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Wednesday, August 30, 2017

Turner Buys Into the ETF Biz

Reported by Neil Anderson, Managing Editor

Bob Turner and his team are buying into the ETF business. Meanwhile, he's making changes on the mutual fund side of his business, while an affiliate is making a key alliance.

Today Turner confirms that Berwyn, Pennsylvania-based Turner Investments Holdings is acquiring Wheaton, Illinois-based Elkhorn Capital Group. The deal is expected to close within a few weeks, and the pricing and terms were not disclosed.

All five people at Elkhorn, including Elkhorn chief Ben Fulton, are expected to join Turner at part of the deal, though they'll stay put as Turner's new Wheaton office. (Turner has about 25 people.) Fulton will become Turner's head of global ETFs, and Elkhorn product development and research associate Jordan Golz will become head of global ETF product and business development. Watch for the combined firm to add more staff in distribution.

"We'll work together on building out a larger distribution team together," Fulton tells MFWire. "There's some people we're talking to, key people in the industry."

Erik Hagar, principal and senior portfolio specialist at Turner, says that in distribution they're specifically looking for "credentialed investment product specialists who can write research ... and speak with sophisticated audiences."

"There's a lot of talent in the financial services industry that we will embrace," Hagar tells MFWire.

The Elkhorn deal comes about a year after Turner merged with fintech company Veracen and brought Veracen chief Michael Kennedy on as co-CEO of the combined firm, alongside Turner himself. Last fall Turner, Hagar, and global fixed income chief Stefania Perrucci laid out a vision of the Turner Investments of the future. That vision involved expanding Turner's investment focus from its traditional growth equity specialty out to five other areas, and it also involved extending Turner products out from mutual funds and separate accounts to UCITs, ETFs, and UITs.

"What we're doing is the future of asset management," Turner tells MFWire. He adds that ETFs are a natural progression for Turner Investments, and he likens ETFs' rise to the disruptive effects of technology in other industries. In addition to asset management becoming more competitive, Turner says, it's also "very fragmented." "We're very excited about where we are."

"ETFs have mostly been used as passive products," Perrucci tells MFWire. "Actually delivering that active side to ETFs, it's something that we can do, in a holistic fashion."

On the traditional mutual fund side, next month Turner plans to liquidate its three existing mutual funds. Yet new traditional open-end mutual funds, as well as ETFs, will be coming soon.

"It makes more sense to have a fresh registration rather than repurpose or change investment objective on existing funds," Hagar says.

Buying Elkhorn also brings Turner into the commodity investing space. That, plus an interest in what they're calling "beta plus alpha" or "index-plus" investing, brings Turner to now eight broad investing categories for its future: commodities, index-plus, global and international equities, ESG, growth and momentum, absolute return, yield and income, and fixed income and credit.

"We don't want to compete against passive investing. That's essentially free," Hagar says. "The industry's changed a lot."

Technology has brought down fees and pricing and margins in every industry. We're embracing that. We're acknowledging that. We have a blank piece of paper.

Going forward, Fulton sees several drivers of growth for asset managers: being first, having the lowest prices, mass distribution, and efficiency. It's that last one in particular that he sees Turner and Veracen taking advantage of. For Elkhorn, he says, selling to Turner allows them "to take state of the art products and bring them to market in a very cost efficient way."

"The technology build out was very intriguing to us," Fulton says. "We were looking at, 'How do we become a little more relevant in the marketplace?'"

On the technology side, Turner's Elkhorn deal comes as Turner affiliate Veracen just teamed up with Paris-based Linedata Services. The idea is that together they'll be able to put all an asset manager's data together into one integrated data warehouse. Veracen and Linedata even quietly started beta-testing the idea last year at Turner.

As for the genesis of the Elkorn deal it was Ed McRedmond, a PowerShares alumnus like Fulton, who introduced Fulton to Kennedy.

"We had a courtship, a courting period, where we got to know each other," Hagar says. "It really felt great, the Elkhorn culture, the people."

As for future acquisitions, Hagar says, the Turner-Veracen team is "absolutely open to the best people, the best firms." 

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