. It in twenty five was basically said we're going to do another round at thirty nine forty billion,
and our research did not support that valuation. That was the first thing, and so we actually went to the firm and said, look, if you can get this done at that price, we'll sell you some because of course this would have taken that particular equity to you know, close to twenty percent of the portfolio, and so we were again this is where research comes in. It turns out they were not able to do all of the deal. They did roughly half of it. I think I've got
that right, bred or Charlie. And we never priced it in our portfolio at that forty billion dollar valuation. I think we went to twenty billion because they were able to get half of the offering placed.
One of the things I just wanted to bring it back to in twenty twenty six is, you know you've had the exposure to these companies for a long time, but the goal for some of these companies is eventually to go public. And if I think through some of these names that you all have in the portfolio, SpaceX, open a, AI, and Thropic, these are potential like huge IPOs A what experience have you had with any company I appealing from this fund and be what impact is
that going to have for your payoff? With the payoff look like for you and investors, going.
Public is obviously a key liquidity event in a private company's life. What's nice about our funds is they are evergreen if we want to continue holding, unlike venture where they basically start selling out. If we think this company has miles to go, and with SpaceX and data centers in space, we've done some early estimates that would suggest that would add handsomely to its valuation, we can continue to hold it and we will. So we don't really think of okay, if it goes public, you know, what
do you do? Then you're on to the next thing. We have a wish list of private companies, and of course we'd probably take profits as we normally do in the public markets when there is a big valuation upgrade, just sensible to take profits, but we don't have to sell out. And in terms of companies going public, I know that, well, Kodiak has just gone public. That's an autonomous trucking company and it is still in the fund
and we've started adding it to our ETFs. So you know, our ETFs are you know, great outlets for some of these companies going public because they're all about innovation. That's all we do.
Yeah, Kathy, I think Kathy said it well, So it's CoDIAK Is and that was Q three ish last year. We've had other so we've had some M and A. So we've had things like Mosaic mL which was around a five x return into data grigstock, which has since
accumulated multiple significantly, and we're excited about that company. But I think that makes a good example of the illustrates what Kathy said, which is it's all about conviction, and if we have conviction at the price and continue to win the leadership in the company prospects at the point of going public, then we could hold or continue to build into whether it's from this fund or the ETFs.
And of course there are many many examples, including within the mag seven where it would have been exactly the wrong thing to do to sell the moment your lockup came off. Yet many vcs were forced to do that, even knowing that the biggest part of the jacob was yet to come. In those cases, you know, whereas in other cases, for sure there's been you know, the biggest multiple has definitely occurred on the private side, it would have been exactly the right thing to do to sell
their IPO. And of course no one knows exactly. There's no crystal balls, but it all comes down to research and conviction at the end of the day. But the key thing about this fund is it gives us flexibility to do what we believe at that point, given the conviction, is the right thing to do. And this is actually
another point that we haven't touched on. But it also gives us flexibility to take account of public private valuation arbitrage that often occurs in different sectors at different times, like recently since the fund was launched, the historic number of negative ev biotechs which occurred on the public markets while the private valuations stayed quite robust if a company got flundered at all, So we were able to again make good use of that because of the flexibility in this fund.
So you know, again, this is fascinating to me because unlike the fidelity funds that own a little, they are a mutual fund, and that's not the greatest rapper right now. People just shun that they want stuff and you can see XOVR, which again that's a ton of money that's three times with this fund has just because it has a tiny dose of SpaceX SPV, even it's not even like real SpaceX. So here's my question. I'm looking at this fund. I open it up on a screen. Let's
say it's Yahoo or Bloomberg Terminal. Okay, first thing is that the fee is two point seventy five. That could scare some people, it's the five letter ticker. But then you look at the holdings and you're like, oh my god, this has like the all the hot companies that you read about, Like the sexy factor is high here, and I just feel like I just can't believe it doesn't raise more assets given that, Like what do you think it is?
Is it just?
Is it just that ETFs are just so everybody just trusts them at this point. They trust the fees, they trust the performance, and like you just can't get a five letter ticker over into somebody's portfolio anymore? Or is it the fee? I mean, these fees are probably so eric.
You'll remember in the early days of our active equity ETFs, people were trying to understand us right that that now it was an ETF structure. What is happening here is the interval fund structure requires infrastructure build out right, and so so far was willing to build out infrastructure. Titan our first distributor. Now other platforms are beginning to see the merit of this interval fund structure and our starting are starting to vet us. We do have gatekeepers all
of the wirehouses. You know they need five hundred million plus three years. Okay, now we have that, so we're beginning to speak with them. So we're not on any wirehouse platform, although advisors can can buy us if they're working through Charles Schwab or Pershing for example, But the wirehouses have now in terms of the fund, the fund fee that two point seventy five percent. We've been very deliberate about this. We charge no carry. That is why
we can have unaccredited investors. That's just the SEC's way of looking at it. So no carry and we've done an analysis and Charlie probably can speak in more depth to this, but of the two point seventy five versus what you would pay if you were in you know, some of the best venture funds over a ten year period, and we would be at a discount to that if you include the fact that they charge Kerry and we do not.
Okay, just real quick, now, I get that, and I think in my opinion, this probably will grow over time. It just it's almost like there's an you have to push harder. It just seems like because the ETF kind of sells itself to a degree. Here's my question for you. It's interesting to me that you've gone to these companies you have relationships with good relationships with and talked about, hey can you put a little bit this of this in RG or RW and they are not into it.
But I feel as though now that we've got there's three ETFs now that have a little private and I think Ron's is a Series E, it's not a SPV. But as we go forward, JP Morgan, there's a lot of firms that have relationships with private companies who realize
the potential in the ETF. Do you think that you guys ap Morgan Blackrock are going to start to lean on the private companies, even along with Apollo, who's interested to get some of this democratized, and we will eventually see some of this come up in that fifteen percent illiquidity window for ETFs in the future.
You know, we're always advocating for our ETFs, but we also are listening to these management teams and are a little fearful of what the impact of you know, ETFs that can be traded every day, all day long, what the impact of that in various market situations will be
on them and those who hold their equities. So you know, again, as I said, we're listening, and we've just gone once again and said, look, we really have such high conviction in you company X that we want to put this into our our ETFs, which are all about innovation, and the people investing in them are investing in nothing but innovation. And still there's that reticence. So if they open up, we will open up, you know, but we will not do SPVs.
Yeah.
I think that's the part of the reason people do SPVs is because then they don't have to ask the company's permission to do it, which then exposes them to some liability. They're not actually buying shares in the company. They're buying shares in an LLC that's making a claim that it has maybe shares in another LLC that's also making a claim that it also maybe has shares in another LLC which is making a claim that it has shares in the underlying company.
And they're all charging fees on thee Yeah.
Right, and so but I think over time it is likely, just as in mutual funds, you can buy the Fidelity mutual fund as like a little like four percent wedge in like zero point five percent chunks of little privates that tfs will kind of take on some of that private exposure. There's on the order of seven trillion dollars in market cap in unicorns at least, maybe not mark to market, but ostensibly out there. And I think this cycle there is going to be you know, there was
this private companies aren't going public. Private companies are going to go public over the next couple of years. I mean,
we think we have a few of them. There's the SpaceX rumor there, there's plenty of noise in the market that kind of the AI companies are going to go public because they're so cash consumptive to invest in the AI compute, to build the next generation of models, and because getting onto that public stage is important for kind of the support and engenders across you know, the entire population. We're trying to provide them with that support through the
interval fund. But like you say, it's still small. You have to go on so far to get it if you're the average person, and or go through Fidelity or talk to it an advisor. I think over time, this
vehicle because it's really good for venture. You know, this is a Tier one venture portfolio that's actually extraordinarily fee efficient, that this vehicle will open up the interval fund market because people are going to recognize, hey, this is actually the right way to do this kind of exposure for for not only the everyday investor, but for high net worth as well. And I think that you know, the
public ETF vehicles are super important. We love our ETFs and and of course we you know, as this is going to be a mix of innovation, we stick in as it's available.
Is there a point where you could feed the ETF investors a little like let's say SpaceX does announce the IPO, it's getting closer, Can you like move a little bit over to one of the ETFs so that they get a taste of it before the I pod? Could that happen after the private company is kind of like over the fact that Okay, like they're at that point, they're probably not that worried about the pricing because everybody knows
they're going public. Like, is there a point the ETF could get hooked up by ourc venture?
I think we have to be very careful in answering that question. Uh you know if oh, yes, yes, I mean I I I've know a lot about what happened when hedge funds were choosing or managers who were choosing between their hedge fund and their mutual fund chose the higher fee. Uh, this would be the opposite of that, I understand. But nonetheless, this is a hot topic in
the SEC. We'd have to be buy the book, and uh, you know, even even today in our ETFs, if you know, we have a more specialized ETF that wants to sell a little bit of something we're buying in the let's say broader based ETFs, we don't do that. We do not do that because we do not want to be anywhere near you know, this cross dealing controversy. So we would be working very carefully with our compliance team to do that. You know, the ETF is set up for
for public for the public. If the price, if it was already priced at the IPO price, we'd probably wait for it.
Yeah, And and there's you know, as Kathy describes, there would be allocation kind of allocation procedures we need to follow. The venture fund. Being a participant in these primary rounds clearly opens up some optionality to discuss with the private companies.
Hey.
Actually, and there could be you know, we could split this allocation in an appropriate way between vehicles, just like we have we have you know, a European vehicle this venture fund as well that we have to do allocation decisions too. And so I do think that that's possible over time. But as Kathy said, it's like you know, allocated pro rata appropriate to the investment, you know, prospectus of the underlying fund and kind of like what's appropriate for that fund and.
Its objectives if I may as well.
Notwithstanding that the points made just now about our ETFs and the and SpaceX, I think as you look and compare the interval fund against various other types of products. Right, it's kind of sitting here in the middle between venture and ETFs.
Let's just say or I mute funds.
The the ETFs that exist and that may be built that have some small private allocation quite aside from the problem of.
Stvs, which you talked about.
But if you have ten or fifteen percent private allocation, it's almost you have to sort of ask yourself what's the real benefit of that. You've got some maybe you get some additional alpha from that private sleeve, but it's so diluted across the whole ETF, right, So that's an issue, whereas in ours it's the other way around. It's to eighty five percent private, So that's the you know, that's the private alpha you're getting.
Yeah, and that sort.
Of Yeah, I get it.
I'm just telling you, as somebody who's been covering ETFs, that's people want it that way, and that you know, there's a couple like you could argue Vick's future shouldn't be in an ETF, like they've put everything in the ETF they possibly can, because that's just how people like it. And it's almost like Spotify and here's sitting here trying to sell a compact disc. But you're like, the music's really good, and that's sort of I think the challenge.
And but it is what it is. You've you've definitely made the case and explain why it has to be this way. But I think that's all. That's what I see is the ETF demand is so great that the marketplace is now trying to deal with Well, they want it this way, but you can't really do it. So do we do it half assed? Or do we use these vehicles? And this is gonna be an interesting thing to play out for a while. And I think this is way more interesting than private credit. I think private
credit doesn't really move the needle much. People don't care that much. But these companies, Neurallink, these are world changing companies and people know that you're getting in ahead of the IPOs major they just happen to want it in the ETF. And I think that's this is the crossroads we're at, kind of the tension. I guess that that's out there.
Found a way, So anyway, we're gonna leave it there. Kathy Brett, Charlie, thanks your time, Thank you.
Thank you, thank you, all.
Thanks for listening to Trillions until next time. You can find us on the Bloomberg Terminal, Bloomberg dot com, Apple Podcasts, Spotify, or wherever else you'd like to listen. We'd love to hear from you. Hit us up on social I'm at Joel Weber Show, He's at Eric Balchina's. Trillions is produced by Magnus Hendrickson.