Activist: Lion Level Capital and ETFS Capital Restricted

Share Possession: 13.48%

Common Value: $5.87

WisdomTree is a pure-play ETF supplier. It has usually had a first-to-market benefit in a lot of its merchandise, so it has not been topic to the identical degree of charge compression that has been plaguing the general ETF business. Regardless of this, they’ve underperformed the S&P 500 by -24.46%, -80.08% and -125.22% over the previous 1, 3 and 5 years, respectively and the Dow Jones Asset Managers Index by over 60%. Lion Level and ETFS Capital imagine this underperformance outcomes from an inefficient administration tradition that led to the departures of a number of senior executives and board members attributable to “cultural issues,” a bloated value construction, poor capital allocation and a scarcity of strong board oversight and problem. Lion Level and ETFS Capital make some superb factors with respect to the associated fee construction.

Regardless of having gross margins in extra of 80%, in comparison with 50% to 55% for friends, the corporate’s working revenue margins are 29%, in comparison with friends who’re within the 35% to 40% vary. There are alternatives to chop prices by renegotiating WisdomTree’s outsourced fund administration and administration contracts now that their property are a lot bigger and have better economies of scale. A board with extra business expertise might additionally higher advise administration on strategic and capital allocation transactions probably stopping missteps like the corporate’s failed expansions in Canada and Japan and its funding in software program platform, AdvisorEngine, which has nearly completely been written off already. Lion Level and ETFS Capital imagine the answer here’s a reconstituted board of skilled administrators that may substitute the CEO and maintain new administration accountable in working the corporate extra effectively.

Lion Level and ETFS Capital tried a number of instances to provoke personal conversations with the board to supply constructive and sensible help. They’ve additionally proposed issues like including a single stockholder-appointed director to the board or changing administrators who’ve served on the board for 15 years or extra with stockholder-identified administrators who’ve related ETF expertise – a deeply important skillset the present board is sorely lacking. Not solely has WisdomTree rebuffed Lion Level and ETFS Capital’s outreach, however the chairman responded that “the board doesn’t search for administrators with any ETF experience as that’s what administration does. Having an ETF background isn’t a standards when in search of administrators.” Nowadays, simply having a staggered board is powerful proof of an entrenched board. This board additionally has 4 out of seven administrators with tenures of at the very least 13 years: Chairman Frank Salerno has a 17-year tenure, and Jonathan Steinberg has served as CEO and a director for 34 years. Furthermore, their lack of response to a big shareholder additional demonstrates entrenchment.

Having 2 out of 9 board seats is probably not sufficient to alter WisdomTree’s tradition or substitute the CEO, however it is going to ship a powerful message to the remainder of the board and administration. If this message isn’t robust sufficient to get the board to behave unilaterally, Lion Level and ETFS Capital must wait another 12 months till they will get two extra seats. Extra importantly, each Salerno and Steinberg are up for re-election in 2023. Throughout the subsequent 12 months, Salerno and Steinberg will probably be working with the Sword of Damocles hanging over their heads, and they’ll face vital strain to show issues round or significantly contemplate the options of Lion Level and the 2 new administrators.