Raj Lala, president and CEO of Toronto- based Evolve Funds Group Inc., has been making waves since he plunged into the Canadian ETF pool in mid-2017 with a handful of actively managed and theme-based ETFs.
By the end of last year, Evolve’s ETFs had attracted $100 million in assets under management (AUM). The most popular ETFs focus on actively managed preferred shares, followed by cybersecurity and automobile innovation.
The firm also took over a competitor’s ETFs shortly after Evolve’s ETFs began trading. “We launched eight products in the first few months, filed prospectuses for two more funds and made an acquisition,” says Lala, looking back on his firm’s remarkably rapid launch.
One of the new firm’s ETFs, Evolve Marijuana ETF (TSX: SEED) began trading in mid-February. By the end of that month, the actively traded ETF had attracted almost $2 million in AUM.
Another product, Evolve Blockchain ETF (TSX: LINK), which focuses on the cryptocurrency industry, launched in March, as did a fixed-income entry, Evolve Active Core Fixed Income ETF (NEO: FIXD).
The decision to launch Evolve last year marked a fork in the road for Lala, a 20-year veteran of the financial services sector. Lala, age 45, had recently parted ways with Toronto-based WisdomTree Asset Management Canada Inc. after a short stint as president. At that point, he decided to return to his entrepreneurial roots and launch his own ETF company.
“I love building a business, and this is a great adventure for me,” Lala says. “I’ve realized I’m probably not cut out to be an employee. My skill set is broad, I’m a jack of all trades and know a little bit about everything – from coming up with product ideas to managing a team. If you’re an employee of a large organization, they want you to have a specific skill set and a defined set of responsibilities. But I can’t thrive when I’m compartmentalized or pigeon-holed.”
Evolve’s lineup includes a couple of firsts for Canada, including Evolve North American Gender Diversity ETF (TSX: HERS) and Evolve Cyber Security Index ETF (TSX: CYBR). Another, Evolve Automobile Innovation Index ETF (TSX: CARS), is the first in the world to focus on the transformation in the automobile sector, with holdings in manufacturing, technology and parts suppliers. Evolve also offers two “enhanced yield” ETFs (one focusing on U.S. banks, the other on global health care), a preferred share ETF, a short-duration bond ETF and a core U.S. equity ETF. The last three, among Evolve’s first products, are actively managed and were launched in October 2017.
Just before yearend, Evolve acquired a book of ETFs sponsored by Sphere Investment Management Inc. of Toronto. The deal added $68 million in AUM and three ETFs to Evolve’s stable. These ETFs focus on markets in Canada, Europe and emerging countries.
“In the short time Evolve has been open for business, it has had a flurry of product launches and acquired an ETF competitor,” says Rudy Luukko, investment funds and personal finance editor with Morningstar Canada in Toronto. “Trendy investments clearly play a prominent role, but Evolve also recognizes that it needs to be present in core asset categories. An important step in that regard was acquiring the broadly diversified Sphere ETFs, which are based on indices maintained by FTSE [Group], one of the world’s biggest names in indexing.”
Evolve faces a challenge carving out a piece of the ETF pie when a few big incumbents, such as the iShares division of BlackRock Canada Asset Management Ltd., BMO Asset Management Inc. and Vanguard Investments Canada Inc. (all based in Toronto), dominate the ETF industry. But, Lala says, with ETFs still setting sales records, there’s room to succeed in the corner that remains open to smaller players. “There are certain areas where we see opportunity,” Lala says, “and that’s in innovative products, in which active management can make a difference, as well as in thematic index-based ETFs tied to long-term investment trends.”
Hiring high-quality external money managers is part of Evolve’s differentiation strategy. There are top-rated global managers who want exposure in the Canadian space but who don’t want to set up the infrastructure themselves and are happy to be subadvisors, Lala says. These subadvisors include Chicago-based Nuveen Asset Management LLC, New York-based Credit Suisse Asset Management LLC and Toronto- based Foyston, Gordon and Payne Inc.
Lala is no stranger to startups. Previously, he was involved in the launch of a handful of companies focusing on mutual funds, hedge funds, closed-end funds and principal protected notes. He also spent time at established firms; notably as executive vice president, capital markets, for Montreal-based Fiera Capital Corp.
Lala’s goal for Evolve is to reach $1 billion in AUM in the first three years of operation. Based on his pace so far, he just might make it.