Goldman Sachs to Pay $2 Billion for ETF Issuer Innovator Capital

Watch Goldman Sachs to Pay $2 Billion for ETF Issuer Innovator Capital - Bloomberg on Dailymotion

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00:00Emily, this is a really interesting one. Again, we're talking about buffer ETFs. They fall into

00:04the defined outcome territory. Before we talk about why this makes sense for Goldman, just

00:09give us a little overview of what buffer ETFs actually do. Okay, so buffer ETFs, otherwise

00:14known as defined outcome ETFs, basically limit investors' downside by capping the upside potential.

00:22So Innovator launched the first defined outcome ETF several years ago, and most of what their

00:28products do is they give investors a little bit of upside. So maybe you get the first 10% of upside

00:34in the S&P 500 over a certain time period, and you're shielded against a certain percentage of

00:39losses. Advisors love these. A lot of clients in the advisory space are older, maybe closer to

00:45retirement, so they want a little bit of that stock upside, but they also want the protection. So

00:49Innovator's done a really great job selling these to people like that. How is this going over? My

00:55first reaction was, okay, well, that's why Goldman's been quiet. Okay, that's one. And number

01:01two is good for Bruce Bond, but the valuation was pretty high. You're paying a lot for this revenue,

01:06but I do think like cholesterol, there's good revenue and bad revenue. This is good revenue

01:10because it's on the ETF side of the fence as opposed to mutual funds. And it's hard to make 90 basis

01:16points with something that's active, and the flows are coming in and breaking records every quarter. So

01:21I don't know. It seems like a pretty good deal, but some people said a little pricey.

01:24Yeah. Well, there's not a lot of precedents. Jeffries had a note out. They have a buy rating

01:28on Goldman, and they pointed out that the last time we saw kind of a spree of ETF

01:33M&A was back in 2017. Invesco had purchased a European firm, and they paid about 2% of AUM.

01:41So Goldman's paying about 7% of Innovator's AUM. So that's a premium. But Jeffries did note that

01:47these products are specialized. They have that higher expense ratio. So perhaps you pay up for

01:54that. And they're not market dependent, right? They're not like an active fund. Like you could

01:59have outperformance all the money leaves or some theme ETF. These are basically like rain or shine

02:04type products that you put in your portfolio for the long term. Yeah. And they roll over as well. So

02:08you can kind of keep a client in the portfolio for a long time. What's interesting is that Goldman had

02:15their own lineup of these. Right. They had about three defined outcome ETFs that they launched this

02:21year. They totaled about 36 million in AUM. The total defined outcome ETF space is over 70 billion.

02:28So they tried to do this on their own, but they didn't really get a lot of flows. Yeah. It's just

02:34fascinating the fact that Goldman did try to enter this category, even with the might of the Goldman

02:38name and distribution, weren't able to really get significant traction here. Instead, buying Innovator

02:43Capital, one of the first movers in the space. So talk to us a little bit more about those

02:48integration and those Innovator employees. They now become Goldman employees. They become Goldman

02:54employees. We're told that they will stay in their Wheaton, Illinois headquarters. Wheaton is a

02:59suburb of Chicago that actually a lot of ETF firms are based in. First Trust is another leader in

03:04buffer ETFs that's based there as well, Amplify ETFs. So those employees stay there. This is like a

03:10sales force of a lot of people that went to Wheaton College. It's a tight knit community.

03:15Bruce Bond at the helm with his co-founder, John Southard. So this is definitely like

03:19Wall Street coming to Wheaton, Illinois, which is interesting in and of itself to watch.

03:25And again, it's a it's a sales force that's really used to these almost niche ETFs. They know how to sell

03:31these. They know which advisors to kind of touch to. And Goldman actually said that when we were

03:36interviewing their head of asset management, he said Innovator has a track record. They have that

03:41strong following. He said the head start does matter in this business.