00:00Why buy Innovator Capital? It's $28 billion worth of buffer ETFs versus try to build this out at Goldman Sachs in-house.
00:08I mean, you know, so much credit goes to the team at Innovator. They invented this space back in 2018.
00:16They invented defined outcome ETFs. I mean, they have a history of innovating in this space.
00:23So they build out this business. They invent the space.
00:26Over the last seven years, they've been able to scale the business to be $29 billion.
00:30But in addition to that, they have a full suite of products that cover all the different horizons that we see across the defined outcome space.
00:38Plus, they have an incredible team, 70 individuals that are extremely talented at talking about these sophisticated strategies,
00:46working with clients and articulating these to investors and showing them how they can use them within their portfolio.
00:51So when you bring all of that together, it just makes so much sense to add it onto the platform that we have.
00:58And let's talk about the price tag a little bit. So $2 billion. For that, you get $28 billion of existing AUM.
01:04I was taking a look at the reaction piece from Bloomberg Intelligence.
01:08That's about 7% of assets. That's probably closer to private market deals than traditional products.
01:14So show us the napkin math of how you justify a $2 billion valuation.
01:19So over the last kind of handful of years, I've been traveling around this country working with clients.
01:24And in more conversations than not, defined outcome ETFs were coming up.
01:29How do I get more income in my portfolio? How can I get targeted downside protection?
01:33What about different growth areas that I can get within my portfolios?
01:37And over time, you start to notice this pattern.
01:39There's more and more investors that are looking for better ways to build portfolios on behalf of their clients.
01:43And so when you take that, you start to see, like, wait a second, there's a massive trend here.
01:49Now, Cerulli put out research last week.
01:52They suggested the space could grow 4 to 5x over the next five years.
01:55And so I don't think I'll get into the napkin math.
01:57But what I will tell you is that I know investors are really excited about the strategies.
02:02You've seen it grow massively over the last five years.
02:04And groups like Cerulli projecting 4 to 5x growth over the next five years,
02:09you start to see why we're so excited about this space.
02:11Who specifically, in terms of the end users of these funds, who specifically are those types of people?
02:15I mean, what we're talking about.
02:17Are they using this primarily as a hedge or is this actual real sort of growth or income opportunities, I should say?
02:23It's a great question.
02:24So step back for a second.
02:25We called it defined outcomes, which is a pretty wide space.
02:28We see income in this category.
02:30We see targeted buffer in this category.
02:31And we see growth in this category.
02:33There's a lot that's going on there.
02:35So we've seen everything from core replacement.
02:39You know, I was using the S&P 500.
02:40I want to swap that out with something that could provide a little bit more protection.
02:43We see it as an income play.
02:44I want to put this into my portfolio and it can enhance the income that I have.
02:48We see it as a bond replacement in some areas where maybe I can use this instead of bonds and it gives me a little bit more equity upside.
02:54There's also some differentiated ways where, you know, investors are starting to use this to put cash to work.
03:00Markets are still at kind of close to all time highs.
03:03And so, you know, if an investor is starting to put money to work, do you do that right now?
03:06Or maybe this is a great way to start to leg your way into an equity position without taking on some of the downside risk.
03:12And so I think that this is going to absolutely change the way that we think about portfolio construction over the next five years.
03:17We're seeing this both on the retail side and on the institutional side.
03:20Institutions have been using strategies like these for a long time.
03:25Now that we can deliver them through the ETF wrapper that is intraday liquid, that is transparent, that is tax efficient, that comes at an attractive price point, that starts to be a real game changer for us.
03:34For the individual investors, is there sort of an education arc that's needed, at least if not for them, certainly with the advisors that are selling it?
03:41Yeah, absolutely.
03:42And, you know, that's another big part of the innovator team.
03:44I mean, they're experts at having those conversations and we really want to embrace that.
03:48I mean, we want to lead with solutions, we want to lead with this is how these are going to work within your portfolios.
03:53It's important that you own it point to point.
03:56There's different ways that these are going to move out there.
03:58But once you understand how those work, then you can really enhance what you're doing within your portfolios.
04:02So this news in and of itself is exciting.
04:05But the natural next question, Brian, is what's next?
04:08I mean, could we go out and see GSAM buy more companies, more areas in terms of white space where maybe GSAM doesn't have that presence?
04:16So let's think about what happens with a transaction.
04:20You really need to get some things that are very aligned.
04:23First of all, when we think about Goldman Sachs and Innovator, our firms have very similar cultures.
04:28We wake up client obsessed every single day.
04:31If you talk to the founders of Innovator or any person over there, they wake up thinking about the clients.
04:35When you talk to anybody at Goldman Sachs, we wake up thinking about our clients.
04:38So that's number one.
04:39Number two is Innovator has developed this space, like we talked about earlier, that is differentiated across anything else in the market right now.
04:47And so it's bringing differentiation to clients, which is something that Goldman's focused on as well.
04:52This fits perfectly alongside our direct indexing capabilities, our evergreen alternatives capabilities, and indeed our organic active ETF strategy as well.
05:01And so when you combine those things, it becomes really special.
05:04Now, that's a pretty high bar, and so to think that we're going to be able to find something else like that out there, I don't know.
05:11We'll look, but we're really confident in our organic strategy and what we're doing right now.
05:15And just a fun fact, it's probably worth pointing out that, of course, you know the co-founders of Innovator well.
05:20Bruce Bond, I believe, gave you one of your first jobs at PowerShares.
05:24Yeah, Bruce hired me into the industry a number of years ago.
05:27I think I was the 12th employee at PowerShares.
05:29And, you know, he's got an incredible track record of, you know, hiring good talent, myself aside.
05:34He's built some really good talent there.
05:36He's innovated in this industry for years.
05:38He brought the first smart beta strategies before we even called them smart beta.
05:42And this is just another one of those things that he and John Southard and the rest of the team over at Innovator have been able to accomplish.
05:49And, you know, so that's why we feel so aligned, that existing relationship that Goldman has had with Bruce and the Innovator team.
05:57And so coming together, we feel really good about that.
06:00You know, obviously, we're bringing on all 70 of the employees to be full-time Goldman Sachs employees.
06:04We don't plan on changing anything as far as their sub-advisors or some of their service providers.
06:10We're just providing a massive tailwind to this business because we think the growth over the next five years and beyond is going to be absolutely explosive.
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