Tremblant's TOGA ETF Launch: Hedge Funds Eye ETF Market Entry

Key Takeaway

• Tremblant Capital launches TOGA ETF, converting from a tax-efficient fund with a 36.2% return before tax in 2023, signaling hedge funds' growing interest in the active ETF market.
• TOGA's management fee of 0.69% undercuts traditional hedge fund fees, offering investors lower costs plus tax and liquidity advantages.
• The move reflects a broader trend of hedge funds entering the ETF space to access retail assets amid declining inflows into traditional hedge funds.

Hedge Funds Eye Active ETF Market

Tremblant Capital, a hedge fund with approximately $1 billion in assets under management, is launching the Tremblant Global ETF (TOGA), marking a significant move into the active ETF space. This ETF, a conversion from the firm's Tremblant Tax Efficient Fund, showcases a concentrated, long-only portfolio with around 40 holdings and has generated a return before tax of 36.2% in 2023. The management fees for investors are set at 0.69%, offering a cost-effective alternative to traditional hedge fund fees and providing tax advantages and better liquidity.

Fee Structures and Market Shifts

The global hedge fund industry has seen $105 billion in outflows last year and nearly $26 billion more in the first quarter of 2024, contrasting sharply with the $940 billion inflow into the predominantly low-cost ETF industry in 2023. Hedge funds traditionally operated on a 2 and 20 fee structure, but the average fee for an actively managed ETF in the US is now around 0.65%, according to Morningstar. Brett Barakett of Tremblant Capital highlighted the move to ETFs as a strategy for preferable tax treatment and greater liquidity, anticipating a trend where hedge funds offer strategies to retail investors through ETFs.

Expanding the ETF Landscape

The launch of TOGA joins a select group of US ETFs initiated by hedge funds, with names like Gotham Asset Management and Chesapeake Capital Management among them. This move could signal a broader trend of hedge funds entering the ETF market, offering high-quality investment strategies more accessible to a wider range of investors. Industry experts, including Douglas Yones of the NYSE and Ted Seides, foresee this as the beginning of a significant shift towards active ETFs by hedge funds, aiming to tap into the vast pool of retail assets.

Street Views

• Douglas Yones, New York Stock Exchange (Neutral on hedge funds entering the ETF market):

  "I don’t think this is a short-term flash in the pan."

• Ted Seides, Protégé Partners Co-founder (Bullish on hedge funds entering the ETF market):

  "I think that this could be the very very beginning of a wave of very high-quality products that are more accessible than they were in the past."

Management Quotes

• Brett Barakett, Founder of Tremblant Capital:

  "The red velvet rope is now going away... They will follow. We’re not the only commercially oriented animals."