TCW Group, the asset manager with a long history of managing bond funds, is expanding into exchange-traded funds with an agreement to buy an ETF business from activist investor Engine No. 1.
The acquisition, the first for new TCW Chief Executive Officer Katie Koch, includes a platform with more than $600 million of US equity ETFs and is expected to be completed in the third quarter, pending shareholder approval. Terms weren’t disclosed.
Engine No. 1 CEO Jennifer Grancio, 51, a founding member of BlackRock Inc.’s iShares ETF business, will join Los Angeles-based TCW as global head of ETFs.
“This acquisition signifies an early chapter in TCW’s next stage of growth, adding important capabilities and infrastructure to provide clients with the ability to access TCW’s best investment ideas and strategies through innovative financial vehicles,” Koch, 43, a former Goldman Sachs Group Inc. executive who took over as CEO early this year, said in the statement.
Engine No. 1 is known for leading a successful activist campaign to replace three members of Exxon Mobil Corp.’s board as it pushed the energy giant to move away from fossil fuels. Its platform includes three ETFs — under the tickers NETZ, SUPP and VOTE — focusing on climate change and supply chain onshoring.
TCW could double or triple that number this year with new launches, pending approval from regulators, and may seek to convert mutual funds into ETFs.
Strategic Partnership
The ETF industry could roughly triple to $30 trillion of assets by 2033, Brown Brothers Harriman said in a report earlier this year.
The vast majority of TCW’s $205 billion of assets is dedicated to fixed income and equities, and it’s also focusing on alternative investments. Earlier this year, TCW announced a strategic partnership with Lakemore Partners Ltd. to bolster the growth of the asset manager’s collateralized loan obligation platform.
The Exxon proxy battle is the only activist action that Engine No. 1 has publicly announced. It subsequently launched the three ETFs, which had $94 million of inflows so far this year, compared with $149 billion for all US equity ETFs. Going forward, Engine No. 1 will focus on its alternatives business, including its hedge fund and private equity, according to a person familiar with the matter.
“TCW is one of the most prominent asset managers that does not offer their own ETFs but only mutual funds,” said Todd Rosenbluth, head of research at consulting firm and ETF data-provider VettaFi. “The pendulum is not swinging back away from ETFs, and so it makes sense to be more than just a sub-adviser.”
Bringing on board an Engine No. 1 team that already has the expertise to create and distribute ETFs was a primary motivation for Koch.
“TCW did not previously have that capability, and that’s really important for the future of asset management,” she said in an interview.
Sustainability is another key part of the strategy. According to Koch, TCW estimates that capital expenditures will jump from $1 trillion to about $5 trillion in order for companies to finance the transition to net-zero by 2050.
“There’s a massive wealth-creation opportunity for our clients,” Koch said. “We’re not a divestment company, but rather, an investment company.”
--With assistance from Emily Graffeo.
(Updates with ETF inflows in ninth paragraph, analyst comment in 10th.)