Welcoming Ryan Kirlin, an ETF Expert, to the Alpha Architect Team

We wanted to formally welcome the newest addition to the Alpha Architect team, Ryan Kirlin, who joins us as Head of Capital Markets.

Ryan is a native of South Jersey and went to high school in Philadelphia at St. Joseph’s Prep. Long story short, he’s a Philly native and loves Philadelphia sports — nearly eclipsing Jack Vogel as the team’s most hardcore Philly sports fan. Of course, as a Dallas Cowboys fan (genetic disease, not a choice), I sometimes question my judgment with some of these teammate decisions. But such is life…

Ryan is a national-caliber rowing athlete (see picture below), and his claim to fame is having been tested at a resting heart rate of 38 while on the U.S. team for rowing. It was the second lowest resting heart rate recorded by the US team doctors in 40 years. Not bad.

We’ve transitioned Ryan away from rowing and now make him compete in athletic endeavors where we don’t look as bad. For example, the occasional 28-mile jaunt over rocky terrain with a 40-pound pack (if you can’t beat ’em, change the game).

Ryan’s adventure into the ETF business centered on a 10-year plan he had as a youngster. Every kid wants to work for an ETF company, right? Actually, that’s just about the opposite of how it actually happened.

Ryan entered the ETF business based on pure luck.

He started out in 2009 at the New York Stock Exchange in their business analyst program.  The team next to his was the Exchange Traded Fund Group.  He didn’t know what an ETF was at the time, but he knew that every month it seemed someone from that group was getting pulled out by an asset management company to either head up their ETF business, or be a key person. Ryan figured that was a good sign and probably a good growth industry for a young person to get into. He ended up transferring over to the NYSE ETF group and had a great seat to watch the evolution of the ETF business.

At the time, 99% of ETFs were listed on the NYSE, so Ryan interacted with almost all of the original ETF issuers and all the players in the industry. During his four years with the group, he helped launch 650 ETFs, and these funds still make up about 25% of the existing ETF market.

The ETF story Ryan saw was consistent: ETF firms going from managing nothing to managing billions in AUM.  But the most interesting aspect of his early work in ETFs was seeing the products and companies that either never made it to market (often for regulatory reasons, or an inability to raise capital), or firms and products that made it to market but ended up failing. “That’s where the real lessons were,” he recounted.

He compared the explosive growth of the ETF industry to the rapid growth of the tech industry, from the late 1990’s through today, in two ways. The first, he said, is where we’ve seen examples of startup ideas that failed in the last 90’s making successful comebacks now that we have the proper infrastructure and consumer acceptance is large enough to properly support them. The second way Ryan saw similarities in the two industries’ growth was the ability of ETF issuers to rapidly pivot and iterate until they found a successful business model. And to Ryan, there’s one company that perfectly shows both of those things: FaithShares, or as they are known today, Exchange Traded Concepts.

On the first similarity, Ryan said, “FaithShares was a firm created to invest in religious themes via ETFs. It was a logical idea, but it couldn’t gain the needed traction because the ETF market wasn’t quite big enough yet to support niche ETFs. But now that it is, we’ve seen the religious themed ETF idea make a comeback with some success, along with a boom of other niche investment ideas.” And then to Ryan’s second point of the ability of ETF companies to rapidly iterate their business model, FaithShares also did.

Not that long ago it took a firm about a year to get an Exemptive Relief order from the SEC (that grants you exemptions from the rules of the 1940 Act that differentiate an ETF from a mutual fund). Because of the time and money required to gain Exemptive Relief from the SEC, it became this wildly valuable thing due to scarcity. If you had a failed or struggling ETF business — but you had Exemptive Relief — you still had some real value in the marketplace. If you were a large asset manager and wanted to quickly get into the business fast, it was worth buying Exemptive Relief from a defunct or struggling firm to save yourself a year of time waiting. Some firms that didn’t make it in the ETF business, sold their Exemptive Relief, and did OK.

Now, how’s that tie into the story Ryan tells about FaithShares? FaithShares, and a few other firms, went a different route.  They pivoted on their business model of launching their own ETFs, but instead of simply selling their Exemptive Relief to a big asset manager thirsty to get into the ETF game, they created the white label ETF issuer. Faithshares is now the white label issuer “Exchange Traded Concepts (ETC)” and they provide the infrastructure for others to launch an ETF through them.  ETC now has over $4 billion in assets under management.

As Ryan said, “Going from an idea too early for it’s time, to pivoting to a successful ETF business, that’s a good entrepreneurial story, and the ETF industry is full them.” (On a side note, the SEC has recently prioritized speeding up the process of launching a new ETF firm.)

I asked Ryan what his goals are for Alpha Architect. Thinking his response would be at least somewhat related to our actual business. Nope. His goal is to be the oldest living person at Alpha Architect. He’s assuming that puts him around 120 years old, thanks to the workouts we do here. He figures being 120 years old should make him about the oldest living male and attract some pretty good media attention.

And when the media comes around and asks him what his secret is, he’ll tell them, “I eat a pine-cone every morning.” Then, with a dead straight face, he plans on taking a bite out of a pine-cone, as if it were a delicious apple, to really sell the idea.  “I think I could start a new diet fad. One last joke and a chance to be a cult leader? Sign me up!”

I guess Alpha Architect will need to borrow the tagline from Austin, Texas and, “Keep Alpha Architect Weird.”

Help me in welcoming Ryan Kirlin to the Alpha Architect team!