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spk12: Thank you for standing by and welcome to the WisdomTreat 3rd Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1-1 on your telephone. As a reminder, today's program is being recorded. I would now like to introduce your host for today's program, Jessica Zalou, Head of Corporate Communications and Public Relations.
spk01: Please go ahead. Good morning.
spk00: Before we begin, I would like to reference our legal disclaimer available in today's presentation. This presentation may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. A number of factors could cause actual results to differ materially from the results discussed in forward-looking statements, including, but not limited to, the risks set forth in this presentation And in the risk factor section of Wisentree's annual report on Form 10-K for the year ended December 31st, 2021, as amended, and quarterly report on Form 10-Q for the quarter ended June 30th, 2022. Wisentree assumes no duty and does not undertake to update any forward-looking statements. Now, it's my pleasure to turn the call over to Wisentree's CFO, Brian Edmiston.
spk02: Thank you, Jessica, and welcome, everyone. I'll begin by reviewing the results of the third quarter, and we'll then turn the call over to Jarrett and Jono for additional updates on our business. We've been operating against an incredibly challenging market backdrop, with interest rate increases occurring at a pace not seen in decades to combat surging inflation and concerns over an imminent recession. Broad-based equity markets dropped into bear market territory during the quarter, contributing to a decline in our AUM from negative market movement. That said, our results have been remarkable considering the market conditions, as we have generated 1.7 billion of flows during the quarter and 8.7 billion year-to-date through October. Fixed income has been the primary contributor of our success with our floating rate treasury product, USFR, generating over 2.8 billion of flows during the quarter and almost 9.7 billion year-to-date. However, not to be overlooked is the 13% annualized organic growth of our U.S. equity product suite, which brought in $1.2 billion during the quarter and $2.5 billion year-to-date. Notwithstanding challenges we are experiencing in our commodity suite, we are delivering best-in-class annualized organic growth of 14% across our AUM with sustained momentum as evidenced by eight consecutive positive flowing quarters. Our AUM currently stands at 74.6 billion, an increase of 5% from the end of September as our momentum continues, having generated almost 1.8 billion of flows in October and having benefited from positive market movement. Next slide. Revenues were 72.4 million, a decrease of 6% from the prior quarter due to the impact of negative market movement on our AUM. Our average advisory fee also declined one basis point due to changes in our AUM mix. Adjusted net income was $9.3 million, or $0.06 a share. Our non-GAAP results exclude a non-cash after-tax gain of $78 million for our future gold commitment payment, resulting from an increase to the discount rate used to compute the present value of the annual payment obligations. Our non-GAAP results also exclude $6 million in other net non-operating losses. Next slide. Our adjusted operating expenses were down 3% for the quarter. This decrease is largely due to lower incentive compensation accruals, as well as lower marketing and sales-related expenses. Next slide. Now a few updates regarding our expense guidance. As a reminder, last quarter we had tightened the high end of our compensation guidance range by $3 million as we tempered our hiring plan. Our compensation guidance remains at $96 to $99 million. Our discretionary spending guidance is being reduced and now ranges from $50 to $51 million as we continue to balance expense management against our investments for growth. We had previously communicated a range of $51 to $53 million. We currently anticipate gross margins of 78 to 79% for the year at current AUM and SLO levels, an update from the 79% communicated last quarter. Our contractual gold payments guidance remains unchanged at about 17 million for the year, while our third-party distribution is at 8.5 million, given the impact of market volatility on the AUM on our platforms. And our adjusted tax rate was approximately 26% for the quarter. This included the impact of adjustments identified when finalizing our 2021 income tax returns. Going forward, we anticipate a normalized income tax rate of 22%, the high end of our prior guidance of 21 to 22%. That's all I have. I will now turn the call over to Jarrett.
spk11: Thanks, Brian. I will focus my comments on what have become consistent themes, our strong organic growth in ETFs and models, our strong operating leverage, and our progress and potential in digital assets and blockchain-enabled finance. Starting with growth, Q3 extended our quarterly net inflow streak to eight quarters and counting. In total, we have gathered over 8.8 billion of inflows year-to-date an industry-leading 14% organic growth rate. This is a noteworthy streak, but the breadth and depth of our flows and strong product performance might be even more noteworthy as they position us for continued growth. Looking at flows, the more than $9 billion of year-to-date fixed income inflows are only part of the story. In this past quarter and year-to-date, we have had inflows in six of eight of our major product categories. In addition to fixed income, our U.S. equity products have gathered over $2.5 billion in year-to-date net inflows, representing 13% analyzed growth in this suite alone. In addition, our product performance continues to be outstanding, with over 80% of our USAUN beating benchmarks and over 40% of our AUM in four- and five-star funds, while less than 7% is in one- and two-star funds. Contributing to our best-in-class organic growth is our managed models business. Our strategy is succeeding on two levels. First, with our platform partners, such as Merrill Lynch and Morgan Stanley, and second, with our RIA and independent broker-dealer partners, through our WisdomTree portfolio and growth solutions offering. With our platform partners, engagement and activity remains high at both Morgan Stanley, where we just hit the one-year anniversary of winning that mandate, and at Merrill Lynch, where we are a top-performing and flowing manager with our multi-asset income mandates. In fact, I'm pleased to announce that we've been able to leverage our success at Merrill to win an additional opportunity to launch three additional models within our multi-asset income mandate that are expected to go live soon on their platform subject to final due diligence. When we've won new mandates in the past, we've said that it typically takes 12 to 24 months before we start to see material flows. Given we are already on the platform and have high engagement with Merrill Advisors, I expect that timeline will be greatly accelerated. We are seeing equal success with our RIA and independent broker-dealer partners. Our easy button solution that helps implement trade and rebalance model portfolios clears a major hurdle for RIA and IBD model adoption. Currently, that pipeline for this segment is 40 deep, and we are adding to it every day. As important as growth is operational efficiency. We have built a global ETP and model business that is extremely scalable and delivers robust incremental margins. Over the past several years, we've made many operational improvements and now have incremental margins well more than 50%. And this means as markets normalize, WisdomTree will be one of the only asset managers with both a margin improvement story and an inflow story. We are also executing and delivering on our digital assets system. WisdomTree's core DNA is to provide best structured access to various asset classes. We seek to make hard to access and sometimes hard to trade exposures easy to access and easy to trade. Today's best structures are ETFs and ETPs. But the next evolution in asset management is the blockchain-enabled digital wrapper. Attacking this digital assets opportunity is consistent with our DNA. It's a natural extension of what we do today and will be an important contributor and driver of future growth. As we have discussed before, our approach is to bring crypto mainstream and to bring mainstream exposures like fixed income, equities, and commodities into the digital world through blockchain-enabled funds and tokenized assets. Regarding crypto, we have already broken ground with the launch of our crypto and crypto basket ETPs in Europe and our early direct index offering in the US. Regarding digital assets, again, we are working to provide tomorrow's best structured access to mainstream asset classes. ETFs are today's best structure. blockchain-enabled digital assets are tomorrow's best structure. We've already minted gold and U.S. dollar tokens. We recently hit a key milestone with SEC approval for our digital treasury fund, and we are building out a full digital fund suite that includes recent filings for several fixed income funds, as well as equity-focused strategies from large cap to thematic, basically everything a customer needs to build an entire portfolio. Taken together, our vision is fast becoming a reality. These are the first bricks in the foundation that will allow us to lead in the coming evolution in financial services, laying claim to the deepest exposures in the digital wrapper and positioning us to lead in an even larger opportunity our expansion into blockchain-enabled finance, where spending, saving, and investing are merged. All in all, our steady march continues. We continue to produce best-in-class organic growth on a platform with strong operating leverage and a vision that is fast becoming a reality, which will allow us to lead the next evolution in financial services. With that, let me now turn it over to Janos. Thank you, Jarrett. As we've said before, ETFs are the best structured, transparent products that exist today, and I'm very pleased with the success of our ETF franchises having in the face of a difficult macro environment. It is a fact. WisdomTree is one of the few providers with net inflows year-to-date. Jared did a great job showcasing how our success in solutions and models is improving the consistency and quality of our inflows. I'm thrilled with the expanded model lineup we've earned at Merrill, where our momentum is accelerating. Equally exciting is our early success from our expanded RIA outsource CIO offering. Jarrett mentioned, but it's worth repeating, that our high-quality pipeline is growing quickly. I think our results now prove that WisdomTree has successfully evolved from individual ticker sales, though still important, to being a true solutions provider. Our confidence has never been higher regarding future model success. We've also made exciting progress towards the best structured transparent products of tomorrow. We recently received SEC approval of our first blockchain-enabled fund, the short-term digital treasury fund. We've minted a dollar token, a gold token, and the product roadmap does not end there. We've recently filed for nine additional funds, building out a broad blockchain-enabled fund suite that includes several additional fixed income funds as well as equity-focused strategies. I realized about four years ago how WisdomTree's strengths are uniquely aligned with what would be needed to succeed in blockchain financial services. I knew that it was in our DNA. Our deep knowledge of regulation, our trusted brand, our special culture, our strength in compliance, and our leadership in product innovation has driven this cost-effective early success. Our efficiency and effectiveness implementing our digital asset strategy has been noteworthy. It's been reported Facebook spent around $300 million attempting to bring a regulated cost branded digital wallet with exposures to market, and they failed. Since the start of our digital asset journey several years ago, WisdomTree has spent less than $20 million on tokenization and on WisdomTree Prime, our digital wallet. As we've discussed on prior calls, WisdomTree Prime is currently in beta testing and remains on track for a national rollout towards the end of Q1 next year. Additionally, I want to repeat what I said last quarter. Digital assets will begin generating revenue in 2023 without a significant uptick in cost versus 2022 levels. I'm very excited about where WisdomTree is headed. We have a tremendous and holistic opportunity ahead in both ETFs, models, and advisor solutions business, as well as an early mover in digital assets and blockchain-enabled financial services. So a week ago, we announced that WisdomTree is changing its name to WisdomTree Inc. and changing our ticker symbol to WT. By dropping investments from our name and dropping ETFs from our ticker, we are expanding our mission and recognizing the importance of this moment. This brand enhancement is less limiting in nature and a natural evolution as a company. Our momentum remains strong, and I look forward to sharing our ongoing success in the coming quarters. With that, operator, can you turn the call over to our head of investor relations, Jeremy Campbell, to take some questions from our shareholders?
spk12: Certainly. I'd like to hand the program over to Jeremy Campbell, head of investor relations. Please go ahead, sir.
spk05: Thanks, Jonathan, and good morning, everybody. Similar to prior quarters, we are going to take a couple of questions from our are direct shareholders off the SAE platform. So the first question here is, how is WisdomTree thinking about the spot Bitcoin approval process at this point? What is the next step and what is the realistic path to getting a spot Bitcoin ETF approved and launched?
spk11: Thank you.
spk03: Last step, will you take this call, this question? Yeah, happy to. Happy to, John. Thank you. So there has been some recent headlines recently on the spot Bitcoin ETF. I think important to note is that this is for the U.S. We already have this product live in ETP format today in Europe. So in the U.S., look, our objective has always been to work productively with regulators. There's been a lot of news, you know, some other providers are in the process of suing the SEC or kind of other things like that. That's certainly not part of our plan at all. We want to be working productively with them, and we expect to be first or among the first to ultimately get there. I don't have an exact timeline on what that might be right now. Clearly, the SEC still has concerns. But for us, it's important to be working with them productively to try to address that. And, you know, on another note, we actually did get a very important approval from the SEC this past quarter for the Wisentrie Short-Term Treasury Digital Fund. I know that was mentioned earlier in the remarks. For us, that's actually been one of the most important developments of the year for us. And, you know, senior people at the SEC have actually recently kind of flagged that as one of the innovation-friendly things that they've been focused on doing. So, you know, we're focused on engaging with them productively on lots of things. A Bitcoin ETF is included in that. And, you know, we think we'll get there someday, but there is no immediate timeline on that right now. And we're focused on a number of other initiatives, including in digital assets with them. And, Jared, I think you wanted to add a couple points to that.
spk11: Yeah, let me jump in as well. I think it's very important to distinguish between Bitcoin and blockchain enabled finance. And a lot of people confuse the two. For us, crypto is interesting, but it's really only a use case for what can be done on the blockchain. A lot of people talk about crypto winter. Again, that may impact crypto, but the march towards blockchain-enabled finance, the much more exciting opportunity, is unwavering. We think blockchain-enabled finance is a place where we are leading, and it will change the way financial services are conducted. And really here, uh, this is about the future. We have the opportunity to lay claim to the deepest exposures in the next evolution in asset management. This is a huge opportunity and that one is completely on track.
spk05: Great. And, uh, question number two is, uh, along the lines of a couple ones that kind of got blended together, but, uh, The first being, as equity markets have waned, have you seen interest in dividend products as investors search for yield? And the other one is, how have fixed income products fared in this higher rate environment?
spk10: Great. I'm going to start with the fixed income, the second segment first, because it's really been, for WisdomTree, we've had $10 billion in fixed income flows year to date, so this has really just been a breakout year for WisdomTree's fixed income team. And it speaks to our core product development and innovation excellence. We identified an opportunity to launch the first to market beta instrument with floating rate treasuries about eight years ago. And this has just been the star performing asset class this year as rates have moved up. And we've captured that with the one week treasury getting four percent income it's really attracting a growing set of buyers in that uh floating rate treasury vehicle but what's exciting for the team and fixed income and future opportunities is now our team has been talking about for the first time in a decade there's now income back in fixed income uh you know in the high yield space you can get over eight percent yields while still screening for quality in a very systematic fashion uh and five years ago wisdom tree launched proprietary quality screened high yield and investment grade ETF. In the high yield category in particular, our high yield ETF WFHY has performed well versus the traditional beta high yield ETF since it launched. Even without a serious credit cycle, that could demonstrate the value add of our focus on quality in that segment. So this looks like a really good setup for future relative performance, future flows. of that high yield category. Again, 8% yields there now. We also have very good core investment grade fixed income. AGGY is a yield enhanced aggregate fund at scale with over a billion dollars in assets, higher duration than the traditional aggregate bond index and ETF. So if money does flow back to higher duration at some point, with our success in fixed income generally this year, We're now much better positioned, deeper client relationships to cross-sell these other bond ETFs, really that we've been in our entire history as a firm. So it's a very exciting moment for fixed income stalwarts. You know, to come back to the equity question and the team talked about earlier, we've had $2.5 billion of equity inflows year-to-date for U.S. equities, which has been, you know, again, a 13% annualized rate. And you had this 15-year stretch where growth stocks dominated value, and that was largely a headwind for our firm going back to our inception. But this is completely reversed. And more specifically, the value strategy is focusing on dividends, and we focus on a lot on high dividend stocks just performed incredibly well. We talked about the four and five stars, a few other ways to talk about the performance. We had 20 different ETFs in the U.S. within the top decile of Morningstar peer groups, and 75% of all of our U.S. listed AUM is in the top quartile. So you can see the whole approach is set up incredibly well across equities. You're seeing that in strong performance, which is catalyzing those strong inflows. And a few of the ETFs, just to overemphasize the flow picture, In the 16-year history we've had for the original dividend suite, two of those ETFs are having their best flow year since we launched. DLN large-cap dividends has taken $500 million this year, best year since we've launched. DHS is a high-dividend ETF. It's actually positive on a performance year-to-date when the S&P 500 is down 20%, highlighting, again, the strong relative performance. But globally, this strategy, we have it in USIT form and ETF form. has taken in $500 million this year. And so you can really see across the board from fixed income to equities, the improved track record, a very compelling macro environment for what we focus on at WisdomTree. We think it's going to support sales over the coming course.
spk05: Great. Thanks, Jeremy. And the last question from our SAIT platform is, where do you see the opportunity to gather assets going forward and continue organic growth?
spk11: Jarrett, why don't you start there? Great. All right. I see really three main areas for continued organic growth, and those would be digital assets, our ETF lineup, and managed models. Just taking those one at a time, digital assets, we just covered it. But really, again, a huge opportunity to own the deepest exposures in what we see as the next evolution in asset management. So a very large opportunity. In terms of our ETF lineup, Jer also just covered that. But I just reiterate, we've got best-in-class organic growth. We've got breadth and depth of our flows. We've got outstanding fund performance. And that gives us momentum. that we see continuing and an example of that in the third quarter, we had net inflows of 1.75 billion. October already has net inflows of 1.9 billion. So momentum is there and it's continuing. Managed models, we also spent a little time talking about that on the prepared remarks. But let me go into that a little more because this is also very exciting. It's one of the most important macro trends in all of wealth management. And again, as I said earlier, our strategy is succeeding on two levels, first with platform partners such as Merrill Lynch and Morgan Stanley, but then second with RIAs and independent broker-dealer partners and through our portfolio and growth solutions offerings. And here we help implement trade and rebalance model portfolios. And growth for all of that is really threefold. We want to get to have more partners. So we want more wealth management partners. We want more of our models on those platforms with our partners. And then we want to grow our mindshare with the advisors that are on all of those platforms. And those are the three areas of focus. But just touching on our pipeline, it's robust and it's growing every day. We mentioned in the prepared remarks at Merrill, we've got new models being launched there later this year. So that's an example of an existing relationship where we're doing well, we've got traction, and now we're adding existing, sorry, additional models. Yesterday, we had a press release on a new partnership with private advisor group we're a preferred partner for their 750 advisors and 29 billion in assets and we got to be a preferred partner after a rigorous due diligence process where they evaluated our investment management capabilities our technology and our distribution support so again another piece and evidence of great success And then our portfolio and growth solutions offering, we've got a pipeline of 40 firms there, generally between the size of 100 million to 750 million. We're there. We have a different approach and get a large sort of meaningful portion of those firms' assets. So all in all, you know, this is working well. We've got a long runway for growth, and a really important point is model inflows are recurring in nature. As you establish these relationships, new money comes in. It builds in the models. It's stackable on existing flows, and it's also sticky. It tends to stick around. So very excited about organic growth, and again, through those three areas, digital assets, our ETF lineup, and managed models. Thanks, Jared.
spk05: Thank you. Jonathan, feel free to open it up for some questions from our self-led analysts.
spk12: Certainly. And as a reminder, ladies and gentlemen, if you have a question at this time, just simply press star 1-1 on your telephone. Our first question comes from the line of Dan Fennett from Jefferies. Your question, please.
spk08: Thanks. Good morning. I guess just to follow up on the managed model discussion, can you talk about what the AUM is today within this channel? I know you've mentioned some big firms. And then How are discussions kind of going with other larger platforms? You can't really be on all of them because you're on some. Are you precluded from getting on other platforms given your existing relationships?
spk11: Jarrett, you want to take that first? Sure. So, you know, in the past we've talked about asset levels and ratios of new flows and being around 12%. Those ratios and asset levels are holding. In terms of the partner opportunities, yeah, we have other partner opportunities. As I was saying a second ago, the pipeline across the board is pretty robust, and there are no restrictions so far. If we're on one platform, there are no restrictions on being in another. So a big area where we, you know, are expecting to see it continue to contribute to our growth. And if I didn't mention it, you know, we had on our AUM levels, we were, you know, at zero in this initiative early in 2020. We're now over 2 billion today. Thanks, Jack. Next question.
spk12: Certainly. One moment for our next question. And our next question comes from the line of Brendan Hawkins from UBS. Your question, please.
spk04: Good morning. Thank you for taking my question. Will's comments suggested that the spot Bitcoin ETF efforts are not finished. So could you help us understand what your next steps here are? Have you received feedback from the SEC? And can you share any of that? And why aren't the concerns that Bitcoin is not considered a security that is traded on an exchange, a structural impediment to a spot ETF in the US.
spk11: Will, why don't you take that?
spk03: Yeah, I mean, so I think the maybe just restating what I think you said in terms of the concerns with the spot Bitcoin ETF approval in the US. So the SEC's biggest concern so far has been around the potential for market manipulation. In their rejection letters, they consistently reference that price discovery for the Bitcoin spot market happens on venues that they don't have oversight over or that no U.S. regulator has oversight over, which has the potential for market manipulation. I think you can really get into the weeds on this. You can point to examples in the past. You can talk about how price discovery happens on the futures markets. We could definitely spend a lot of time talking about that. But I mean, big picture, I think, you know, like I said in my earlier remarks, we're not planning on joining Grayscale's lawsuit or anything like that. We want to keep working productively with the SEC. And in past media interviews, I've said this, you know, it can't just be, you know, WisdomTree as a single asset manager alone. There is going to need to be some kind of ecosystem development evolution here. But the next steps are just continuing to be on that journey, engaging with members of the SEC and DC more broadly on this topic. But Also, like I said, it's not stopping us from doing other things in the digital asset space, like we did with WTSY, and we found the SEC and regulators to be open to that kind of responsible innovation in other formats.
spk11: Yeah, and let me just add one thing. The Bitcoin ETP has nothing related to WisdomTree Prime launching, so that's not going to be a deterrent from our launching that product. Just wanted to get that out there that they're unrelated. Yeah, and where I wanted to jump in is, again, let's not miss the forest for the trees. You know, crypto's interesting, but the real opportunity is blockchain-enabled finance. That's what Wisdom Tree Prime is about. So, you know, holdups on the crypto ETF approval don't don't do anything to the opportunity that we're working on for blockchain-enabled finance. We've got the one fund approved. We've got nine more filed. We've got great momentum here. And it's a mistake to confuse crypto, which is a use case for the blockchain. It's a big mistake to confuse that with the broader opportunity that we're really pursuing in blockchain-enabled finance, and that's WisdomTree Prime.
spk04: Yeah, they're clearly separate. One's a functional, you know, rail, and the other is sort of an asset class, I think. Anyway, on that point, though, I'd love to ask another. You have your first blockchain-enabled fund that's received SEC approval. So are you now in a position where you might be more comfortable to try to explain the benefits of using those rails? And I think it's... it's interesting and at least ironic, if not, you know, more significant than that, that, you know, treasuries are like one of the most traditional asset classes, and yet it's being administered on one of the most innovative and new platforms. And so, you know, how should we think about potential operational or efficiency improvements and benefits that you can garner through this new and unusual administration?
spk11: Will or Jared, do one of you want to start on this one? I may come in over the top, but you guys want to start? Yeah, let me start.
spk03: Yeah, I'll start. So, you know, some of the things we really liked about ETS, we think ETS are better than mutual funds bet. Liquidity, transparency, standardization, right? You know, ETS have greater liquidity than mutual funds do, total transparency into the underlying holdings, and standardization, right? The experience of the largest institution in the world and the experience of a you know, a single day trader are very similar with this. Anyone with a brokerage account can access ETFs. You're seeing these same qualities, but only enhanced with the potential for tokenization and digital assets. And, you know, one thing I'll kind of maybe on the liquidity point, just add a little bit more on, you know, I think a lot of people when Bitcoin first came out, you know, saw it as, Oh, look at this gold, like asset, you know, et cetera. I think a lot of people who are experienced in market structure, look at this, and remarked at how there's an asset that can be settled with near finality on a peer-to-peer basis on a 24-7, 365 basis. You know, for the securities markets broadly, for asset markets broadly, that is profound, right? Like, that is a huge innovation in terms of how we exchange value. That has lots of implications, you know, moving from the system today, which is highly intermediated, which has T plus two settlement times, to one where settlement times can come down much further. More and more people can participate in financial markets, more financial inclusion, and less cost. So that's what we're seeing with tokenization digital assets, and that's why we've embarked on this. So WTSY is just the first step on kind of this journey in terms of unlocking a lot of these use cases and demonstrating the potential of this. You know, one very specific example that you'll be able to do with WTSY today is peer-to-peer transferability, right? Transferring securities from one account to another is a very cumbersome process that no one would ever do, right? And to be able to unlock that for something as simple as a short-term treasury fund, allowing peer-to-peer is an innovation that we think is constructive. Another one would be connecting it more closely to other elements of financial services, right? Payments today and your brokerage account are on two totally different tech stacks. If you wanted to move value from one to another, you're talking about like a seven-day timeline. And it just isn't something you would do. In the future, this is all one tech stack, right? Or not even in the future. Today with what we're doing with Vision Tree Prime. All one tech stack, much quicker and faster exchange of value, which we think moves savings and payments much closer to investments, which we think is a constructive benefit with lower cost, enhanced user efficiency for users. So those are just a few of the examples of what we're seeing. I blogged about it if you want to take a look at that. And, you know, we'll be demonstrating this more soon as we go live increasingly and nationally later in Q1.
spk11: Jarrett, did you have more to add or was that good? Just a couple of things. I mean, I think it's important that, you know, this is compelling for the end customer. Will covered it all. But, you know, you look at our first digital treasury fund, it's at a zero expense ratio. So there's just immediate value to the consumer, but also the utility, the fact that you can spend, save, and invest in basically the same asset is new. And it's a profound difference in the financial services experience where the consumer directly benefits And then there's, of course, benefit on our side. We cut out a lot of middlemen. We cut out a lot of unnecessary expense. We diversify our revenue streams. So it enables us to succeed and thrive in a world where there's today fee pressure. So compelling for the consumer, compelling for WisdomTree. Thanks, Jared. Jeremy, you want to give us the next question?
spk12: Certainly one moment for our next question. And our next question comes from the line of Keith Housen from North Coast Research. Your question, please.
spk09: Good morning, guys. Guys, I was hoping you guys could provide a little bit more color on the beta version of Prime so far in terms of any statistics in terms of number of beta users you have, number of transactions. But help us understand, I guess, create some confidence that the beta Prime is heading toward a national raw in the first quarter.
spk11: Okay, Will, you want to start?
spk03: Yeah, sure. So we're not disclosing, you know, any kind of metrics at this point in time on beta. Everything's on track for the Q1 launch. You know, the WSPSY regulatory approval was a great hurdle that we cleared, so we're quite excited about that. So, you know, no specific color on the beta testing beyond it's been successful so far, and we're on track for our broader rollout in Q1.
spk09: Okay, understood. Appreciate it. In terms of, I guess, the European versus the U.S. ETF portfolios, you know, I think there are two different trends here. We're seeing obviously great funding flows to the U.S. in part because of the USFR, but obviously Europe's not doing so well, probably more because of commodity exposure. Is there the opportunity to do more of the European treasury type fixed income funds out there? Are you trying that and not having success? But how do we think about the dichotomy between the two different segments?
spk11: Will or Jeremy, who wants to start?
spk10: Jeremy, I'll start. So when we acquired the ETF securities platform, we were excited because they were a leader in commodities. And actually, for an inflation environment or elevated inflation over the coming years, we still do like a lot of that. Gold in particular has had some challenges with the strong dollar this year. That's been one of the headwinds, rising real interest rates, the Fed hiking cycle. You know, you could get a more supportive backdrop for sort of their largest exposure, gold, you know, as the Fed pivots from, you know, a very aggressively hiking rate. So that'll be something we look to, you know, potentially next year sometime, at least in the second half of next year. You know, but they've been diversifying from the commodities focus, and, you know, they are seeing – very good flows to things like the quality dividend growth franchise that has been our U.S. largest ETF, DGRW in the U.S. They have the same exposure. It's growing adoption over in Europe. The high dividend ETF that I mentioned earlier also in Europe is resonating. And they've been focused on thematics, or we've been focused on thematics in Europe. And we do think there's a long-term opportunity as sectors have shifted to more very specific executions And we have a very robust thematic lineup globally, but sort of, you could say, leading out of Europe. And so it helps diversify the firm. And, you know, we're continuing to focus on all of the above, you know, in terms of you've got equities, fixed income, commodities. They've got the crypto exposures. It's a very robust global lineup. And as a firm, we're very globally diversified for many different environments.
spk11: Great. Thank you. Charity, do you want to add? Next question.
spk12: Certainly. And as a reminder, ladies and gentlemen, if you have a question at this time, please press star 1 1. And our next question comes from the line of Michael Cypress from Morgan Stanley. Your question, please.
spk06: Hey, good morning. Thanks for taking the question. On the blockchain enabled digital treasury fund, I was hoping you could talk a little bit about the distribution strategy, how you plan to go about getting customers to invest in this digital wrapper. Who do you envision as the customers here? Are these end retail customers? Are these advisors? How different is the customer set from those that you have sold products to in the past?
spk11: Good question. I think Will and Jarrett, why don't you guys field this?
spk03: Yeah, I'm happy to start again. So initially, the customers for the digital funds will only be available through Leasing Preprime. you know, as infrastructure, and that's, you know, wisdom3prime is the D2C wallet application that we've been referring to. Over time, and, you know, I think this could happen fairly quickly, we expect distribution opportunities to grow outside of wisdom3prime, but there is no current, like, immediate timeline on that happening. But over time, we see a lot of, you know, assets migrating into this structure, and we're going to be very well-placed to serve them. So whether that's with financial advisors, institutions, and the like. That's all on the roadmap, and it's something that we think we're particularly well-suited for given our existing distribution.
spk11: Jared? Yeah, and I'd just add, you know, if you look back, you know, just trying to size the opportunity a little bit and talk about, yeah, a little bit about distribution. But, you know, we launched our first ETF 16 years ago. We were innovators, we were considered pioneers, but we were nonetheless 13 years late to the party. And therefore, others got to claim the deepest exposures in the new wrapper being ETFs. Today, it's a much different story. We're actually a little early to the party. We are claiming the deepest exposures in this new wrapper. But being early to the party, some of the world needs to catch up with us. And so right now, as securities, others need to be regulated to be able to sell our product. And so, as Will said in the beginning, it'll be through our wallet. Now, I think marketing will have a big role in how we sell, but the compelling value also I think will sell. And if you think about it, in today's world, a lot of people, and Will touched on these comments earlier, but you sit in cash in a brokerage account earning zero, or you sit in a checking account at a bank earning close to zero. And when you actually want to move that money around, you physically have to move it from one environment to another environment. And one of the really exciting things about blockchain enabled finance is those worlds are merged or unified. And so you look at something like our digital treasury, um, yielding, you know, three and a half, 4%, that can be your source of spending. That can be your source of investing. You don't, you no longer have to sit there in a different account in a different environment, earning next to zero. So, you know, this is going to, I hope, sell itself because the value proposition is so compelling. But as certainly as the rest of the world catches up, as regulation catches up, we'll broaden out how we distribute.
spk06: Great. And then could you just expand a little bit?
spk11: One last thought, Michael. Michael, it's also being early gives us a nice opportunity to do business development to platforms and to institutional investors as well. I'm sorry, did I interrupt you, Michael?
spk06: Yes, thank you. That's great. Can I just ask a follow-up question just around how much in resources would you plan to put up against customer acquisition? How would you sort of quantify that? Is that sort of embedded into the sort of current run rate with the spend that you have already on the discretionary side? I think it's been about $10 million or so. How do we think about that growing into next year as you look to grow customers? And maybe you could talk a little bit about how you're planning to spend that, whether it's on marketing, advertising, and such.
spk11: So I'll take this. We'll give you more guidance next quarter, but roughly what we've said in the last two quarters, in the earlier comments as well as last quarter, is that we're rolling out Wisdom Tree Prime. And we're not expecting a significant increase in WisdomTree's overall expenses. So it is, I think that should be comforting to many of the analysts. Rolling out nationally, but the cost base should not be significantly changing. But we'll have to give you more next quarter.
spk01: Okay, thank you.
spk12: Thank you. And our final question for today. One moment for our final question. Comes from the line. of Michael Brown from KBW. Your question, please.
spk07: Hi, good morning. Thanks for taking my question. So you clearly have an early mover advantage on the digital and blockchain front here. And I just wanted to hear how you anticipate the competitive landscape to evolve. I guess I can't help but think about some of the bigger players here with large investment budgets that, you know, if they seem determined to catch up, could likely throw some money at a digital initiative to try and, you know, catch up to what you've already been building out and to continue to roll out. So what are you seeing from competitors at this time and how do you expect that competitive landscape to evolve?
spk11: So I'll take this. I certainly expect over time that there will be more competitors. This is because it is so compelling that I'm expecting really financial services broadly to move on to the blockchain. So far, we've seen more from broad competitors. They're more in an exploratory mode. I think that they're investigating. They have to come up with their own use cases and business models on how they'll exploit the new technology. And so it's not quite so easy because there's a blurring of definitions. And so It does take a little bit of creativity, but we're not expecting to be alone. But we are pleased that we seem to be early, if not amongst the very earliest. And we're also excited that many who are discussing this now seem to be coming to conclusions that we came to maybe three years ago. And we then very quickly with our conclusions started creating our use cases and putting those ideas into motion. Let's see if these other firms can navigate their legacy issues. There's a significant amount of disruption coming to existing business models, and so it takes a lot of conviction to really tackle this with energy. Jarrett, did you have anything you'd like to add? Yeah, just really quickly and mostly reiterating what you said, but this isn't as simple as developing an app. You know, Wisdom Tree Prime is our app, and that does take time. But as you've heard, there was over three years of efforts with regulators. As you've seen with press releases recently, we've been building an operational ecosystem of partners with people like Stride Bank and Galileo. So there's work on product. You've seen us launch a product. We've got nine more There's functionality. There's client experience. So this is a real effort that we've undertaken. We've been working on it for, you know, for really three-plus years, leveraging very well our existing infrastructure and people, but this isn't something that can be repeated quickly. And just to double-click on that last point of Jared's, You know, we have 25 roughly people in digital assets and 250 people in the ETF business. But what the 250 people do is of great relevance to the digital asset efforts. And without them, you wouldn't be able to accomplish nearly as well or as quickly as cost effectively as we are doing in digital assets. So really, we keep seeing that this is holistic, but we mean it. We're really well positioned to be the company to try to exploit this opportunity. Any more questions?
spk02: I'll leave it there. Thank you.
spk12: Thank you.
spk11: Thank you, Jonathan.
spk12: This does conclude the question and answer session of today's program. I'd like to hand the program back to Jonathan Steinberg, CEO, for any further remarks.
spk11: No further remarks. We just want to thank you for your support and attention, and we'll talk to you next quarter. Have a great day, everybody.
spk12: Gentlemen, for your participation in today's conference, this does conclude the program. You may now disconnect. Good day.
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