ETFs use ‘perps’ to offer bets on private companies such as Anthropic and OpenAI

{"text":[[{"start":8.68,"text":"Derivative products only recently authorised in the US are behind a string of new exchange traded funds allowing investors to bet on highly sought-after unlisted companies such as Anthropic and OpenAI."}],[{"start":20.68,"text":"So-called perpetual futures, or “perps”, allow the ETFs to offer exposure to private companies without owning the underlying asset. The recent slew of launches marks the latest attempt to sell access to often highly illiquid private stocks through ETFs, the world’s most liquid fund structure."}],[{"start":38.96,"text":"If the funds prove successful, the strategy could lead to an explosion of ETFs offering exposure to private companies, analysts say."}],[{"start":46.64,"text":"“There is no question that these products will make it easier to get exposure to [unlisted] companies,” said Benjamin Schiffrin, director of securities policy at advocacy group Better Markets."}],[{"start":57.04,"text":"“The problem is that it’s a risky way of doing it. They are essentially bets. You are not owning the underlying assets,” added Schiffrin, who called on regulators to “take a hard look at these products”."}],[{"start":67.76,"text":"Previously, some ETF issuers have sought exposure to unlisted companies by holding private stock directly or through special-purpose vehicles."}],[{"start":75.68,"text":"But these strategies are limited by the need to build an inventory of often hard-to-access stock. The latest push swerves this need entirely, opening the possibility of unlimited numbers of ETFs offering exposure to private companies without owning any underlying shares."}],[{"start":91.36,"text":"Perpetual futures were cleared to trade in the US only in May this year. They have often been used to speculate on cryptocurrencies and, unlike traditional futures, have no expiry date."}],[{"start":101.56,"text":"Instead, contracts reset at intervals, often of one day or eight hours. Traders on one side of a contract pay a small fee to traders on the other when the perp’s price rises above or falls below that of the underlying asset."}],[{"start":115.54,"text":"This discourages market behaviour in which speculators might otherwise drive a perp contract far from the price of its related asset. The mechanism is straightforward for cryptocurrencies, for example, but for unlisted companies there is often no observable reference price, only snapshots gained from funding rounds or private transactions."}],[{"start":134.56,"text":"Exchanges offering perps linked to private companies such as Binance, Coinbase and Hyperliquid have skirted this problem by calculating their own reference prices, based on bids and offers submitted by traders through market makers. In some cases, they are guided by external indications of value. Prices are continually updated as trading takes place."}],[{"start":null,"text":"

"}],[{"start":154.84,"text":"Schiffrin at Better Markets this year described perps as “the most dangerous product in crypto”, largely due to the leverage they use to amplify gains and losses in cryptocurrency prices. Leverage is not a factor in the case of private company perps, he noted, though there were other significant risks."}],[{"start":170.08,"text":"“The perpetual future is tied to a private company where there is no trading, so there is no reference price. The perpetual future itself is making up the reference price, which seems pretty risky,” he said."}],[{"start":183.81,"text":"Two US ETFs launched this month by Leverage Shares and Corgi Funds that invest in the so-called Mangos — Meta, Anthropic, Nvidia, Google owner Alphabet, OpenAI and SpaceX — hold total return swaps linked to perps to access Anthropic and OpenAI, which are as yet unlisted."}],[{"start":201.8,"text":"There have been filings for several more similar ETFs, including one from Defiance ETFs that would invest 80 per cent of its portfolio in “pre-IPO leaders”."}],[{"start":211.12,"text":"In Europe, 21Shares has launched an Anthropic Synthetic ETP, listed in Vienna and Stuttgart, that offers exposure to Anthropic through total return swaps linked to perps, and has more lined up."}],[{"start":222.78,"text":"“I believe perpetual futures can be the next big innovation in financial markets,” said 21Shares chief executive Russell Barlow. “We have plans to roll out more single-asset, multi-asset and maybe even short products. I believe there is a much bigger opportunity here.”"}],[{"start":238.6,"text":"The perps will typically transition into futures tracking a company’s share price once it floats."}],[{"start":244.4,"text":"“Perpetual futures are actually a fairly elegant solution to the challenges of accessing certain securities [through ETFs],” said Nate Geraci, president of investment adviser NovaDius Wealth Management."}],[{"start":255.4,"text":"“I envision a scenario in which the direct use of these vehicles within ETFs absolutely explodes . . . I wouldn’t have an issue gaining exposure to hard-to-access securities via perps, particularly if they represent a small portion of a broader portfolio,” he added."}],[{"start":271.8,"text":"Kenneth Lamont, head of research at Morningstar, said that although he was sceptical of the broader industry push to offload private assets to “not so sophisticated” retail investors, in this case there was clear demand from some small investors to get exposure to high-profile private companies."}],[{"start":288.84,"text":"However, he feared some investors might not understand the nature of the exposure, while perp markets could potentially be manipulated if they were small and illiquid."}],[{"start":297.96,"text":"Paul Marino, chief revenue officer of Themes ETFs, which operates the Leverage Shares MANGOS ETF, said: “We want people to invest as early as they can and get the benefits of that in the run-up to the IPO. There is demand for this.”"}],[{"start":312.44,"text":"“The goal is to give investors exposure to Anthropic and OpenAI in private markets so there is no disconnect when they come to public markets,” with the fund switching to owning actual shares when the companies list."}],[{"start":329.76,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1793172770_7843.mp3"}