Vince Birley, CEO of Vident Financial, explains that his firm, which now has nearly USD2 billion under management, was founded in 2014 with the specific aim of being run with a principle-based approach.
The firm spun out from a wealth management firm and creates proprietary indices and sponsors and manages ETFs - and the indices are based on time-tested principles. That theme lies at the very heart of the firm because it is owned by a Trust, with excess profits reinvested into the firm or used to reduce investor fees.
Birley comments that it was quite a challenge trying to find an attorney to set up a structure where the firm’s owners wouldn’t make any money.
In setting up the business, Birley worked from the basis that a lot of people were focused on short term results and looking at short term factors to find ‘cheap beta’.
“I concluded that we needed to be thinking about five, 10 and 20 years ahead, looking at principals that look that far ahead rather than one year,” Birley says.
“You need proper levels of diversification and one of the things that is embedded into all our products is diversification with a base line of equal weighting leaning into areas where leadership environments incentivise and protect human productivity by ,” he says.
“We apply these principles to both companies and countries to identify their long term opportunities and risks.” .”
The next stage was to say: ‘We may have all the right leadership and governance principals but can we get a return? This is where we apply our valuation principle to test the price before making the investment.’”
Vident has five ETFs, the most recent of which is the PPTY - US Diversified Real Estate ETF, a multi-factor alternative to traditional market cap-weighted real estate funds.
“What we found out is that the wisdom factors attract investors who want ESG principals to our products. We built the whole thing trying to accomplish return goals so we have made no returns sacrifice at all within the ESG space.
“The neat thing is that when you treat people with dignity you have a better work environment and a better return. Vident is set up to get a good return for shareholders so we want executives and boards to understand they are stewards not owners of companies for shareholders.”
In terms of product innovation, Vident identifies a need from the outset. “We don’t create products hoping people will come,” Birley sys. “I have to hear of an idea and shop it around the management firms to see if there is a fit.
“We have a network of people who are getting familiar with our principles and we take those ideas around the industry.”
The profits are used for the benefit of the shareholders and so we have to have a high certainty that our ETFs will be successful and profitable.”
The PPTY launch has raised USD22 million in one month, making it one of the fastest fund launches, according to Vident. It joined the USD20 million Forensic Accounting ETF - a rules-based, systematic strategy that seeks to enhance investors’ US large cap exposures by offering a long-short portfolio based on companies which have gone through a forensic accounting process.
“In looking at leadership and governance, one of the things that can be identified in companies is are the financial statements presented to the public ones we can trust. Is the ‘e’ in the p/e ratio accurate?” Birley says.
“So, we go long companies that have good characteristics from an accounting perspective, and short those that are highly valued and that have problems.”
The biggest ETFs in the company are the international equity product VIDI, followed by the US equity ETF VUSE each with USD600 million under management.
With the principled approach to investing, Birley says: “I only have to answer to the shareholders of the funds which gives me great job satisfaction. I sleep well at night.”
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