IndexIQ Takes Fleites: Where Does It Go From Here?

by: IndexUniverse

Agustin "Gus" Fleites has signed on as president of the index and exchange-traded fund start-up IndexIQ, in a move that instantly establishes IndexIQ as a company to watch.

Fleites is without question one of the biggest names in the ETF industry, and has a long history in asset management. He spent 18 years at State Street Global Advisors (SSgA) helping to build that company's ETF business more or less from scratch, holding titles like Head of ETFs and President of SSgA Funds Management. Fleites left SSgA during a shakeout of the executive team, but landed at ProShares just three months later, in October 2005.

At ProShares, Fleites helped shepherd that family of leveraged and inverse-leveraged ETFs through the Securities and Exchange Commission, finally getting the products launched in July 2006 after six and a half years in registration. Fleites then managed the hugely successful launch of those funds, which gathered $1.5 billion in their first three months of trading (and currently hold more than $8 billion in assets).

In October 2006, however, just three months after the initial ProShares launch, Fleites left the company. It was never clear exactly what happened there: A difference of vision with ProShares management? Money issues? No one knows.

Regardless, the question of where Fleites would land next has been a hot topic in the industry ever since. A number of firms have vied for his services, and the fact that IndexIQ landed him is a big win for that company.

What Is Fleites Joining?

IndexIQ has been slowly making a name for itself in the index and ETF industry. According to the company, IndexIQ is "combining the benefits of passive index investing with the alpha sought by the best active managers, "bridging the gap" between active and passive management."

The company is pursuing a number of strategies, from designing ETFs to pursuing separately managed accounts.

In the ETF space, IndexIQ has partnered with Claymore Advisors to launch the Claymore/IndexIQ Small-Cap Value ETF (SCV), a quant-screened value ETF designed to outperform the market. IndexIQ designed the index for the fund, while Claymore managed the launch.

IndexIQ also has its own lineup of 20 ETFs in registration, tied to what it calls "Intangible" indexes. The funds attempt to quantitatively measure "intangible" business benefits like "Market Power," "Customer Loyalty" and "Corporate Governance," which it says are linked to market outperformance.

More interesting than either of those, however—and the reason Fleites likely joined the company—are the new products the company launched today.

HedgeIQ

The company announced the launch of managed accounts tied to a series of hedge fund replication indexes. These new indexes, dubbed "HedgeIQ," use liquid instruments like ETFs to replicate the performance of various hedge fund strategies. Four strategies launched today:

  • HedgeIQ Composite
  • HedgeIQ Long Short
  • HedgeIQ Market Neutral
  • HedgeIQ Fixed Income Arbitrage

The strategies perform similarly to the CS/Tremont Hedge Fund Indexes, but instead of tracking the performance of individual hedge funds, they replicate the performance characteristics of the CS/Tremont indexes by investing in various ETFs. The advantage of the HedgeIQ products is that they can be delivered to investors at lower costs and with more liquidity and less idiosyncratic manager risk than competing products.

Currently, IndexIQ will offer these strategies only in managed account platforms. With Fleites coming on board, you have to think that they're angling toward the ETF market as well. Fleites is famous for building multi-billion ETF lineups, and the truth is there are very few of those opportunities left. A family of "hedge fund ETFs" is one of those opportunities.

ETFIQ

IndexIQ also announced the launch of three tactical investment strategies:

  • ETFIQ Commodity Rotation
  • ETFIQ Country Rotation All World Ex-US
  • ETFIQ Country Rotation Developed Markets Ex-US

The strategies will try to net strong returns by rotating among the various publicly traded ETFs in these various markets. As with any rotation or stock-picking strategy, the proof will very much be in the pudding, and IndexIQ may need to produce extensive real-time results before these strategies gain a large following.

Where Do They Go From Here?

With Fleites joining on and the managed accounts business launching, IndexIQ has certainly grabbed the industry's attention. Watch for ETFs tied to the HedgeIQ strategies in particular to hit the SEC soon, if the company can figure out the various issues involved. Hedge funds have been one of the last frontiers for low-cost, passive investment strategies. Moving into that space would be a real coup, opening up the hedge fund space to retail investors in a major way.

"Gus is an industry pioneer who has earned his reputation in asset management building multibillion-dollar platforms and introducing innovative strategies and products that have given investors and advisors access to institutional approaches to wealth management," said Adam S. Patti, chief executive officer at IndexIQ. "His extensive industry experience and strong commitment to IndexIQ's philosophy make Gus the ideal person to lead the launch of our asset management business as we bring our Rules-Based AlphaTM strategies to the marketplace."

Written by Matthew Hougan

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