A Minority Stakeholder Wants
to Take Control of ARK.
Cathie Wood Is Pushing Back.
Resolute Investment Managers said it will exercise its
option to take a controlling stake in the ETF company known for betting on
Tesla.
Amy Whyte
November 13, 2020
Cathie Wood grew ARK Investment Management to more than $18
billion in assets in just six years. Now, an early backer of the
exchange-traded fund company wants a bigger piece of the start-up it helped
rise to prominence.
Resolute Investment
Managers, a distributor for mutual fund and ETF companies including ARK
and American Beacon Advisors, plans to exercise its option to purchase a
controlling stake in ARK early next year, according to a regulatory filing. This option was included as part
of the minority stake in Wood’s firm that Resolute took in July 2016.
At that time, ARK was a small start-up operating out of what
Resolute chief executive office and president Gene Needles has described to II
as a small midtown office without working air conditioning. Earlier that year,
in March 2016, the ETF
company had raised its first big institutional allocation, when the State of
Michigan Retirement Systems invested $200 million. Before that, Wood told II that
ARK only had about $40 million under management.
Since then, ARK has grown dramatically, thanks in large part
to an unflinchingly bullish position in Tesla. In this year alone, the
firm’s flagship ARK Innovation ETF
has grown from $1.86 billion at the end of December to nearly $9 billion at
the end of September.
In a statement provided to media outlets, Wood said she and
the firm’s other employee-owners were “disappointed that Resolute Investment
Managers, Inc., and its private equity
owner, Kelso & Company, have chosen to issue this unwelcome notice that
they intend to seize control of our business.”
“The remarkable success of our team is rooted firmly in a culture of transparency, collaboration, and
employee ownership,” Wood added. “We do not believe that equity ownership
by a party tangential to our business is in the best interest of ARK’s
stakeholders.”
The response from ARK — pushing back against an option that
was in the original contract — is “not common at all” in these kinds of deals,
according to an executive at a firm that buys stakes in asset and wealth
managers. He spoke anonymously because he was not familiar with the specifics
of ARK’s deal with Resolute.
“A minority deal is
only a minority deal if these sorts of stipulations and conditions are not
attached to it,” he said. “When you do a deal where someone takes a stake with
the option to buy more, you’re selling a strategic stake to someone who
ultimately can control the business.”
In the regulatory filing, ARK said that Resolute notified
the ETF company of its plans on October 29. Just a few days before, on October 26, ARK had put out a press
release announcing a request for proposal process to potentially replace
Resolute Investment Distributors, a Resolute affiliate, as the distributor
of ARK’s U.S. retail and institutional products.
“In the best interest of shareholders and stakeholders, ARK
is commencing a process to evaluate potential strategic partners for U.S.
distribution,” ARK said in the October 26 statement. The firm added that
Resolute Investment Distributors would be considered in the evaluation and RFP
process.
In a statement provided to II, a spokesperson for Resolute
noted that the net assets of ARK’s ETFs
have grown from $60 million to $18 billion since Resolute’s affiliate
became the ARK’s sole U.S. selling agent in November 2016.
“Resolute Investment Managers remains the largest non-employee shareholder of ARK Investment Management and its affiliated entities and sits on the boards of directors of ARK Investment Management and its affiliated entities,” the statement continued. “As such, we remain committed to the mutual success of both ARK and Resolute Investment Managers.”
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