00:00What they recognize is what we see and what the marketplace sees is that active ETFs are a new wave
00:06of sort of a wrapper that investors and their clients are looking to invest through.
00:13And so I think that's what you see with Neos today is a specialized active ETF manager.
00:19It's only $30 billion in assets, right?
00:21So it's not necessarily a needle mover to the Goldman Sachs franchise that we know today.
00:26But I think they see where the puck is moving in terms of client demand.
00:31And I think that's why you see them building out this ETF franchise.
00:34This follows, you know, maybe 18 or so months ago, they acquired Innovator Capital, which is another sort of active
00:41ETF provider of buffer ETFs that provide you capped equity upside exposure.
00:47And it, you know, caps the downside, right?
00:48So they recognize that these sort of specialized sort of solutions-based ETFs are where the puck is moving, are
00:56where investors are going.
00:57And by the way, where flows are going, right?
00:59You've seen pretty outstanding growth across the active ETF space.
01:04And so they're sort of positioning themselves to build out that franchise.
01:07When you think about active ETFs overall, it's highly fragmented, right?
01:11So there's lots of opportunities to take share.
01:13One way to do that is buy these really successful smaller managers, and that's what Goldman's doing here.
01:19Is there a reason why ETFs are so hot in this market?
01:23It seems like everything's going up.
01:25What is the appeal of an ETF?
01:27Yeah, I mean, it comes down to the simple things of lower cost than a mutual fund, tax efficiency, daily
01:32liquidity, investors like that, advisors like that, retail likes that.
01:37So there's a natural structural reason why those are winning, particularly when you think about active ETFs.
01:44If you were to chart the active ETF flows against active mutual fund flows, you're going to have two lines
01:49going in very different directions.
01:51So there is a little bit of, you could almost say, cannibalization there for the asset managers where they see
01:57money leaving their legacy active mutual funds in lieu of some of those active ETFs.
02:03These deals from Goldman, though, they're not necessarily looking at, you know, a large blend active ETF, a sort of
02:10exposure-based ETF.
02:11These are much more specialized, much more servicing what we're looking for in the wealth channel of where you want
02:18sort of personalized solutions.
02:21All right, being a former banker, I ran the valuation.
02:24I ran the numbers.
02:25I got my HP 12C here.
02:26$32 billion in assets.
02:29They paid $2.3 billion for it, so 7% of assets.
02:34Is that rich?
02:35Is that cheap?
02:35Is that in line with the market multiples?
02:37What is that?
02:38So it's in line with what they paid for Innovator, a very similar franchise that they acquired.
02:43What is interesting, you noted the 7% of assets.
02:46If you look at the broader world of asset management deals over, call it the past decade, we're hovering around
02:521% to 2% of assets.
02:54So, yeah, 7% is a materially higher number.
02:57Remember, when you look under the hood, you can understand why, right?
03:00We look at the buffer ETFs that they bought with Innovator, these option-based ETFs that they're buying today with
03:06Neos.
03:07You see average expense ratios, 60, 70, 80 basis points, right?
03:12When you think of an ETF, right off the hop, you're thinking of cheap beta, maybe less than 10 basis
03:17points, right?
03:18So we're talking about a different animal here.
03:21And when you look at the growth, we just talked about where the flows are going.
03:24It's active ETFs.
03:26These franchises have been growing, you know, 20, 30, 40, 50% annualized over the past five years.
03:34And those are being extrapolated moving forward as these products gain more proliferation and they become meaningful flow drivers.
03:41So you see that in the valuation that they're paying today.
03:44We typically see these 7% or higher, even closer to 10% of assets reserved for private markets, which
03:51is, you know, the other pocket, a much larger pocket, I'll mention, in the asset management world where fees are
03:58higher and assets are growing at a much faster clip than the mutual fund space.
04:02So you're seeing some higher multiples paid here.
04:05Why are people migrating away from mutual funds and into ETFs?
04:09What do ETFs have that mutual funds don't?
04:12Yeah, I mean, I think it goes back again to some of those structural things we talked about.
04:17It's going to be a lower cost.
04:18It's going to have more tax efficiency and it's going to have that intraday liquidity, which just makes portfolio management
04:25easier overall.
04:27So, again, those are the structural things.
04:29But we're starting to see more creative solutions type products here that Goldman's really getting into.
04:36And, you know, those are sort of the underlying drivers.
04:39Again, you can always point back to the fact that active mutual funds on a broad basis have had trouble
04:45outperforming their benchmarks, right?
04:47There's always a select few that are, and that's where the flows tend to funnel towards.
04:53But when you start looking at the broader universe, it's becoming more challenging to sort of justify the costs.
05:01And so you see...
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