Rob Arnott has sold the index business that helped make him famous. Now he’s using the $30 billion money-management business he kept to push deeper into active investing.
The founder of smart-beta pioneer Research Affiliates has rechristened that business Syzygy Asset Management after selling RAFI Indices to TMX Group for $490 million. With 28 employees and roughly $30 billion tied to strategies the team already manages, Arnott and some of his longtime colleagues are planning to push further into new flavors of active systematic strategies.
Alongside Research Affiliates veterans Jim Masturzo and Katy Sherrerd, among others, Arnott is developing fresh stock and diversified strategies and building a business around tax-aware long-short investing. Syzygy will also continue to manage money for firms including Pacific Investment Management Co., extending relationships built at Research Affiliates.
Syzygy, the astronomical term for celestial bodies lining up, is also a nod to Arnott, an avid eclipse chaser, who spoke with Bloomberg News after traveling to Mallorca for August’s total solar eclipse.
“We’re good at active management,” said Arnott, 72. “Our best new thinking will continue to flow first into our existing clients’ strategies, in parallel with creating some high-octane active strategies, involving concentration and leverage.”
Arnott has spent decades challenging some of investing’s basic conventions. He helped pioneer smart beta, questioning traditional indexes that give their biggest weights to the biggest companies. The Research Affiliates Fundamental Index, or RAFI, instead uses measures of companies’ underlying businesses, such as sales and cash flow, to choose and weight stocks in an equity market index.
Arnott founded Newport Beach, California-based Research Affiliates in 2002. TMX Group, whose VettaFi business provides indexes and ETF data, agreed in June to pay $490 million for RAFI Indices and completed the acquisition on Aug. 18. Research Affiliates’ remaining investment-management business was renamed Syzygy the same day.
Among the places Arnott and his team now want to expand is tax-aware long-short investing. The strategies buy some stocks while betting against others, allowing managers to generate investment losses that can be used to offset clients’ taxable gains elsewhere. Interest in the approach has surged, with Bloomberg recently reporting that roughly $1 trillion is deployed across the broader universe of strategies designed to reduce or delay investors’ tax bills.
Syzygy is finalizing what its tax-aware long-short strategies will look like, including whether they will be offered as exchange-traded funds, a limited partnership — all of these — or another structure.
“We know how to do it,” Masturzo said. “Everything starts from a perspective of, ‘Do we know how to do it? Do we have a significant edge?’ — We’re not trying to chase the latest trends in any way.”
Syzygy has one advantage most new asset managers do not: it doesn’t have to begin at the beginning. Masturzo called it “a startup that people know about.”
“After 25 years, we already have a Rolodex of potential clients that we’ve been working with,” he said. “We’re going to leverage that — in some cases, in products we’ve been running for a long time, and, in some cases, for new things.”
This article was provided by Bloomberg News.