Cathie Wood
Courtesy of Cathie Wood
ARK Investment Management—a privately-held asset manager founded just six years ago—has been in the spotlight a lot this year thanks to its vocal founder and stellar investment record. The firm’s success hasn’t only been spotted by many investors, but also by one of its early backers and minority shareholders.
A recent regulatory filing suggests that Resolute Investment Managers—ARK funds’ U.S. distributor—plans to take control of the company early next year.
It turns out that when Resolute acquired a minority stake in ARK in 2016, the deal also included an option that allows Resolute to purchase a controlling stake—if it wants—before the option expires in early 2021. ARK, which manages $30 billion in assets, including $15 billion across seven exchange-traded funds, has more than tripled its assets in the past year alone. Now, Resolute is exercising its option to own a bigger piece of the cake.
Cathie Wood, ARK’s founder and CEO who owns 50% to 75% of the firm, is fighting the takeover. In a statement, Wood said she is “disappointed” about Resolute’s “unwelcome notice” of its intention to seize control of the business. “The remarkable success of our team is rooted firmly in a culture of transparency, collaboration, and employee ownership,” she wrote. “We do not believe that equity ownership by a party tangential to our business is in the best interest of ARK’s stakeholders.” Wood didn’t comment beyond the statement.
It’s unclear whether Resolute’s decision to exercise the option is in any way associated with ARK’s announcement in late October—three days before the filing from Resolute—that it would explore the potential replacement of Resolute Investment Distributors as the firm’s distributor of U.S. retail and institutional products and services. Resolute declined to comment.
While it isn’t stated why ARK was looking to replace its current distributor, the firm noted in the announcement that one of its priorities is to partner with “shared-vision, best-in-class” service providers: “A successful proposal will embrace the accelerating pace of digitization and automation across the financial services industry and take advantage of the current market environment, particularly changing corporate cultures and work-remote policies.”
Wood specializes in disruptive innovations that could change how the world works and can grow exponentially over a longer horizon. She is a frequent guest of financial news media, a famous bull on controversial investments like Tesla (TSLA) and Bitcoin, and has led ARK to tremendous success both in terms of investment performance and asset accumulation.
According to Morningstar, ARK runs at least three of the 10 best-performing ETFs over the past one-, three-, and five-year periods. The company’s flagship product, the $9 billion ARK Innovation ETF (ARKK), has returned 99% year-to-date and seen its assets skyrocket from roughly $2 billion at the beginning of 2020.
ARK’s heavy bets on emerging technologies like autonomous driving, genetic testing, and the digital workplace have paid off particularly well in 2020—despite many worrying voices about the soaring valuations of some of these stocks during a pandemic-hit economy. “We probably are pushing the envelope further and faster than most people, and we have a much longer time horizon, at least seven years,” said Wood during an interview with Barron’s last month, “That’s the biggest secret to our strategy—the willingness to step in when others are selling a stock for very short-term reasons. We get great opportunities like that.”
Wood and her team are highly engaged with investors and the public. In the past year, Wood has spoken at least a dozen times on CNBC and Bloomberg TV. The firm has published eight research papers, and dozens of videos and podcast episodes in 2020. In the statement responding to Resolute’s move, Wood attributes the firm’s success partially to its “innovative digital marketing strategies.”
Speaking at the company’s Big Ideas videoconference on Tuesday, Wood says ARK is the first shared-economy company in the asset management industry when it comes to research transparency and presence on social media. She didn’t mention Resolute’s takeover during the call.
For startup asset management firms, a good distribution partner is absolutely critical to get the products into investors’ portfolios, says Ben Johnson, director of global exchange-traded fund research for Morningstar. Sometimes companies need to offer incentives to find the right partner. Still, he says ARK’s arrangement with Resolute—through minority stake and call option—is rather uncommon for the industry.
“Abundantly clear in hindsight, this call option is grossly mispriced,” says Johnson. But he noted that while it’s easy to question ARK’s judgment on the deal given the firm’s tremendous success today, things were far from certain years back, when it was just starting out, trying to make inroads into the market and raise capital.
Johnson highly doubts there will be a management change at ARK. “Resolute has been operating largely at arm’s length, distributing products and opening doors for the ARK team and not necessarily meddling in their day-to-day affairs and telling them how to manage money,” says Johnson, “What they want to do is to exercise the call option that is very much in the money right now, that’s what they signed up on.”
Write to Evie Liu at [email protected]
