‘The opportunities are so big’: Cathie Wood outlines ambitions for ARK’s new VC fund

Cathie Wood debuted her ARK Venture fund Tuesday via an exclusive partnership with a venture capital-backed retail investing app and with a target of raising $500m. 

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

The launch follows a stretch of rough performance for Wood and her strategies, with the firm’s flagship $7.2bn ARK Innovation ETF (ARKK) down 60% year-to-date and having suffered outflows of about $800m in August. It also comes on the heels of staffing changes at ARK, with Wood stepping off two smaller index funds, promoting several analysts and looking 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 fund as a new beginning of sorts for her company.

‘We’ve been through a horrendous bear market,’ Wood said. ‘We think we’re getting close to the bottom of it, and we want to go on the offense because we think the opportunities are so big.’ 

The staffing changes were ‘not just for this product, it’s for the entire firm,’ she said, characterizing the moves as a way of ‘really building the company to scale now.’

Flows and fees 

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

‘I know they have very high hopes,’ Wood said. ‘I think within the first couple of years, they’d like to scale $500m. Given that this is a fairly new product, if we do that, that 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 comes with 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 the management fee top among its peer. 

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

‘We’re trying to be fair,’ she said. ‘We’re trying also to walk before we run. You can always cut fees, but you can never raise them.’

By launching on Titan, Wood said the fund would be a direct-to-consumer product, eschewing wirehouses in favor of individual investors and independent RIAs.

Wood noted that the charges on top of the management fee will probably include marketing and distribution fees to Titan, which on its website says that its ‘Titan Fee’ is 0%. Titan does charge fees on other strategies, such as the $1.8bn Carlyle Tactical Private Credit fund, where it charges 1% on net deposits over $10,000.

‘We understand that the everyday investor has historically been locked out of venture capital due to accreditation requirements, high investment minimums, and lack of access to top-tier VC firms and deal flow,’ said Clayton Gardner, co-CEO and co-founder of Titan, in a statement. ‘By offering Titan investors exclusive access to the ARK Venture fund, we’re 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 being more than 660 and the Venture fund’s size at $1bn in public marketing materials. Titan noted that ARK’s headcount figure should be updated to roughly 40 and declined to disclose the amount of seed money in the fund after Citywire inquired about the figures.

Portfolio picks 

On ARK’s separate website for the fund, Wood and her team have disclosed the first five investments in the Venture fund, all of which are private companies:

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

The strategy will eventually seek to invest in more than 25 private firms as well as roughly 15 to 30 public companies, with an investment horizon of five to 10 years. ARK said it expects to disclose its initial holdings and portfolio weights on October 3. 

Wood said that the VC community has been ‘so welcoming to us’ and likened the Venture fund’s launch to ARK’s past success using active ETFs, a vehicle that came to prominence and is perhaps still best known as a way to access index funds. 

‘We’re using a wrapper that has been in existence for a very long period of 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 which differ from traditional closed-end offerings in that they are non-listed funds that do not trade on the secondary market. As such, they cannot be bought and sold daily. Instead, they allow shareholders of the fund to sell a portion of their shares back to the fund on a periodic basis at a price based on net asset value.The repurchases of these shares take place at certain ‘intervals,’ which are usually every three, six or 12 months. On any given occasion, the repurchases can range from 5% to a maximum of 25% of the total assets within the fund.For the ARK Venture fund, this will be 5%.  ‘If your entire position in the fund is less than 5%, you’ll get out,’ Wood said. ‘And if everybody wants out at the same time, everyone will get 5% of the way there.’ 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 option of quarterly, biannual, or annual liquidity.