Case 2: FFCM LLC Innovating into Active ETFs

1. Which potential groups of clients should FFCM initially focus on?

2. How might the firm optimize third-party relationships to catalyse investor
education and improve the distribution of QuantShares?
3. Could FFCM capitalize on its first mover advantage and mitigate future
competitive threats?
4. Did the proposed distribution agreement with the large European bank
make strategic sense?
5. Going forward, how should the firm stage the roll-out of innovative new
ETFs and expand its distribution overseas?

Funding issues
http://www.etf.com/sections/features/18774-quantshares-to-be-acquired-byboston-firm.html
2013
The companys four ETFs are well regarded in the sense that serious minds in the
ETF industry see the market-neutral concept as serious. But with only $22 million
in assets, the funds cant be money makers. Boston-based FFCM also shuttered
three ETFs in 2012 that hadnt gathered many assets, putting a finer point on the
realities of having low-asset funds.
The bottom line is that the company probably needed some sort of alternative
financing, and it seems to have found it in Mosaic, a financial services firm that
manages $5.8 billion for institutions, family offices, endowments and
foundations, according to a press release from FFCM. Terms of the acquisition
werent disclosed.

Our current ETF lineup will remain intact and we will continue to create new
liquid alternative ETFs and managed ETF solutions, which are seeing tremendous
asset growth as investors look for uncorrelated investment returns,
QuantShares Chief Executive Bill DeRoche and its Chief Financial Officer Chuck
Martin said in the press release.

The two said demand for liquid alternative investments has increased in the
past two years, and reaffirmed that FFCMs exemptive relief gives it the legal
right to market ETFs, allowing the company to create inexpensive tools for
investors to decrease volatility in their portfolios and increase their risk-adjusted
returns.

We believe that becoming part of Mosaic will position QuantShares as the

leading provider of liquid alternative ETFs in the market and we look forward to
the launching of a number of new products in 2013, DeRoche and Martin said.

The companys four existing ETFs, and their assets are as follows:

QuantShares U.S. Market Neutral Anti-Beta ETF (NYSEArca: BTAL), $13.7 million
QuantShares U.S. Market Neutral Momentum ETF (NYSEArca: MOM), $1.22 million
QuantShares U.S. Market Neutral Size ETF (NYSEArca: SIZ), $3.81 million
QuantShares U.S. Market Neutral Value ETF (NYSEArca: CHEP), $3.94 million

http://www.ft.com/cms/s/0/c76a3dd4-10a8-11e3-b29100144feabdc0.html#axzz4338BJoz5
Start-up exchange traded fund shops are struggling to find distribution partners
as their cash piles dwindle, forcing them to find partners that can give them
both.
The struggles to find fresh capital were highlighted recently by a failed attempt
by FFCM, the adviser to the QuantShares alternative ETF lineup, to sell itself to
Mosaic Investment Partners. The firm disclosed on August 16 that the deal had
fallen through, although FFCM executives say the two firms have agreed to a
modified transaction.
Its one of the hot-button issues for the wirehouses. They all want to know that
the fund is going to be around if they are going to place client money in it, and
theyre looking at the financial viability of the firms to determine if theyre going
to be around, says Garrett Stevens, CEO of white-label ETF platform Exchange
Traded Concepts.
Yet sources say the current market environment is friendlier to newer ventures than in years
past, thanks to the development of white-label platforms. These allow firms to build ETFs at
lower costs by sharing the setup and operating expenses with other start-ups.

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