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February 15, 2017  

ETF Pioneer Seeking Top Dollar for Stake

Global-macro investor 55 Capital is offering an equity stake in its business at an unusually high valuation for a startup.

The Mill Valley, Calif., firm has hired RBC Capital to market an approximately 20% ownership interest with a price tag that would value the business at as much as $200 million. That would be an extraordinary sum for a firm that was running just $8 million of its own money as of Sept. 15. It since has taken in an undisclosed amount of outside capital.

Although it currently runs a small hedge fund dubbed 55 Dynamic Macro Fund, 55 Capital is staking its future on a series of vehicles offering global-macro-like exposures via investments in exchange-traded funds. By offering separate accounts with low fees, the firm hopes to raise billions of dollars from institutional investors in relatively short order.

It also is banking on the pedigree of founder Lee Kranefuss to attract investors. He is a legend in the ETF sector, having launched the iShares brand for Barclays Global Investors in 2000. iShares, now part of BlackRock, has grown to encompass more than 800 exchange-traded funds with $1 trillion of assets.

Indeed, one investment banker said 55 Capital appears to be offering the equity stake as a kind of venture capital play — an opportunity to get in on a potentially explosive business at the ground floor. As a rule, a $200 million valuation would apply to investment managers with perhaps $10 billion of assets or more.

Kranefuss formed 55 Capital in 2015. Last year, the firm acquired Ada Investments, a quantitative-equity manager led by former Old Lane research director Vinay Nair and backed by XL Group. Nair and Kranefuss, who serve as co-chairs of 55 Capital, have hired some two dozen staffers to build the ETF-investment program.

Among them is chief executive Bruce Lavine, an iShares alumnus who later served as president of ETF sponsor Wisdom Tree Investments. Rene Casis, formerly a senior portfolio manager at iShares, is head of trading. The research staff at 55 Capital includes London School of Economics professor Christopher Polk and Bilge Yilmaz, a former professor at Stanford University’s Business School.

Depending on the size of the commitment, 55 Capital plans to charge investors management fees of 35-100 bp, and no performance fees.