Arrow Funds is building out its sales team with an eye on expanding distribution of its alternative products in the RIA channel.
Arrow was founded in January 2006 by Rydex alum Joe Baratto, currently the CEO of Arrow Funds, after he left Rydex following its sale to Security Benefit. Through the years, Baratto has hired former colleagues to staff his new endeavor and recently added another in the form of John Cadigan, as the firm's national sales manager.
Cadigan recently spoke with Money Management Executive to talk about why he joined Arrow, the firm's plans to build its distribution among RIAs and future hires.
Tell us why you made the move and what some of your plans are for Arrow Funds?
I saw an opportunity, and this rarely happens, where you have the ability to work with people who you personally like and professionally respect. Joe has been after me for quite some time to join his organization.
I have a long history with the folks at Arrow. In fact 90% of the organization is former Rydex individuals. These are the people that were responsible for Rydex's first foray into the alternatives space really taking Rydex from a leveraged investor trading shop to a specialist within the alternative space.
Joe came up with one of the first sector momentum based strategies in the industry. He was the one who got the green light for the first managed futures mutual fund in the industry.
One of the things that all of us at Arrow collectively took away from our experience at Rydex, which was really Skip Viragh's mantra, was pay attention to your clients and build product in unison with what they're trying to solve. That really resonates with this organization, which is one of the driving forces of why I joined. We're a boutique organization that is very nimble and is paying close attention to what is happening in the marketplace and we'll build strategies accordingly.
We do plan on making some additional hires from a distribution standpoint. That is going to be matched with increasing our competency. We have four exchange-traded funds currently in registration that we believe have relevancy and will resonate with advisors trying to problem solve or take advantage of opportunities in the marketplace.
I think the managed ETF space is really a necessity and is poised to grow over time. I'll give Tom Lydon the credit for this comment. He and I were chatting about three months ago and I said, "What do you think of this space?" and his response was, "This is like where the mutual fund industry was in the 80's."
In terms of the new strategies you are bringing to the market, can you talk a little more about them?
Aging Baby Boomers will be selling into the equity markets for the future decades in order to reduce their overall risk profile in their portfolios.
We're trying to solve on the other end for income-based strategies that will better manage risk within the portfolio. Since they are in registration, I don't know how openly I can speak about them.
In terms of the distribution team, how many wholesalers do you currently have on board and how many do you plan to hire?
We currently have five externals, three internals and the first thing we're going to do is look at beefing up our internal sales desk.
We take a very surgical approach to what we do. We don't disregard the individual RIAs, they are very important to our business, but if you look at where the alternative business is being done, at the individual FA level at the major wirehouses, it's only about 3% utilization of alternatives.
If you talk to the larger discretionary teams, the analysts of those teams have had the time to research and understand what the landscape looks like as far as alternative strategies availability. They know the portfolio metrics from a risk/return standpoint, they know the funds and they can make implementation very easy because they don't have to make a phone call every time.
This is the same thing for the larger RIA's and their analysts, they typically have discretion and they understand the landscape. These people are already at 15% to 20% alternative implementation because they have that specialization on their team. We're trying to tap into that specialization.
Any plans to bring on board additional ex-Rydex folks to Arrow?
We want to add people to the team on the alternative front, but also we want people that understand what it is to grow a business. We're looking for people to come on-board and work with limited resources and get the job done.
We're competing with some fairly large, deep pockets so we want people that think more entrepreneurially than anything else. That's a very unique thing in this business, there are not a whole lot of people that have been able to go in and create successful investment management firms, so that's the type of profile we're looking for.
What is your ultimate goal as far as sales and products? What are you looking to accomplish?
We don't want to be all things to all people, but we are looking for those folks that see the value of alternatives. Ultimately we plan on growing smart.
We definitely want to manage our resources effectively and the industry is littered with firms that have over staffed only to cut people after a year, a year and a half. That has a substantial impact, personally and professionally on people.