Choueifaty said "very large pension funds have expressed an interest in LBRTY" but would not disclose their names.
Although no institutions have committed to the strategy, LBRTY would not be alone.
Although Choueifaty has said the methodology for LBRTY is patented and unique to TOBAM, the firm is not the first to launch a strategy around the risk of autocracy.
For instance, the Freedom 100 Emerging Market ETF, or FRDM, weights companies domiciled in countries based on how they fare on political and economic freedoms.
FRDM is "just starting to get institutionalized trust after (the ETF) hit half a billion" in assets, said Perth Tolle, the founder of Life + Liberty Indexes. The firm, which launched the fund, has around $605 million in AUM.
Tolle, who previously worked as a retail adviser at Fidelity Investments, noted that FRDM's clients were retail investors when the ETF launched in 2019, which she said was needed "to get the fire going." But while she welcomes institutional licensing, interest has not turned into commitment for her either.
"We have a lot of institutions that reach out to us that want to hear how we do things, but my suspicion is they're hearing our methodology, and they're going back and doing it without us," she said.
Skeptics argue "it's somewhat difficult to link democracy vs. autocracy and economic growth," said Chris Konstantinos, the Richmond, Va.-based director of investments and chief investment strategist at the asset management firm RiverFront Investment Group, a global asset manager with $9 billion in AUM as of March 31.
Konstantinos, who has researched the potential effects of investing in countries on equity returns, noted studies into the connection are "somewhat inconclusive."
"If the linkages between democracies and economic growth are hard to establish, then it makes sense that establishing corporate earnings trends from democracies might be even more difficult," he said.
Committing to strategies that minimize autocracy risk may be related to the fact that these countries make up a large part of benchmarks, as Chinese equities do in the MSCI Emerging Markets index. Institutions "may feel it's too big of an opportunity cost risk to meaningfully underweight such areas," Konstantinos added.
But should an investor add equities exposed to autocracy to their portfolio, Choueifaty said they'll increase their risk and have less in returns, or what he calls "negative reward."
"Common sense is that the governance of a country has an impact on each economy," he said. "Nobody can deny that."