‘We want to go on the offensive’: Cathie Wood outlines ambitions of ARK’s new venture capital fund

Cathie Wood made her debut ARK Enterprise fund Tuesday through an exclusive partnership with a venture capital-backed retail investment app and with a goal of raising $500 million.

The new strategy will be ARK Invest’s first interval fund (see box below) and marks another push for the firm into private markets, a departure for Wood who has made a name for himself picking public companies. in active ETFs.

The launch follows a series of rough performances for Wood and its strategies, with the company’s $7.2 billion flagship. ARK Innovation ETF (ARKK) down 60% year-to-date and saw outflows of around $800 million in August. It also follows personnel changes at ARK, with Wood leaving two smaller index funds, promoting several analysts and seeking to hire others.

Despite these challenges, Wood struck an optimistic tone in an interview Tuesday with Citywire, making several allusions to ARK’s early days and framing the launch of the venture capital fund as something of a fresh start for his company.

“We went through a horrible bear market,” Wood said. “We think we are getting closer to the bottom and we want to go on the attack because we think the opportunities are so great.”

The personnel changes were “not just for this product, it’s for the whole business,” she said, calling the changes a way to “really build the business at scale now. “.

Flows and fees

Asked how much the fund hoped to raise, Wood noted that Titan was backed by Andreessen Horowitz, the ambitious venture capital (VC) firm that has invested in a range of tech companies and has $35 billion in funding. assets under management.

“I know they have very high hopes,” Wood said. “I think in the first two years they would like to scale $500 million. Considering this is a relatively new product, if we did that it would be amazing.

The new fund will have a much lower minimum than most interval funds, at just $500, but much higher fees than other funds using this structure.

The strategy has a management fee of 2.75% and a total expense ratio of up to 4.22%. Citywire previously reported that this fee structure would make ARK Venture the third most expensive interval fund tracked by Morningstar, with management fees among its peers.

Asked how the company would justify the cost of the fund to investors, Wood noted that digging into the private equity space is far more expensive and labor-intensive than investing in private equity. public companies that have traditionally been ARK’s bailiwick. She also argued that the fund’s fees would be significantly lower than those of most venture capital funds.

“We try to be fair,” she said. “We also try to walk before we run. You can always reduce fees, but you can never increase them.

In launching on Titan, Wood said the fund would be a direct-to-consumer product, bypassing hookup houses in favor of individual investors and independent RIAs.

Wood noted that fees in addition to management fees will likely include marketing and distribution fees to Titan, which on its website lists its “Titan fees” as 0%. Titan charges fees on other strategies, such as the $1.8 billion Carlyle Tactical Private Credit fund, where it charges 1% on net deposits over $10,000.

“We understand that the mainstream investor has historically been shut out of venture capital due to accreditation requirements, high investment minimums and lack of access to top tier venture capital firms and deal flow. “, said Clayton Gardner, co-CEO and co-founder. of Titan, in a press release. “By giving Titan investors exclusive access to the ARK Venture Fund, we are unlocking VC for most investors.”

Wood, ARK and the Venture fund are featured prominently on Titan’s homepage, which initially listed ARK’s team size as over 660 and the Venture fund’s size as $1 billion in hardware. public marketing. Titan noted that ARK’s membership figure is expected to be updated to around 40 and declined to disclose the amount of seed money in the fund after Citywire inquired about the numbers.

Portfolio Selections

On ARK’s separate website for the fund, Wood and his team disclosed the top five venture fund investments, all of which are private companies:

  • Freenome, an early cancer detection researcher;
  • Flexport, a supply chain logistics start-up;
  • Epic Games, the developer of the hit video game Fortnite;
  • Chipper Cash, an Africa-focused digital wallet company;
  • MosiacML, an artificial intelligence start-up.

The strategy will eventually aim to invest in more than 25 private companies as well as approximately 15 to 30 public companies, with an investment horizon of five to ten years. ARK said it plans to disclose its initial holdings and portfolio weightings on October 3.

Wood said the venture capital community has been “so welcoming to us” and compared the launch of the Venture fund to ARK’s past success using active ETFs, a vehicle that has come to prominence and can -be even better known as a way to access index funds.

“We’re using packaging that’s been around for a very long time to democratize venture capital investing,” she said.

Interval fund structure

The fund will be an interval fund, a type of closed-end fund, but differs from traditional closed-end offerings in that they are unlisted funds that do not trade in the secondary market. As such, they cannot be bought and sold on a daily basis. Instead, they allow fund shareholders to periodically sell a portion of their shares back to the fund at a price based on net asset value.Redemptions of these shares take place at certain “intervals”, which are generally every three, six or 12 months. On any occasion, redemptions may range from 5% to a maximum of 25% of the fund’s total assets.For the ARK Venture fund, it will be 5%. “If your total position in the fund is less than 5%, you’ll exit,” Wood said. “And if everyone wants to go out at the same time, everyone will have 5% of the way.” The mechanism allows these funds to invest in traditionally less liquid asset classes – the majority of existing interval funds focus on private credit, private equity and real estate – but gives investors the flexibility to quarterly, half-yearly or annual liquidity.

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