CEO Profile Kim Arthur of Main Management
Providing Innovative Wealth Management Solutions with ETF Strategies
Aug 4, 2009
Kim Arthur is a founding partner and CEO of Main Management, LLC which was founded in 2002. Arthur has a successful track record in asset management . He joined the Institutional Sales division of Montgomery Securities in 1987. In 1999 he became the transitional head of International Sales for Banc of America Securities in San Francisco, California. He also served on the Investment Policy Committee and the Executive Management Committee at Bank of America Securities from 2000-2002.
In an exclusive talk with Suite101, Arthur explains why investing in exchange traded funds (ETFs) is booming.
ETF Strategies as Active Investment Management Solution
In 2002 was founded as an asset management firm offering innovative active management solutions investing in just ETFs. In 2000 there were only 32 ETFs available on the market. The number rose quickly to 100 in 2002. Today there are 850 different ETFs available on the market of which 90% have been created since Main Management opened its doors.
Arthur explains to Suite101 that the goal is to provide a liquid and diversified strategy. Main Management’s ETF strategies are tax efficient, low cost, transparent, and aim to outperform the respective index. “It’s our philosophy that active management of passive indexes coupled with asset class and sector analysis produce a return stream that would exceed the benchmarks,” explains Arthur. “We control what we had the ability to control: costs, turnover, diversification, and risk management.”
ETF Strategies and Stock Market Fluctuations
The current fluctuations in the stock market have fueled the growth of ETF strategies. Extreme market fluctuations have resulted in generational high volatility and extreme high correlation among asset classes. According to Arthur, prior to this heightened volatility investors had become complacent regarding risk and were lax in their due diligence concerning leverage.
“Leverage is tricky,” says Arthur. “In a low volatile environment in can magnify returns, but once the volatility increases leverage compounds negative returns. As stock market returns have plunged below their historical averages, investors have turned their focus to lower fees, tax efficiency and liquidity of their portfolios.” This has turned the spotlight on ETFs and driven the growth of asset managers like Main Management providing a solution to these challenges. Additionally, the bear market of 2008 and 2009 has exposed many strategies that were not sustainable without leverage and an ever expanding bull market. Main Management’s clients are now demanding sustainable, rational strategies.
As a boutique manager with institutional capabilities Main Management’s competition is focused on the volume business of smaller accounts. Main Management’s approach is to develop strong relationships with larger accounts and be a trusted advisor for their clients.
“We would like to quarterback asset allocation and help facilitate clients’ cash flow to run their railroad,” emphasizes Arthur. “It’s a lot like a foundation who has yearly cash flow needs and a long term horizon. High net worth individuals should view their capital in a similar way. There is a yearly disbursement, and the need for the principal to last beyond their life, along with tax considerations.”
Challenges for Small Asset Managers Investing in ETF Strategies
Distribution and increasing market share pose big challenges for small asset managers investing in ETF strategies. “Distribution is always an expensive proposition,” states Arthur. “If you want to have a smaller number of deeper relationships there are no short cuts and they take a long time to cultivate.” The mutual fund complex spends billions a year on advertising and the wealth management industry is one of extremely large scale and limited barriers to entry.
Main Management under Arthur’s leadership is also targeting the 401k industry to increase market share. The 401k market has historically been dominated by high cost mutual funds and Main Management believes that ETFs are well positioned to capture a sizable 401k market share offering a better solution for 401k plans. Blackrock’s recent $13.5 billion acquisition of iShares from Barclays is a testament to its potential.
Arthur makes it clear that educating investors on the merits and advantages of ETF strategies versus working with consultants and traditional wealth managers is key in overcoming these challenges. Arthur believes that “consultants and traditional wealth managers are masters of obfuscation” because they have sliced asset classes too thinly and avoided accountability regarding benchmarks for their client’s returns. Additionally, investors have limited or no access to many underlying portfolios or strategy structure.
A hurdle for ETF managers like Main Management is to convince high net worth individuals, endowments and institutions to act on what they know is true; the vast majority of stock-picking managers, mainly mutual funds, underperform their benchmark indexes. Active management using ETFs results in lower fees, complete transparency and typically superior investment outcomes and Main Management while small is a key player to watch in this market.
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