WisdomTree, Inc. Q4 FY2021 Earnings Call

Thank you all for being here, and welcome to the WisdomTree Q4 2021 Earnings Call. I would now like to hand the call over to Jessica Zaloom, WisdomTree's Head of Corporate Communications. Please go ahead.

Good morning. Before we begin, I would like to reference our legal disclaimer available in today's presentation. This presentation may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. A number of factors could cause actual results to differ materially from the results discussed in forward-looking statements, including but not limited to the risks set forth in this presentation and in the Risk Factors section of WisdomTree's annual report on Form 10-K for the year ended December 31, 2020, and quarterly reports on Form 10-Q for the quarters ended June 30, 2021, and September 30, 2021. WisdomTree assumes no duty and does not undertake to update any forward-looking statements. Now it is my pleasure to turn the call over to WisdomTree's President and COO, Jarrett Lilien.

Thanks, Jess, and welcome, everyone. I'm going to start the call today discussing the highly successful quarter and year we just concluded, the strong momentum we are riding into 2022, and some high-level thoughts on our 2022 plan. I will then turn it over to Bryan to walk through Q4 results in more detail and provide an update on 2022 expense guidance. After Bryan, Jono will provide an update on our strategic initiatives in digital assets, including WisdomTree Prime, our new direct-to-customer mobile app, and then we'll open it up for Q&A. So starting with Q4. The momentum has continued with strong organic growth in the quarter. Our $1.9 billion of organic flows marked our fifth consecutive quarter of inflows, accentuated by tremendous breadth and depth, with three times as many funds having inflows than outflows. The momentum has continued into January, where we have generated over $600 million of net inflows, a rate that is outpacing 2021 flow levels even in the face of a volatile market environment. Looking at 2021 in total, it was a highly successful year showcasing smart investments in growth, coupled with increased efficiency and disciplined P&L management. For 2021, revenues increased 22%, operating margins expanded by over 30%, and operating income increased by 60%. As we look ahead to 2022 and beyond, we are entering a new chapter that leverages core competencies and stays true to our core mission, vision, and values, marked by a focus on strengthening and evolving our business, leveraging existing momentum, and adding additional fuel for future growth. In distribution, we will continue to invest in sales and marketing to gain even greater client mindshare. We will also launch WisdomTree Prime, adding a new direct-to-client distribution channel that brings us even closer to the end customer. On product, we remain committed to being an industry leader and on the cutting edge of providing products and solutions. In 2022, we plan to launch as many as 30 new exchange-traded products globally, including our recently announced family of artificial intelligence funds. We will also gain further traction in our managed models business, reaching more advisers through our current partners while also winning new mandates. At the same time, we will gain further traction in transparent crypto exposures through ETPs in Europe and direct indexing in the U.S. Jono will unpack further in a bit as we launch tokenized versions of mainstream assets. At the same time, we will continue to find ways to leverage our increasing scale, continue to exercise disciplined expense management, and continue to strengthen and evolve our operating model. Whether it's through ETPs or model flows, we are unlocking new revenue streams through tokenized assets and WisdomTree Prime; our revenue and operating income over the next several years will be stronger, more diverse, with better organic growth than in prior years. Finally, we will continue to leverage and invest in our talented team. In addition to the recent announcement that Harold Singleton has joined our Board of Directors, adding expertise and a fresh perspective, I was proud to see us recognized for the second consecutive year as a Best Place to Work in the U.S., and a Great Place to Work in the U.K. All in all, we had a very successful Q4 in 2021. We are executing well and carrying momentum into 2022, and we are excited about our positioning in the U.S., Europe, and our ability to differentiate, generate organic growth, and fuel upside. And now I'll turn it over to Bryan to walk through the numbers.

Thank you, Jarrett. Our AUM at December 31 was $77.5 billion, ending the year at a record and representing an increase of 7% versus the prior quarter. Our average AUM was $76 billion, a fourth consecutive record quarter. Our AUM was driven by positive market movement and net inflows. We generated $1.9 billion of inflows during the quarter. Flows of this magnitude represent our best quarter since 2015, and we've had five consecutive positive inflowing quarters. Our U.S. business generated most of these flows, and for the full year, brought in $5 billion of inflows, our best year since 2015. During the quarter, Europe's flows were flat. However, we've seen favorable trends in our European UCITS products, which generated over $600 million in flows during the quarter, or $1.8 billion for the year, an organic growth rate of 105%. Our physical gold product suite revamp has also proven successful, with lower fee products launched since our ETFs acquisition generating inflows and now representing 40% of our gold AUM. However, outflows from legacy gold products remain a headwind. Our AUM currently stands at about $76 billion, lower than where we ended the quarter due to negative market movement. However, inflows in January are over $600 million, continuing the positive momentum witnessed over the course of last year. Next slide, please. Revenues were $79 million, an increase of 1% from the prior quarter due to higher average AUM offset by a slightly lower fee rate. Adjusted net income was $15.7 million, or $0.10 a share, unchanged from the prior quarter. This quarter, we recognized a noncash after-tax loss of $3 million for our future gold commitment payments and $1.5 million in other net non-operating losses. Next slide. Our operating income margin was 29%, a two-point decline from the prior quarter due to higher expenses, which we will cover on the next slide. Our gross margin was 80.5%, largely unchanged from the prior quarter. Next slide, please. Our operating expenses were up 5% for the quarter due to higher compensation and marketing expenses. We experienced some seasonality in our marketing spend, which tends to pick up as compared to the summer months in the third quarter. Our compensation and discretionary spending ended the year at $88 million and $44 million, respectively, at the lower end of our revised guidance communicated last quarter. Next slide. Now I'd like to provide some guidance on how we're thinking about expenses for 2022. We are forecasting our compensation expense to range from $92 million to $102 million. This guidance contemplates hiring for our core business and expanding our digital assets team in anticipation of our launch of WisdomTree Prime later this year. It also includes compensation adjustments made for our current employee base, given inflationary pressures and the competitive landscape. However, operating as a remote-first company has served to mitigate these factors. Also, just a reminder that we experience elevated seasonality in the amount of compensation we report in the first quarter as we recognize payroll taxes, benefits, and other items in connection with the payment of year-end incentive compensation. Discretionary spending ranges from $49 million to $57 million, an increase to our 2021 spend of $44 million. Some of this increase assumes that the pandemic is behind us and our spending migrates towards pre-pandemic levels. This increase is also influenced by our forecasted digital asset spend. Our digital asset spend, which is included in the guidance just communicated, is anticipated to range from $9 million to $14 million. This includes both compensation and discretionary spending such as professional fees, marketing, product development and other related expenses. While our spend is higher than last year, our run rate digital asset revenue at the end of 2022 should provide adequate air cover considering our existing crypto ETPs in Europe and direct indexing revenue. The range in spend is dependent on the timing of the WisdomTree Prime rollout and additional products and features to be launched. Our gross margin is anticipated to be between 80% and 81%, unchanged from 2021. Our contractual gold payment expense is forecasted to be $17 million, assuming gold prices remain flat at current levels. As a reminder, this expense is based on us paying 9,500 ounces of gold on an annual basis and is measured based on monthly average gold prices. Third-party distribution expense is forecasted to be $9.5 million. This assumes continued growth on our Latin American platform and new platforms being launched in Europe. Our adjusted tax rate is expected to be between 21% and 22% based on the mix of the earnings contribution of our U.S. and European businesses. That's all I have. I will now turn the call over to Jono.

Thank you, Bryan. Jarrett and Bryan did a great job showcasing our success in 2021 and the strength of our existing business. Today, I'm going to give more details on our digital asset initiatives. WisdomTree has been positioning itself, really for the last few years, for the next big structural revolution—not evolution—but revolution in financial services. It's the convergence of blockchain technology with universal smartphone ownership and tokenization with smart contracts that will effectively blur the lines between savings, payments and investing, fundamentally changing the way consumers view and interact with their own money and assets. This page helps illustrate our synergies and advantages in navigating and exploring the opportunity that we've been calling 'responsible DeFi.' We are already in the business of providing regulated transparent liquid exposures. We have the product manufacturing and investment capabilities. We have the legal and compliance foundations, the content research and marketing prowess, the deep relationships with best-in-class service providers, and a well-earned reputation for investor-friendly innovation. Our approach regarding digital assets is about how we can best use our synergies to most cost-effectively capitalize on the coming digital transformation. This includes leveraging the regtech capabilities of our partner, Securrency, to provide compliant, secure, and auditable holdings with robust identity protection. Crypto ETPs and crypto direct indexing are exciting extensions of our existing business and are already generating revenues. But crypto assets are just one application of the underlying blockchain technology. So let me show you where we are headed. Next slide, please. I'm excited to introduce WisdomTree Prime, our new financial services mobile app. This digital wallet, native to the blockchain, will bring the look and feel that users are accustomed to from traditional mobile apps while offering the benefits of a digital financial services experience built on DeFi principles. WisdomTree Prime is built for saving, spending, and investing in both native crypto assets or in tokenized versions of mainstream financial assets, where WisdomTree intends to be a product leader. That really is a key differentiator. WisdomTree Prime can be a customer's primary financial relationship across a wide range of assets and financial services, both simplifying the experience for customers while evolving WisdomTree's business model. We are so confident that assets will move to the blockchain because the efficiencies and enhancements are just too substantial to be ignored. Near-instant transfers and automation are embedded features, and investor communications globally can happen at virtually no cost. The transformational technology is simply better than what exists today. To me, this opportunity feels very similar to where ETFs were 25 years ago, except that it is a much larger opportunity. Next slide, please. What does it mean for WisdomTree going forward? WisdomTree Prime will be launching its beta test in a select number of states in Q2, with a national rollout by year-end and global ambitions soon after that. As a first mover in launching blockchain-enabled funds and tokens, we have an opportunity to dominate the market in both beta- and alpha-generating strategies, large addressable markets where we can generate great economics, scale quickly, and significantly accelerate organic growth. Additionally, WisdomTree Prime's role as the primary financial relationship for customers will unlock new neobank-like revenue streams, such as payments, transactions, and net interest income, both diversifying our top-line revenue while accelerating organic growth. Because of existing synergies, as we've discussed, we've already accomplished so much so efficiently. We are very confident we can go after such an immense opportunity for what is really a small incremental spend. We are the right company at the right time to make responsible DeFi a global reality. Next slide, please. As I said, we're playing for a much larger role in financial services. This page helps you visualize some of the features, offerings, and functionality we are building inside WisdomTree Prime. To some extent, we have already seen the convergence of saving, spending, and investing. But they are trying to fight tomorrow's war with yesterday's technology. Being native to the blockchain will prove to be a differentiating advantage. More broadly, we haven't seen anything close to WisdomTree's holistic vision: the combination of an easy-to-use mobile app that's native to the blockchain that can be the digital center of a customer's financial life with the ability to save, spend, and invest in crypto as well as traditional mainstream assets, and be a safe gateway to the digital ecosystem at large, all with customer protections and transparency at the forefront. Next slide, please. Looking ahead, we are positioned to build on the strong momentum in our existing business, capturing more of the ever-growing ETF pie through new and existing products and solutions. We will continue to grow our digital assets revenue in crypto ETPs in Europe and add crypto direct indexing. The work we have been doing behind the scenes in digital assets will begin to come to the forefront. As I said, WisdomTree Prime is targeting a second-quarter beta test in a select number of states, a national rollout by year-end, with global ambitions soon after that. In summary, WisdomTree Prime is an enhancement or evolution of today's already strong, strategically well-positioned growth business. Taken together, we expect these plans to generate significantly better organic growth along with enhanced and diversified economics. Thank you. We can now open up the call to questions.

And now I'd like to turn the call over to Jeremy Campbell, Head of Investor Relations, for a few questions from the shareholders.

Thanks, Kevin, and good morning, everybody. Similar to last quarter, we're going to start Q&A with some questions directly from our shareholders via the Say platform. As a reminder, we typically open up this platform a week before the call, and we encourage shareholders to continue to participate and engage with us in the coming quarters as well. So I'm going to direct our first question here to Jeremy Schwartz, our Global Chief Investment Officer. And the question is: how do rising rates and inflation impact your ETF products?

What a timely question and conversation. Inflation and rising rates are WisdomTree's primary focus for 2022 in our discussions with clients. I believe our diversified assets under management place WisdomTree among the top asset managers in the market for inflation. Let's concentrate on three areas. Firstly, regarding rates, the recent Fed meeting signals a year of significant change as they begin to raise rates. There's speculation on how high they will go, but we are seeing movement. We offer the shortest duration U.S. Treasury fund on the market with USFR, which has a one-week duration and $2 billion in AUM. In the last Fed cycle, USFR yielded the highest among Treasury ETFs, and we anticipate a repeat of that this cycle. We are the clear market leader in this space, presenting a thrilling opportunity for the best Treasury fund available. Additionally, our fixed income offerings include a range of innovative, duration-hedged instruments for zero-duration high yield and investment grade. In total, we have excellent tools for navigating rising rates in the fixed income market. Secondly, in commodities, which serve as a strong hedge against inflation, about one-third of our global AUM is in commodity-focused assets. This is evident in our year-to-date performance: our leading fund in the U.S. is our Broad Commodities fund, while in Europe, where similarly around one-third of our total AUM is in commodities, our market performance has remained stable amidst a nearly 10% decline in the S&P 500. Thus, we are actively engaging with clients on how commodities can effectively serve as an inflation hedge, and we are well-positioned for that. Lastly, in equities, the trends of rising rates and inflation have led to a significant shift away from speculative growth stocks toward those with steady cash flows, namely dividends and buybacks. A substantial 45% or $35 billion of our $77 billion AUM is in value-oriented, quality strategies that are performing notably well during this transition. A prime example is DGRW, our dividend quality fund and the largest fund in the U.S. today, valued around $7 billion. Over the past three months, while the large blend category declined by 5%, DGRW rose by 1%, placing it in the top 2% of its category. This performance underscores our strong positioning across bonds, commodities, and stocks, making us well-equipped to tackle inflation and rising rates.

Great. Jeremy, this next one is also for you: how do you think about the growth of your European business? Is it easier to launch products in Europe versus the U.S., and what trends are you seeing?

I am very excited about what we're seeing in Europe and for new products more generally. We have an appendix slide, Jeremy, on Slide 17, for new product launches that shows some of the planted seeds for what I'd call the next phase of exponential growth in both Europe and the U.S. Most important, it is new asset classes that are diversifying revenue streams, but also broadening our potential. In Europe, we were historically very strong in commodities, but the last three years, we've shown big success in expanding to equities, diversifying on many levels. In UCITS form or thematic exposures for things like artificial intelligence, battery, cloud, and cyber are diversifying from our traditional value strategies, but they're also having a lot of success in WisdomTree's core quality strategy we just talked about. The UCITS platform scaling to equities has been great as they are launching innovative commodity strategies like carbon credits, which was one of the fastest funds to $200 million that I recall in a very short time last year. We have a strong pipeline of crypto exposures and baskets, and you'll continue to see us do both tactical ETPs in Europe and strategic UCITS. It's been clear that new launches over the last three years have been driving flows. So we're very excited about the European business and the inflection that's taken. In the U.S., too, we've seen opening new markets and expanded opportunity sets, and then maybe a nuance that is underappreciated. On the bottom part of Slide 17, we show our efficient core suite, which has been really taking off over three years. Last year, we launched two funds that were building on the success of our first efficient core. These have scaled to $150 million of AUM quickly. What’s underappreciated is it's another unique attack on core beta, which has been the dominant category for ETFs. We are the first firm in this efficient core category to really replace core positions. I think you'll see us invest a lot more around these things. So in short, Europe and the U.S., great new ideas to scale and new opportunities.

Great. And then our final question from shareholders. To answer this question, I'd like to introduce Will Peck, our Head of Digital Assets, to the call. And Will, the question is: how is WisdomTree positioning itself to capture growth in the crypto space? And are you seeing adviser adoption?

Thanks, Jeremy. Yes, absolutely. I think we're very well positioned to capture growth in the crypto space. Over the past year, I think a lot of our traditional competitors are waking up to the asset class. We made investments before that to really position ourselves well this past year and going forward. We've got a great suite of crypto ETPs in the European market with a lot of momentum. We've got ETF filings here in the States; we don't give guidance on when those might be approved, but we're very optimistic that ultimately spot ETFs will be approved here in the U.S. for Bitcoin and Ether. As we discussed separately, we also have SMAs and direct indexing here in the U.S. where we've seen a lot of adviser interest and adoption so far. As finally, as Jono mentioned earlier on the call, WisdomTree Prime definitely plays into this. We have a lot of exciting growth and innovation happening there, and we're very excited to see more of that going forward.

For the crypto side, we're definitely seeing SMAs being one of the big opportunities. We're seeing our European business has had interest in the Bitcoin and Ether products as well as now a basket set of products. We're going to continue to innovate in Europe with direct ETPs. In the U.S., the index options are really the only way in town today, and we've got a robust indexing capability. We'll continue to innovate and make those available starting here in Q2 and through the end of the year.

Great. Thanks. Kevin, we'll now open it up to questions from our covering analysts.

Our first question comes from Dan Fannon with Jefferies.

This is actually Ritwik Roy filling in for Dan Fannon. So exciting stuff you guys announced on the WisdomTree Prime rollout. But taking a step back, we've seen some fee rate degradation throughout this year, and based on the flow outlook and demand trends you guys just outlined, where do you see the mix shift there on fee rate in the next, call it, 12 to 24 months? And if I could, separately on the Prime topic, if you could provide an update on regulatory approvals, particularly for perhaps maybe the digital banking features and then maybe for the more crypto-oriented features, that would be appreciated.

So this is Jono. In terms of fee rates, it's going to be market sentiment-driven. Our fees of the existing funds have been very consistent. There are some areas where the fees are lower, like the floating rate treasuries. But then we also have zero-duration bond funds with strong economics or higher fee captures. An area that we've been seeing a lot of growth in has been in emerging markets where we also are capturing very strong fees. It's hard to predict. The growth in our crypto ETPs would also have better fee captures than the 40 basis points that we're averaging on the $77 billion of AUM today. So that was your fee questions. The next part of your question was, please?

Right. So just on the WisdomTree Prime rollout this year, just in terms of inevitable regulatory approvals necessary for the digital banking-oriented features, similar to the likes of Ally and such? And then maybe if there are separate regulatory approvals needed for the crypto features, if you could provide an update around those, that would be appreciated.

Will, could you take the first crack at this?

Yes. So really, we're navigating—this has been talked about in the media—a complex set of regulations across different regulators. We think we’re having great dialogue with a number of different regulators. I can't give a specific update on timelines for which regulator on which timeline, but we're feeling very optimistic regarding the plan that Jono laid out in terms of beta testing in Q2 and a national rollout later this year.

I would just add that regulatory engagement happens to be a strength of ours. So I feel pretty confident about our ability to execute on this.

Your next question comes from Robert Lee with KBW.

This is Alex Murray for Rob. Trying to get a sense of the backdrop on the expense guidance. Given the rough start to the year in the market, does this guidance include market performance for the first couple of weeks, or was this guidance determined prior to the year?

Bryan?

Yes, that's me. The guidance is current. I mean I wouldn't suggest that anything with respect to the recent backdrop would impact the guidance that we had given.

Okay, great. And then a quick follow-up. How do you guys think about the ramp-up in flows in the Model Portfolio? Could we expect to see a steady build? Or would there probably be like an inflection point there?

Jarrett, would you take that?

Sure. Yes, we're—we've seen a steady build, and we expect to continue to see a steady build. Just giving you a little color there, we've been focused on what are the two high-opportunity channels, the large multitrillion-dollar networks such as Merrill and Morgan Stanley, where we have partnerships. Also on the other end of the spectrum, we provide customized models to small and midsized RIAs and IBDs. That's where we're putting our effort. We're strengthening the relationships that we've already closed, and we've got a really good pipeline, adding new features and support. So we expect—the short answer is we expect the traction to continue to build.

Our next question comes from Brennan Hawken with UBS.

I'd like to ask a couple on the Prime app. You—previously, there was a prior question about regulators, but it wasn't completely clear to me which regulators. What's the plan here? Are you going to become a bank holding company? Or are you going to work with partner banks? If you could just clarify that component of the strategy.

Will, why don't you start?

Not becoming a bank holding company. We will work with partner banks as well as pursuing our own relevant state charters. We are specifically focused on New York right now for a non-banking charter, but something that allows us to pursue different opportunities in the space. So no need to be a bank holding company.

Okay, got it. And then, this is definitely—WisdomTree has got a great reputation among financial advisers. You guys are viewed as innovators and absolutely have had a great track record of innovation. This seems to be, though, a pretty substantial shift, since distribution capabilities into the financial adviser space and the wealth channel are different than direct-to-consumer broad financial app. So how is it that you're planning to make that transition, and what do you expect as far as marketing spend, marketing plan? How can you increase our understanding of the go-to-market strategy here and driving adoption?

Good question. Will, let me take this to start, and maybe if you have anything to add. First, we've been marketing to consumers from the direct-to-consumer from the very beginning, though more narrowly only around investing. I would characterize our approach to customer acquisition for WisdomTree Prime as lean marketing principles. So test, learn, iterate. It will be data-driven, results-oriented, and trackable. We'll start small and then go aggressive cost-effectively. I'll tell you what we won't do. We're not going to put our brand on a sports stadium, we're not going to hire Matt Damon to be in our TV commercials. In addition to our marketing, I think there will be a very strong emphasis on business development and partnerships. That's another element that could be very cost-effective and scale us quickly. Lastly, in addition to what we're initially launching towards the direct to the consumer, there's also going to be—we envision an institutional user portal for RIAs and for platforms, which is just another great synergy to our core business. So I think in combination, we have a lot of advantages and skill sets. One way to do this more cost-effectively is we have a very strong brand that markets incredibly well. With a great user experience, which we're committed to delivering, we have the ability to really virally market and grow.

That sounds good, Jono. I'm glad I muted myself because when you said that about the stadiums and Matt Damon, I was laughing; I couldn't control myself. A quick follow-up on, if I might maybe squeeze one more in. We've seen a filing from Graham Tuckwell, which struck me as a little unusual to see former leadership of a firm that had been acquired express frustrations around the direction of the company. Have you begun to have some dialogue with Graham? I'd guess that you have just given the relationship there? And are you in a position to share at all some of the components of his frustration or what the source of his dissatisfaction is?

So really, we communicate often with all shareholders, and that does include Mr. Tuckwell. But for the second part of your question, you'll have to discuss it directly with Mr. Tuckwell.

Our next question comes from Michael Cyprys with Morgan Stanley.

Maybe just circling back to WisdomTree Prime. I was hoping you could elaborate a bit more on the economics, how that will work? I think you mentioned that you'd expect some digital asset revenues by the end of '22. Maybe you could just elaborate a bit on what the composition you expect that to look like more near term, or as I understand maybe more medium to longer term, there could be other additive revenue pools over time?

Will, why don't you start?

Yes, absolutely. I think it's similar to what we had on the slide earlier, I'm forgetting which page it was. Some of the same types of fees that a lot of fintech apps are able to earn. That could be net interest income, various types of transaction fees, like a debit card interchange fee, as well as asset-based fees for blockchain-enabled funds where you might charge a management fee. We think those are all on the page, and we're going to learn a lot with the beta test to provide more guidance on that in the future.

Okay. And just maybe another follow-up there on the WisdomTree Prime and more broadly on the digital asset strategy, can you just talk a little bit about the team that you have built out behind the digital asset strategy? How large is the team? And maybe talk a little bit about the headcount ambitions you have looking out over the next year or two for that team? And maybe talk a little bit about where you're recruiting this expert talent from as well?

Very exciting question for us. Will, why don't you start?

Yes. I'm not sure we're giving specific guidance on the number of people. We made an announcement earlier this year when John Davidson joined the team as our Global Head of Financial Crimes, that we were around 15. That number is higher than that now, but not double that, for example. This isn't going to be like a huge mass of hundreds of people. We've just been—our great brand, and a lot of people in financial services would like to work with us. We've found that our story resonates very well with technical and other talent in the market today.

Our next question comes from Keith Housum with Northcoast Research.

I'm going to continue the theme of asking more questions about Prime. Maybe I'm kind of naive here, because as I think about the areas that the Prime will be involved in, it seems like the security risk is just massive. The amount of spending in your guidance, well, you did increase what you're seeing in the current year. It seems like that amount needs to be a lot higher. I mean you guys have partners that have a lot of security settings already in place? Or what's the underlying technology here that gets us comfortable that a lot more money won't be required to invest in this than what you guys are kind of disclosing here?

Will, I think you should start and touch on Securrency as well.

Yes, absolutely. We're very confident in the guidance we gave. We do not feel like we'll need to spend more than that on security. Really, that's from some of the great partners that we're working with. Obviously, Securrency is one of those, although not the only partner that's going to allow us to focus on security. From the start, security remains a primary focus for us. We think we've covered that well between the partners we have and the spending guidance we've given.

Okay, I appreciate that. As you think about the investment here, because again, it's a significant investment here, I'm sure you guys have already made in 2022. Is there a payback period where you think you can be profitable in this unit? Are you two or three years away from that, you think?

I think that's a little early for us to give guidance on. We'll see how quickly it ramps, but we are expecting strong economics relative to our ETP business.

Got you. And if I can squeeze one quick more question in here. You guys talk a lot about the Bitcoin fund in Europe and the new ones you released recently, but yet the uptick on those does not seem, I guess, as quick as we'd like to see. I guess you always want to see it quicker. But what guidance gives you confidence that your Bitcoin and crypto strategy will eventually take hold?

I think, Jeremy, can you start on the customer demand, I guess?

Well, for sure in the—crypto has been a very retail early adoption, so advisers in the U.S., as an example, have not been able to access crypto. It remains very difficult. That's why we think the SMA option is really the best option for advisers today as regulators have been slow to approve those strategies. We're continuing to try to make our offerings in Europe ever more attractive. I think we'll continue to be at the forefront of innovation, and we'll position those products for success there as well. We have a multifaceted approach to global crypto exposure. WisdomTree Prime will give us further opportunities to distribute that in our own native wallet.

And we do have a follow-up question from Michael Cyprys with Morgan Stanley.

I just wanted to circle back on crypto direct indexing. I know you had the partnership with Onramp as well. I was just hoping you could elaborate a bit more on where those efforts stand today? How much in assets, what the traction has been? And maybe just elaborate a little bit on how exactly that works?

It's still very early days—no, no, I was going to say, Jeremy, you might want to start. Maybe Will, there’s some—if he’d leave something off, you could add on. So please go, Jeremy.

Sorry. It's very early days, and there are going to be more opportunities. The large custodians have been—we're seeing them build out their own functionality, and you're seeing them make acquisitions in the space to further service this market. This will be a year where you'll see a lot more development. But where we are today, it's still very early days, and we hope to have more updates through the course of the year on where that initiative stands.

I would just add that I think the interest has been fantastic from the start. We've seen it clearly meeting a need that a lot of advisers have, and we believe it’s been the right approach for the U.S. market, and we're very optimistic about it.

Great. And if I could put one final question in just on the European crypto products. Just an update on the traction that you're seeing there, particularly with the distribution platforms. Maybe you can give us an update on how many platforms you're on right now and the outlook and plan for getting more platforms in the next 12 months.

Yes. I'm happy to start. I spoke a little bit about this earlier. With this asset class, and the types of clients you have in Europe tend to be larger institutions, and there's a long education and information cycle with something like this. We've built a great team in Europe focused on that. We're optimistic about the momentum we expect moving into 2022.

And I'm not showing any further questions at this time. I'd like to turn the call back over to Jonathan Steinberg, WisdomTree's CEO, for any closing remarks.

Thank you. So in summary, let me just say that the existing business is growing very well. We're at record AUM; we're the most diverse and truly global we've ever been. The momentum, with $700 million inflows in January, shows we're just off to a very strong start. Regarding digital assets, we view this as very holistic to the existing business. It's a clear extension of the existing business. Because of that, I can—based on your questions—our cost guidance has been very controlled around this. We have many synergies that we bring to the table. I think about going back to the ETF industry, at its birth—not going after the digital wallet and tokenization of funds and assets on the blockchain—not going after that opportunity would be similar to mutual fund companies not going after ETFs. They waited so long that they let new brands like WisdomTree and iShares take that opportunity. We're not going to allow that to happen. Vision is important. We seem to be a very innovative firm in the eyes of many. Timing is everything. From the consumer standpoint, we're at the lift-off phase, moving from early adopters to the mainstream. Regarding WisdomTree and the industry, our timing is perfect. We're going from cryptocurrencies on the blockchain to blockchain-enabled fixed income, equities, and commodities, areas where we're really strong. With respect to early entrants into digital wallets and neobanks, you can be too early. Many have created these mobile apps but are using the old rails, so they're not native to the blockchain. Starting now, being native to the blockchain will prove to be one of the great differentiating advantages. I'll end the call there, but we look forward to updating you on our progress on future calls. Thank you, everybody, for your interest.

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.