Matt Kaufman, SVP, head of ETFs for Calamos Investments, was recently a guest on Benzinga's All-Access. Calamos is an innovative wealth management firm with a long history dating back to its founding by John P. Calamos, Sr. in the 1970s. The firm's solutions include alternative, equity, sustainable, multi-asset, fixed-income and convertible strategies. Kaufman spoke of the company’s new offerings, the Protected Bitcoin ETFs, as well as his vision of the trends that will shape investing for years to come.
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00:00Oh, yes, it is my pleasure to welcome in back coffin the SVP and out of
00:08ETFs of Kalamazoo investments.
00:09Wonderful to be with you today, Matt Dan.
00:11Thanks for having me Bears fan.
00:13Don't hold it against me.
00:14Yeah, so I got to go from what Bears fan to what I listen.
00:17It's not a problem, but I wish you the best, but I wish Kalamazoo
00:21investments the super best.
00:22Can you give us an overview of Kalamazoo?
00:24Yeah, Kalamazoo is about a 50 year old risk manager or the largest
00:29convertible bond manager in the United States.
00:32We were founded a few short years after the options markets actually
00:35opened in Chicago Chicago board options exchange.
00:38So we were founded in 1977 again, a framework of risk management got
00:43about 40 billion in assets under management.
00:46One of the largest alts providers in the country.
00:48We're doing a lot in the ETF space over the last couple years.
00:51We've built a closed-end fund ETF convertible ETF, which converts have
00:57actually had a little bit of a Renaissance with Michael Saylor and
00:59you know, the Bitcoin related converts coming to market.
01:02You can actually access those in CVRT.
01:05It's one of our converts ETFs and we launched the world's first 100%
01:10protection ETFs on over one year last last May.
01:15I'm looking my calendar here and yesterday on the 22nd.
01:18We launched the first protected Bitcoin ETF.
01:21So imagine we'll touch on that a little bit too.
01:22Absolutely.
01:23By the way, you're founded the year.
01:24I was bored.
01:25So I don't know if I feel older.
01:26That's like a grant a grant thing as well.
01:28Let's talk about this man.
01:31How do the values and investing philosophy of your founder?
01:35John P.
01:36Calmo senior guide, how you guys do business today?
01:39Yeah, again, we're built on a framework of risk management.
01:43I think when you try to combine these two concepts of innovation and
01:48risk management, you can innovate but you have to do it with security.
01:51You have to make sure that it works.
01:54I think about a technology company who you might, you know, build an
01:58iPhone or operating system and you can do the beta version, you know,
02:01I can build a beta version of AI not me personally, but you know, you
02:05go by the tech version and it doesn't work.
02:07Like maybe it'll tell you the wrong answer.
02:09You ask it to draw a picture of something and comes back totally
02:13wrong.
02:13But then you just keep keep iterating like you cannot do that in
02:17financial services.
02:18You have to build things that work and they have to work the first
02:21time because a lot of times we're dealing with people's life savings.
02:24So we've made a you know, half a century career doing that and we're
02:30applying that to the Bitcoin space now as well using options on a
02:34SIBO Bitcoin index US Treasury's really stable instruments and
02:39delivering exposure to Bitcoin now.
02:40So it's what's going to continue.
02:42But again, 50 years of risk management now applied to a new asset.
02:46No, I like what you say about that to consumers.
02:48You mentioned it's a lot of times.
02:49It is people's life savings and you take that very seriously.
02:52That's a very important thing.
02:53And I know you're also Kelmos is launching the world's first hundred
02:57percent downside protected Bitcoin ETS being a protection.
03:01How will this work?
03:02Yeah, there's a lot to unpack in that headline, you know, when you
03:06whenever you put 100% and Bitcoin protection in the same sentence,
03:10everybody kind of got ears perk up.
03:12So the way that we're doing this, you know, you you had that spot
03:16Bitcoin ETP market just explode out of the gate in January of 2024
03:21more than 100 billion dollars went into that space.
03:25If you follow the ETF marketplace when there's a liquid big ETF, you
03:30can pretty much bet there's going to be options that come shortly
03:33after that.
03:34And so you got a lot of options based off of S&P 500 and spy QQQ
03:40options IWM and so we thought we were going to get those options on
03:46the spot Bitcoin ETPs a lot sooner.
03:48The SEC put their hand up said, hold on.
03:50We want to come slow roll this make sure the ETPs work then we'll
03:54consider options.
03:55So long story short, the options ended up coming to market last
03:59November.
04:00So just a couple of months ago.
04:01There's a tremendous amount of liquidity in those spot Bitcoin ETPs
04:06again, a hundred billion dollar space two to five billion worth of
04:10trading every single day.
04:12So you go back to my point about building things with security.
04:15We really only build risk-managed products on very liquid underlying.
04:20So if you look at the outcome based ETF space, it's usually on spy
04:23or queues or small cap, maybe international.
04:27You're getting kind of close to the edge there.
04:29Well, Bitcoin is one of those large liquid instruments, believe it
04:33or not.
04:33And so we can build a portfolio that consists of largely of US Treasury.
04:39So, you know, if I go through an example, I'll give you a hundred
04:41dollars or a hundred percent of the portfolio.
04:43We spend 96% of that on a basket of US Treasuries.
04:49These are zero coupon, which means they're discounted by the risk-free
04:53rate.
04:54So risk-free rate today will say is about 4%.
04:56So we're going to spend about 96% knowing that we're going to go up
05:01to 100 over the next year.
05:03I can take that 4% and I can buy a call spread and buy a call spread
05:07on options on the US Bitcoin ETF index issued by SIBO.
05:13So I buy an at-the-money call and then I'm going to sell off some of
05:16my upside to help fund that upside exposure.
05:19So there's no free lunch.
05:20It's a fully financed 100% financed package of Treasuries and options.
05:26You get the upside of Bitcoin to a cap that cap right now is 11.65%.
05:32You can buy CBOJ today trading around $25.
05:36So you get 100% protection to buy in at $25 the upside to 11.65% and
05:43then we also have a 90% protection and an 80% launching on February
05:484th.
05:49The cap rates just go up with with that.
05:51So the way that I would frame that is you can now get Bitcoin with a
05:55safety net and you can choose where to put that net.
05:58You can put it at the floor and so you have no downside risk and get a
06:0212% upside cap.
06:04You can put it at 10% but 10% at risk and get 30% upside cap is what
06:09we're seeing right now where you can put 20% of your money at risk and
06:13get about a 55% upside cap.
06:15So, you know, you can really choose how much risk you take on relative
06:20to Bitcoin.
06:20That's exactly how a lot of investors approach the markets.
06:25It's how they work with their financial advisors.
06:27They have a risk tolerance and so we've given the financial advisor
06:31the ability to now access Bitcoin in a way that works in their
06:34portfolio.
06:34Thanks for that beautifully as much as we want it.
06:37There are no free lunches, even though they take their tasty, you know,
06:39you gotta make sure that you gotta make sure it's protective and for
06:42the right reasons.
06:42Now, how do you see all this fitting into a client's portfolio?
06:45I think it can be pulled from different sides.
06:48So if we take the product we launched yesterday, CBOJ 100% protection,
06:54you know, we talked about the 11.65% cap.
06:57The first thing I think that might come to people's minds is why would
07:00I give up all my upside?
07:01Like, what am I?
07:02Why would I do that?
07:03I want the thousand-point run that Bitcoin may offer.
07:06And the reason is you can use this as a tool for risk management.
07:09If you're a growth-oriented investor, maybe you're in your 20s or 30s,
07:13you've got a long way to run.
07:14And so you can tie this to your spot Bitcoin ETP exposure, you know,
07:20maybe you're buying 60-70% IBIT, you put some in CBOJ and you've cut
07:25off your tail risk, but you're still got all that upside.
07:28The other way to think about it is now you have a way to move your safe
07:32money and tie it to Bitcoin.
07:34No one's ever been able to say that before.
07:36Like maybe you have cash on the sidelines.
07:39Maybe you've got an index CD sitting in the bank.
07:41You can actually take that money now and tie it to Bitcoin because you
07:45have no downside risk and Bitcoin is actually your best power source for
07:50that money.
07:50You might get a 4% risk-free rate on that money somewhere else or you
07:55can get up to 12% three times what you're going to get on the risk-free
07:59rate.
07:59So that's how we're seeing people use the 100% and then on the 90 and
08:03the 80, a lot of folks just love that trade off, you know, one one on
08:07the down to three on the up 10 down 30 up.
08:09That's a great trade 20 down 50 up.
08:12There's a lot of a lot of good upside built into that that most people
08:16have been sitting on the sidelines because of the epic volatility of
08:20Bitcoin.
08:20This gives them trade-offs that they're willing to take.
08:23Yeah, there's definitely numbers investors music to their ears and I
08:27know that you've spoken of four Megatrends when it comes to, you know,
08:30long-term growth.
08:31What are they and how can investors take advantage of them?
08:33When you what do you mean when you say Megatrends, you'll just see if
08:38you suffer the long-term, you know, as far as the investing goes,
08:40especially with obviously what you're doing.
08:42You're talking about the protected ETFs and all that stuff.
08:44Yeah, that makes sense.
08:45One of the things that you know, we really think a lot about is inflation
08:49and how that impact impacts people.
08:50So, you know, one of the Megatrends we're seeing is for retirees.
08:54There's about 11,000 retirees entering the market every single day or
09:00entering retirement.
09:01It's the largest swath of people that we've ever seen enter retirement.
09:05Think about when the Social Security Act was passed about 1 in 16 people
09:09were retired.
09:10A lot of people didn't live past retirement age to on you fast forward
09:14to today and we're almost at a point where nearly a quarter of Americans
09:19are of retirement age and those folks are going to be using their
09:23portfolios to provide for themselves when they no longer work.
09:26They face longevity risk inflation risk volatility.
09:31They have to be able to outpace inflation to keep up with their
09:35spending.
09:35You know that I'm not sure if every retiree under fully understands
09:40that the price of goods and services go up a lot of times.
09:43They're in bonds inversely tied to inflation.
09:46Well, now you think about equity markets risk managed equity markets.
09:50You can be in Bitcoin with protection now and you're if you get a 12%
09:55upside that's going to help you outpace inflation over time.
09:57So that's one of the big themes that we're seeing.
10:00We want people to be invested in the markets.
10:03We want to give people an opportunity to be invested in things like
10:07crypto.
10:08You want to access the crypto frontier, but in a much more familiar
10:11landscape and so we think we're bringing all these things together
10:14for everybody.
10:15Absolutely.
10:16And Matt, I know that some people don't want to accept or they want
10:18to look the other way or they don't want to realize we're in this
10:21new day and age of AI.
10:22How do you feel like AI is changing investing because it's here
10:26obviously, it really is.
10:28There's some interesting AI tools when it comes to investing the
10:32others indexes in the market that are invested in AI companies.
10:36So you can buy the companies involved in AI, you can buy the picks
10:39and the shovels or some companies using AI to select stock.
10:43So there's different ways you can think about accessing AI from
10:46that perspective, but the productivity that we're seeing from AI is
10:51tremendous.
10:51You think about a financial analyst that might have to read through
10:55100 reports in a week.
10:59Will you plug all those into AI and say summarize all these for me
11:02and you can get results within a matter of seconds instead of a
11:06matter of weeks.
11:07So it's just supercharging our ability to deliver value back to
11:12our clients.
11:12You know, working on math models and plugging those into AI, you
11:16know, asking them if they can make them better and you know, that's
11:19all training AI to just help give us better results as well.
11:23So there's a tremendous amount of opportunity that we're seeing in
11:27use cases for AI all across the board.
11:29Like I love to say that what a time to be alive.
11:33It was an absolute pleasure talking with you today, Matt.
11:36Thank you so much for your time.
11:38Another one of the best going forward.