The deal that has seen VanEck buyout the shareholders behind the Netherland-facing Think ETFs is another piece of the consolidation puzzle being put together within the European space right now. It gives the New York-based firm a bigger footprint across the continent with now three offices in the Netherlands, Germany and Switzerland plus addition of Think founders Martijn Rozemuller and Gijs Koning, and their team. In the wake of the final confirmation of the buyout from previous shareholders Binck Bank and Flow Traders, ETF Stream spoke to Rozemuller on the occasion of him banging the opening gong at the Euronext Amsterdam stock exchange about how the deal came about and his hope to further build the business. We started by discussing why the two offerings were complementary.
First, to start with the acquisition, when did VanEck first make an approach and were they the only ones to make an approach?
Martijn Rozemuller: This whole process started at the end of 2016 when one of our now former shareholders indicated they would like an exit. At the time we thought the other shareholder would just take over their holding, but it turned out that together they reached conclusion that for both there was no longer a strategic purpose for their stake so they initiated the process of looking for an outside investor. There was a lot of interest - a lot of companies applied for the investor document - and then in the summer of 2017 we talked to a lot of potential buyers and the due diligence process was started. There were about three serious parties. Van Eck was always my preference. They were big enough to help us speed up our growth but not so big that we would get lost in their organisation. They are a family business and I come from a line of entrepreneurs. I have this feeling that if the business is family owned, they will care more about the customer. There is a different approach towards clients. I also really like the people that we met at Van Eck. There is a similar culture. It was a really good match.
When it comes to the VanEck approach to ETFs, was that something you had already looked at?
MR: Yes, when we started looking at their product offering, we realised there were some things we had in common and other things that were complementary. The mix of products looked really interesting. We have a range of mostly straightforward basic ETFs - global equity for instance - but what we lacked I think were specific types of exposure that would offer a special story. When I first started I believed investing should be really simple with no need for a fancy story but it turns out it is really hard to sell a product without that. So being able to combine our products gave us just that. And it was also the other way around - the VanEck sales people in Europe needed to sell a basic product. They had some really nice products, such as the gold products (GDX and GDXJ), global fallen angels in fixed income, all really nice but they lacked the basic stuff.
ETF Stream: So you had the basic stuff and they had the thematics - now with the extra added heft of Van Eck will help you break into other markets?
MR: Yes definitely. Before the transaction, we were looking at Belgium and Germany, for instance. But now with Van Eck, they are already have active in most countries in Europe, so all of a sudden we are able to offer into those countries. They have local sales people, they have people in Germany and Switzerland, they have people in New York and globally. We are now much more equipped. Until the deal we were eight people but now with the three countries we are 30 people. Bigger but manageable. Maybe if it has been a tenfold scaling, it would have been much more difficult.
The challenge now is that you are up against other consolidating firms. Are you watching these other moves with interest?
MR: Yes, definitely. But we also believe there will be more consolidation, particularly with fees falling further. But there are two types of product out there. There are the major indices - basic ETFs - of which there are many and where you compete on price. But the other way of competing is brining interesting products to the market that are not already out there. That is where we want to focus. There is stuff like equal weight methodology. We strongly believe that has added value compared to the market weight indices.
What is the theory there?
MR: If you look at active versus passive, the discussion has always been about how difficult it is to pick the right stock and leave out the wrong stock. Index investing should be the answer to that but a lot of active managers have claimed that if you invest in the index, you are investing in companies that have already grown. You invest more in the bigger companies. And actually, that is a valid argument. But by using equal weight you invest equally in Google or General Electric or whatever. The assumption is that you are not able to pick the right ones or allocate to those that are better or worse, so the only thing you can do to mitigate your risk is diversify and lower the cost. That is why equal weight is interesting. Plus the research on differing indices shows that it is almost impossible to show the best way to invest but the research suggests that the worst way is actually the market cap methodology. Equal weight is also the most simple and cost-effective form of investing. It isn't complex and I like simplicity. One of the counter-arguments is that equal weight can create a lot of turnover but if you stick to a yearly rebalance it is not that bad. We have a way of calculating transaction costs for the fund and for global equity it is usually lower than five basis points.
And now you have the chance to take the VanEck brand further into Europe - what messages will you be broadcasting?
MR: What they do really well is hard assets - their gold miner products are really well known, but they also have a good natural resources ETF. They have emerging markets exposure, both equity and fixed income. They have intelligently designed products which no one else offers. That is their strength. Also, they always want a pure play. If something is promoted a s a gold product, or gold miner product, then the companies must be in that business and the majority of revenues should come from that business. There are products out there from other providers which are less pure. That is something we really believe in. If you call it a horse, it has to be a horse.
Think ETFs was a challenger brand in the Netherlands - the only homegrown brand indeed but is VanEck still a challenger brand yes?
MR: Yes, and that makes it worthwhile for me at least. I really like then challenge of doing over in Europe what we have done in the Netherlands. We started out here as a retail brand. We realised that catering for institutional investors from scratch is not possible. We were not established by a big bank. So we started small, with retail. That is why we later struck a deal with Binck Bank. The focus on retail is something we can expand into Europe now. A lot of issuers concentrate on the big ticket, wholesale execution, understandably. But you need to focus on the retail, it will take some time but it might be the case that with blockchain, for instance, that the investment industry will be dealing with retail investors much more directly than they are doing today. So I think that area of the market is worth a lot of attention. We believe we understand the retail investor.
So how do you view the rise of robo-advice - is that something you will be targeting?
MR: Yes, definitely. It has been around for five to eight years and in the beginning it was really difficult to grow but it is moving along nicely now. A lot of things will change in the distribution of investment products and robo-advice is one of the those. People like it, they are more in control and costs are lower. There are probably two types of investors. Those that realise they have to do something for their financial future and then there are those that like investing. And educated risk-taker. For the two types, you need for the first a one-size-fits-call offer which should be effortless. But the second type will be looking at doing more and I think we are in a good position to service both. To cater for both types of client.