It’s offered by a Canadian firm that’s a proving ground for crypto funds and other novelties. U.S. citizens can sometimes get in.
Count on the country with a reputation for stodginess to deliver the wild and crazy stuff.
A bitcoin ETF holding coins, not futures. An exchange-traded fund that holds bank deposits. Things that look like shares of Amazon or Tesla but pay a dividend. A refundable lifetime annuity.
Such innovations have either not yet been tried in the United States or are outright forbidden here. They are all on the menu at Purpose Unlimited, a Toronto fund manager whose creative force is Som Seif.
Seif, 47, started the company in 2013 and has built it to $12.6 billion in assets under portfolio management, plus another $4.6 billion administered as the back office for financial advisors in Canada. (These and other figures are converted from the Canadian dollar to U.S. currency.)
Somehow this outfit competes with the likes of BlackRock, Vanguard and Fidelity, each managing trillions of dollars. “This isn’t a winner-take-all business,” says Seif. “It’s the most fragmented business in the world.”
And one in which little firms sometimes upstage big ones. That bitcoin ETF is something that BlackRock and a lot of other players would dearly love to offer in the United States. The U.S. Securities and Exchange Commission has rejected all proposals for ETFs holding coins directly, although it has permitted ETFs that hold futures on coins, which put an additional layer of middlemen between the speculator and the coins.
Purpose says its bitcoin ETF, approved by Canadian authorities in 2021, was the first on the planet. Together its various crypto ETFs hold more than $1 billion. Says Seif: “That’s $1 billion that didn’t get caught up in FTX or some other scam.”
How is it that Canada is years ahead of the U.S. in official tolerance of digital currencies? Seif spent a lot of time wooing the bureaucrats before dropping a registration statement in their laps. “Regulators are there to engage,” he says. “That can lead to more innovation.” Something else Canada has going for it, he says, is a welcoming attitude toward immigrants. Seif’s father, who has a Ph.D. in chemistry, is an Iranian expatriate.
Som Seif began to follow in his father’s footsteps with an engineering degree at the University of Toronto but then veered off into investment banking. At the Royal Bank of Canada he crossed paths with Claymore Securities, a Chicago firm that specialized in unit investment trusts, a cousin of ETFs.
At 28, Seif landed the assignment to start up Claymore’s Canadian ETF venture. In seven years he took it from nothing to $5.8 billion in assets. That gave him, when the operation was sold to BlackRock in 2012, the credibility and the cash payout (he won’t say how much) to go off on his own a year later.
Objective: Find niches. The bank-deposit ETF, currently yielding 5%, is a creative way to extract interest from institutions not in the habit of paying market rates on demand deposits. Seif’s variation on single-stock ETFs, available for Alphabet, Amazon, Apple, Berkshire Hathaway and Tesla, manufactures a payout for the yield-hungry by combining leverage with the sale of call options on some of the share holdings. His gold bullion fund competes with SPDR Gold Shares by allowing investors with as little as $62,000 to redeem for one-kilo bars of gold; with the SPDR product you can’t come to the exchange window with less than $17.9 million.
The most novel of Seif’s novelties is Purpose Longevity, a lifetime annuity with a refund feature. It’s structured, unconventionally, as a mutual fund.
When you retire you put in, say, $100,000, and get annual payouts, currently set at just under 7% for a 65-year-old. The money is invested in a moderately risky portfolio containing mostly stocks and bonds. At this point you’re pretty much where you’d be if you invested in a balanced fund from Vanguard and instructed Vanguard to annually remit to you 7% of whatever is left. At Vanguard, your payouts will decline if the fund earns less than 7%.
Buy Purpose Longevity and you’ll have a somewhat diminished cash-out option but a better chance of keeping up with inflation. You (or your heirs) can depart at any time, collecting the lower of your unrecovered cost or the current value of your fund shares. Thus, if you leave or die after a bull market, you’ll be leaving some money on the table. The sums left behind benefit participants who live long and stay put. Actuaries who helped Purpose design the product calculate that these give-backs should add 1.5 percentage points or more to the portfolio’s annual return.
HOW TO PLAY IT
By William Baldwin
One of the unlikely holdings in an early Purpose equity fund was a small stake in the Purpose management company, which appreciated 50-fold by the time it was cashed out. Alas, you can’t buy in today. Make do with shares in
Artisan Partners Asset Management, Franklin Resources, Invesco, T. Rowe Price Group or WisdomTree. Enterprise values (market capitalization plus debt minus cash) run between 1.3% and 2% of assets under management. The industry is experiencing a painful leakage of customers out of active portfolios into cheap index funds, but offsetting that are the low price/earnings multiples. All in all, fairly priced bets on a rising stock market.
William Baldwin is Forbes’ Investment Strategies columnist.
The annuity industry is dominated by insurance companies, which offer fixed lifetime payouts, roughly $7,000 a year for a 65-year-old male putting in $100,000. But insurers don’t allow buyers to change their minds once a purchase is made.
Competing against a traditional mutual fund, Purpose Longevity offers retirees that mortality-driven enhancement to returns. Competing against fixed annuities, Longevity offers some hope of a rising payout as well as the unusual redemption option. Seif doesn’t expect that many buyers will want out, but it does happen; one cash-out recently went to a customer who got a grim prognosis from his doctor.
Mostly confined for now to the small domestic market, Seif has done pretty well for himself. Purpose was worth $700 million at its latest valuation. He has brought in outside capital, including $60 million from German insurer Allianz, to finance expansion, but has managed to hang onto more than a fourth of the equity.
Purpose could really go places if it followed Royal Bank’s lead in invading the American market. When can mere mortals south of the border get their hands on a longevity fund? Seif hints that something is afoot but can’t disclose plans. As for crypto funds: Fidelity Investments allows trades in Canadian ETFs, but most U.S. investors have to pray that the SEC’s regulators eventually open their ears.
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