TCW agrees deal to buy Engine No. 1’s ETF business

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TCW Group has agreed to purchase activist investment manager Engine No. 1’s ETF business, the companies announced on Tuesday.

The acquisition, which is expected to be completed in the third quarter pending shareholder approval, will give the $210bn TCW its first in-house ETFs.

Engine No. 1 offers three ETFs, according to Morningstar Direct: the $495mn Transform 500, $113mn Transform Climate and $11mn Transform Supply Chain ETFs. Investors piled a combined $84mn into those products during the year ended June 30, including $69mn into the Transform 500 ETF, the database shows.

Terms of the deal were not disclosed.

Jennifer Grancio, the activist investment company’s chief executive, would become TCW’s first global head of ETFs, TCW confirmed. Grancio was part of the founding team at iShares in 1999, her LinkedIn profile shows. BlackRock bought the unit in 2009 as part of its deal to acquire Barclays Global Investors. She remained at BlackRock until 2018.

Grancio then spent two years as a consultant at Grancio Capital, a consulting firm she founded, before becoming Engine No. 1’s chief executive in the latter half of 2020, according to her LinkedIn profile.

Once the acquisition was completed, Engine No. 1’s ETF portfolio managers and staff would become TCW employees, the announcement noted.

TCW employs about 690 staffers globally, the company confirmed.

Engine No. 1, meanwhile, did not disclose its headcount, it said.

Engine No. 1 was founded as a hedge fund in November 2020, a regulatory filing shows. The company gained notoriety through a high-profile proxy battle in 2021, when it nominated four directors to the board of ExxonMobil, urging the company to embrace “transformational change” and address business risks stemming from its emissions.

Two of the four dissident directors won that election with backing from BlackRock, Vanguard and State Street.

Engine No. 1 launched its first ETF, the Transform 500 ETF, in June of that year.

Though TCW does not offer any ETFs, as a subadviser it manages four manufactured by First Trust: the $4.3bn First Trust TCW Opportunistic Fixed Income, $1.5bn Unconstrained Plus Bond, $86mn Securitised Plus and $32mn Emerging Markets Debt ETFs. The four funds recorded $1.1bn in net inflows during the year ended June 30, Morningstar data shows.

TCW managed $9.4bn in mutual fund assets as of June 30, according to Morningstar. Some $8.1bn of those assets are in the firm’s seven taxable bond funds.

“TCW is one of the most prominent asset managers that does not offer their own ETFs, but only mutual funds,” said Todd Rosenbluth, head of research at VettaFi. “The pendulum is not swinging back away from ETFs.”

TCW’s “strong brand” with advisers should allow the firm to break into the ETF market, despite being a late arrival, Rosenbluth said.

“[The] addition of an experienced team will help TCW make up ground in the ETF market,” Rosenbluth said. “Grancio has a proven record of success and can help build a broader line-up as part of the well-established asset manager.”

The deal marks TCW’s first acquisition under chief executive Katie Koch, who joined the company in February. TCW in April announced a strategic partnership with private credit investment firm Lakemore Partners to build out TCW’s collateralised loan obligation platform.

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