Direxion Funds, based in Boston, is known for creating innovative tactical exchange-traded funds, particularly leveraged index funds. Its South Korea and Brazil Daily Bear 3x Shares fund, for instance, moves in and out of stocks as needed, to try and triple the return of the MSCI Brazil and Korea 25/50 Index, in the opposite direction.
Recently the company's CEO, Dan O'Neill, saw an opportunity on the strategic side of the business, and decided to move Direxion towards becoming an investment advisor that can provide a number of different products including mutual funds to a variety of shareholders. To that end, he's made some key hires, including Eric Falkeis, president and chief operating officer.
Falkeis sat down with Money Management Executive to talk about the expansion and new products.
What opportunities do you see right now for launching products with new and different bents?
Right now we're looking at income-producing products. We're really focusing on risk mitigation on the downside. Also, possibly some alternative strategies, like currency, for example.
Any other specific alternative classes you are looking at?
There are a number of ideas, whether it be master limited partnerships, or other income-producing products. We're looking at low volatility and currency.
What vehicles are you looking at, just ETFs or also mutual funds?
We're looking at both, primarily mutual funds on what we'll call the strategic side of our business, which are the alternative strategies. However, we do have some that we're thinking of right now as ETFs. We're trying to figure out what the best vehicle is to provide solutions in the marketplace, be it ETFs or mutual funds.
Can you elaborate on how you make the decision as to what the best vehicle for the strategy is?
It comes down to who we are partnering with on the licensing side, also the economics of it and what distribution channels we would be using. Also, it depends on what's already out in the marketplace.
When you joined Direxion, you mentioned that you would be pursuing multiple expansion opportunities, does this include buying assets or other companies?
We're looking at a number of different fronts. While we will continue to expand on the tactical side of our business, which are the leverage products, we're also looking to also expand on the strategic side, which as I mentioned are the alternative products, whether they be funds or ETFs. We would also be interested in advisors that would like to enter into the space-this is more on the ETFs side.
Then we are looking at acquisitions or joint ventures with alternative managers. If we see a boutique advisor in the alternative strategies space that has a great strategy, we can help them with the distribution side, the infrastructure and intellectual capital.
One thing we're considering right now is to provide customized solutions for advisors. That's really in the beginning phase. I'd say what it would primarily be is acquisitions and strategic partnerships or joint ventures.
You are the second hire from U.S Bancorp.What experience there is applicable to what you are doing now?
The other hire was Pat Rudnick, who joined Direxion in early May as CFO. I worked with Pat extensively over the past seven years. Pat is coming in to develop these strategic partnerships or acquisitions, looking at the economics of those partnerships and helping assess the due diligence perspectives on companies we'll do business with.
We're also looking at the operational side of our business, to see if we can increase efficiency. We're developing the structure as we expand, really putting the framework in place. What we want to do is build a foundation in the company so as we expand into new areas, or with new products, we have a foundation which is scalable.
We also hired a new head of sales on both the tactical and strategic side, Steve Rudman, who came from PIMCO and also previously worked at Eaton Vance. We'll expand our distribution force strategically, effectively and quickly.
Would that be wholesalers?
Yes, that would be internal, external and hybrid. We are currently hiring for those positions.
Do you know how many people you would be adding headcount wise?
I would say probably five to seven in the next two months.
As far as distribution, are there any other avenues you are pushing in sales or platforms?
The framework is in place, it's a matter of working diligently and effectively on penetrating those channels and strategically working with those partners. What we're focusing on is the expansion of the sales team. Really on the structure and messaging, to ensure that our sales team is delivering a succinct, organized message.
Is there anything else that is part of this strategy?
Overall, it's an exciting time for Direxion. The key was to get the management team in place for all the different business lines and build an infrastructure that is scalable for growth. It's a two-pronged approach: a product development group that is focused on being innovative and unique in the marketplace and the sales team that really understands the products, are experienced and really have ambitions to grow the firm.
We're not just going to launch products for the sake of launching products. We're going through a significant amount of intellectual research. You see that as we launch them.
When will the products be launching?
You'll see a few of the new products being launched in Q3. We're very close to finalizing those concepts. This will be on the strategic side of business; on the tactical side you will see us continuously offering new products. Within the tactical group we will be building out the quantitative analysis group that continuously runs models.
What was the impetus behind this large-scale build-out at Direxion?
It's the next natural wave of the business cycle at Direxion. We've experienced success on the tactical side with leveraged products. The next growth phase is on the strategic buy-and-hold side. We have the expertise to use derivatives, to short. This is very beneficial in the alternatives space as opposed to traditional long-only management.