Why TCW’s Deal to Buy Engine No. 1’s ETF Business Works

Both businesses are getting things they wanted — and needed.

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Illustration by II

TCW, the $210 billion investment firm, said Tuesday that it has acquired the ETF business of activist investment firm Engine No.1. The deal, the first since TCW president and CEO Katie Koch took over the firm earlier this year, gives both companies some of the items on their wish lists.

For its part, Los Angeles-based TCW is getting a meaningful boost to its ETF business, a critical part of the company’s future. “This acquisition signifies an early chapter in TCW’s next stage of growth, adding important capabilities and infrastructure to provide clients with the ability to access TCW’s best investment ideas and strategies through innovative financial vehicles,” Koch said in a statement about the deal.

Engine No.1’s ETF platform includes three funds focused on supply chain onshoring and energy transition: the thematic, actively managed Transform Climate ETF (ticker: NETZ) and Transform Supply Chain ETF (ticker: SUPP), along with the Transform 500 ETF index fund (ticker: VOTE). Together, the ETFs have more than $600 million in assets, and the fund group complements TCW’s existing strategies in artificial intelligence, space technology, next-generation mobility, and renewable energy infrastructure.

TCW is also getting a recently built ETF platform — the “infrastructure” that Koch referenced — that it can use to launch new ETFs or offer some of its existing strategies in the increasingly preferred fund wrapper.

And Engine No.1’s ETF team is joining TCW as part of the deal. The team includes Jennifer Grancio, CEO and architect of Engine No. 1’s ETF business, who was a founding member of BlackRock’s iShares ETF business and led its global distribution.

“Engine No. 1 is built around the idea that there is incredible investment opportunity in solving large-scale problems, and our thematic ETFs are constructed around that value-creation principle,” said Chris James, founder and chief investment officer of Engine No. 1, in a statement. “We’re thrilled that TCW recognizes that opportunity and is uniquely positioned to leverage its well-established platform and distribution network to quickly scale the business to seek even greater success.”

San Francisco-based Engine No.1 is being compensated for selling its ETF business, though terms of the deal were not disclosed. And the spinout won’t meaningfully impact its private investment business.

The firm, which first made headlines in 2021 for stunningly electing three independent directors to ExxonMobil’s board, has always operated both a private markets and an ETF business. According to a person familiar with Engine No. 1’s ETF business, the ETF platform has good traction, but those funds still need to scale, and they can do it faster with a different investment company. The source added that other asset managers had also expressed interest in acquiring it.

Engine No.1’s private funds business managed $300 million in assets as of a March 2023 regulatory filing, but it continues to grow and attract talent from Blackstone and other managers.

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