A Hedge Fund Firm Ventures Into Active ETFs

Active exchange-traded funds are all the rage these days. More than 800 have launched since the start of 2023, and they’ve accounted for the bulk of inflows to active strategies as well. Traditional asset managers—such as Capital Group and J.P. Morgan—have launched many of them, but nontraditional managers are also joining the fray. That includes Tremblant Capital, a hedge fund shop with about $1 billion in assets under management whose history dates to the early 2000s. In 2024, it became one of the first hedge fund firms to launch an active ETF, Tremblant Global ETF TOGA.

Tremblant’s story begins with Brett Barakett. Growing up in Montreal, Barakett’s early experiences with hockey taught him lessons of perseverance and teamwork, which later shaped his financial career. “If you get knocked down, you get back up and keep going,” he says, adding, “you’re either winning or you’re learning.”

After a knee injury ended his competitive hockey career, Barakett shifted his focus to academia and business. He worked at Procter & Gamble and Reebok International before transitioning to the investment world. After working at Salomon Brothers and Moore Capital Management, he ultimately got the urge to venture out on his own. “I realized there was a specific way I thought about analyzing and investing in companies, and I just wanted to do it my way,” he says.

Building Tremblant Capital

Barakett’s way is built on four tenets: assessment of the business model, financial strength, consequential changes (such as new management or product offerings), and data science. It’s that last area that has been enhanced over time, evolving from traditional methods like physical store visits to using modern tools like web scraping and artificial intelligence. “It’s the marrying of the fundamental and data science work that gives the process an edge,” says Barakett.

Tremblant launched with a long-short strategy in July 2001. In what became known as the golden era for hedge fund investing, Tremblant’s assets under management peaked at around $5 billion in 2006. But the global financial crisis and the subsequent era of ultralow interest rates presented new challenges. Assets in long-short strategies were dwindling, so the firm launched a long-only hedge fund—Tremblant Long—in 2011.

Barakett built the firm by bringing up people in his way of investing. The investment team now consists of nine people, including the head of data sciences Nick Onofrey and sector portfolio managers Brian Rabin, Manish Patel, and Michael Cling, who average about 20 years of firm tenure.

Entering the Active ETF Market

By 2022, Tremblant had already made a move toward more tax-efficient investment structures. Indeed, Tremblant Tax-Efficient was launched that year and was designed to minimize short-term capital gains taxes compared with Tremblant Long. But they soon realized there was another, more appealing structure: the active ETF. Tremblant decided that the ability to offer investors greater tax efficiency, liquidity, and transparency through an ETF structure was too compelling to ignore.

It took some time to navigate the operational challenges, but Tremblant converted Tremblant Tax-Efficient into Tremblant Global ETF, which began trading on the New York Stock Exchange in May 2024 and is fully transparent. Barakett is convinced that ETFs represent the future of active management, particularly for US taxpayers. “It makes no sense to pick a mutual fund over an ETF if you’re a US taxpayer,” he says.

ETFs also represent an opportunity to broaden Tremblant’s investor base. While traditional hedge fund clients are accustomed to high fees and lockup periods, ETFs can provide liquidity and accessibility to everyday investors at a compelling fee. At 0.69%, TOGA is significantly cheaper than traditional hedge funds, which are known for charging a 2% management fee plus a 20% performance fee. It’s also competitively priced versus the typical actively managed global equity mutual fund; for comparison, the median expense ratio for the world large-stock institutional distribution group was 0.86%.

A Different Kind of Offering

TOGA has the same investment philosophy as Tremblant Long, which has generated strong returns since its 2011 inception. But TOGA is more diversified, with 30-50 holdings; Tremblant Long has between 25 and 40 positions. Individual positions typically max out at 5% of assets on both.

TOGA is built from the bottom up, but holdings tend to cluster in the communication services and consumer cyclical sectors; together, they made up 55% of assets as of December 2024, way above the Morningstar Global Target Market Exposure Index’s 19% stake. Conversely, TOGA shies away from commodity-oriented sectors like energy as well as more speculative industries like biotechnology.

From a country perspective, Barakett looks at where a company generates its revenue rather than where it’s based or where its stock is traded. According to Morningstar Direct’s Revenue Exposure tool (which breaks down geographic exposure by underlying stock revenue sources), 55% of the revenue of TOGA’s holdings came from the US as of December 2024. The calculation for the index was 46%. But by traditional measures, the portfolio had 82% in US stocks, more than nearly all global equity offerings and even some US equity funds, so it may not behave like most global equity strategies.

The portfolio is unique in other ways, too. The team invests across the market-cap spectrum, leading to a pronounced small-/mid-cap tilt. Indeed, 48% of assets were invested in small-/mid-cap stocks, significantly more than the index’s 16%. It’s also growth-oriented, with price multiples such as price/earnings and price/cash flow sitting well above the index’s, hence its classification in the global large-stock growth Morningstar Category.

It’s still early for TOGA, but results so far have been compelling. Since the ETF’s launch through December 2024, its 20.1% gain was much better than the index’s 12.0% return. It also beat the 15.9% gain for the Morningstar Global Growth Target Market Exposure Index, another relevant benchmark given the portfolio’s growth tilt.

The Road Ahead

The firm is smaller than it used to be, but TOGA has been gaining traction. The fund’s AUM has more than doubled since inception to $147 million as of December 2024. TOGA was also recently added to Morningstar Prospects, a collection of up-and-coming or under-the-radar strategies that Morningstar’s manager research team thinks might be worth adding to the analysts’ full coverage list.

While challenges remain, Barakett does not doubt TOGA’s future. “This is where I put my own money—TOGA is better than having a personal stock account because of the tax efficiency,” he says. According to the fund’s Statement of Additional Information, Barakett has more than $1 million invested alongside fundholders. (The SEC disclosure ranges top out at that level.)

Outside of work, Barakett and his wife Meaghan believe in giving back to the community. To that end, they have created a number of scholarship funds throughout North America, including at Harvard University, Brown University, and Fordham University. The scholarships help students in need of financial assistance and honor their son Lincoln, who unexpectedly passed away in 2020 when he was 2 years old.

But Barakett overall keeps a low profile. “I don’t go to black-tie events, I don’t golf, whatever it is people my age do,” he says. “I like being with my family, playing with my kids, and picking stocks.” He also continues to enjoy the odd game of pickup hockey. Is he skating to where the puck is going in the asset-management industry as well? Time will tell.

Editor’s note: A version of this article first appeared in the Q1 2025 issue of Morningstar Magazine. Click here to subscribe.

Andrew Daniels, director of US equity strategies, interviewed Barakett three times in 2024 for this piece.