How to start an ETF:
Developing an ETF range which can be
offered alongside other structures like mutual funds, structured products,
separately managed accounts or investment trusts is a high priority for many
European asset managers.
Just as a coffee company can sell
their product as beans, ground coffee, pods, instant powder or pre-mixed iced
coffee, so can an asset manager add to their distribution firepower by adding
an ETF category to their product range. Many will already offer multiple
wrappers including mutual funds, hedge funds, structured products and so on.
Adding ETFs is simply extending this foot print.
Without an ETF range, asset managers
risk being excluded from the many distribution channels that are focused on
ETFs and will be at a significant competitive disadvantage to managers who
recognised the distribution potential of ETFs earlier on. While many investors
have replaced expensive, clunky index mutual funds and ‘closet trackers’ with
ETFs, there are currently limited options for investors to perform the same
exercise for the actively managed portion of their portfolios – but this is
changing fast.
Launching an ETF: Three Routes to Market:
For the asset managers asking “How do
I launch ETFs?”, there are three options: 1) build their own business from the
ground up 2) acquire an existing business or, 3) partner with a white-label
platform. There are pro’s and con’s to each approach:
Building a European ETF business from
scratch can be a time consuming and expensive exercise: 24 months or more are
needed to establish a team, build a fund platform, perform product R&D,
develop marketing strategies and formulate sales plans. There are also
significant overheads to consider in terms of staff, office space and legal
fees. All in, an asset manager could spend between £5-10 Million before a
penny of assets are raised.
Asset managers that want to build
their own business also face a steep learning curve in terms of a building a
specialist ETF architecture and expertise required in capital markets, product
management and distribution strategies – all of which function in a very
different way to mutual funds. While companies with large scale and extensive
resources may be able to commit to this level of investment, this route may not
make sense for firms with fewer internal resources or those that want to launch
a smaller ETF product range.
Many companies have launched ETFs in
Europe and then failed to raise assets as they did not fully appreciate the
specific complexities of European ETF distribution or believed they could sell
ETFs in the same way as mutual funds – these often proved to be expensive and
embarrassing mistakes. For these reasons, build-your-own is a high commitment,
high risk and high cost approach that is open only to large companies with
significant time and resources to commit.
Buying entry to the market is also
likely to be a high commitment and high cost approach – on the assumption that
a suitable target can be found. In Europe, there are few takeover targets
remaining to make this route to market seem appealing or possible. Buying up a
third-party fund range also comes with the potential difficulty of buying up
products that could conflict with a managers’ core offering or future strategy.
Reliant on chance and opportunity, this approach cannot be utilised by the
majority of asset managers and does not provide capacity for many new entrants.
If building is too expensive and
buying too difficult then asset managers can look at a third option – full
service white-label ETF platforms.
White-Label ETF Advantages:
A white-label platform, like HANetf,
can enable any asset manager to launch an ETF without having to build their own
ETF business from scratch. By providing the complete regulatory, technological
and distribution infrastructure necessary to bring funds to market, white-label
platforms make it faster, more cost effective and simpler to launch ETFs,
whilst retaining the brand identity and investment skills of the underlying
asset manager.
Almost any asset manager – indexed,
systematic or active – can bring their investment IP to a white-label ETF
platform to get a product launched, but it is important to note that not all
white-label platforms provide the same combination of services. Some platforms
merely provide the regulatory and operational infrastructure to manage ETFs.
Other platforms, like HANetf, take a
different approach, providing a comprehensive service that goes beyond launch
to provide ongoing sales, distribution and marketing programs. With a
full-service offering, asset managers do not need to establish their own
platform, expert sales teams, capital markets relationships, service provider
relationships or marketing programs and can focus on what they do best –
developing and refining investment ideas.
The primary
advantages for asset managers using a white-label platform are:
- Cost
efficiency – massive reduction in cost-to-market
- Rapid
market entry – by leveraging an existing infrastructure, an ETF
can be brought to market in ~8 weeks
-
Large
scale – with an existing sales, distribution and
marketing infrastructure, white-label platforms can offer broad reach and high
scalability from day one
-
Small
scale – managers who want to launch only 1 or 2 ETFs can
do so economically via a white-label provider
-
Expertise – clients
without experience in the nuances of European ETFs can gain immediate access to
experienced sales, distribution, capital markets and marketing professionals
-
Focus
– outsourcing the day-to-day management of an ETF enables asset
managers to focus on developing and refining new investment propositions
The launch of
HANetf in 2017, Europe gained its first independent white-label ETF platform,
opening the gates for a wave of innovation and new participants in the European
market. Given the fragmentation of the European marketplace, and the
differences between ETF and Mutual Fund distribution, HANetf provides not only
a UCITS ETF platform, but also an embedded sales, marketing, distribution and
PR capability, giving on-platform funds the greatest chance of success by
providing an experienced pan-European sales team and sophisticated digital
marketing infrastructure from day one.
The impact is
already being seen as the barriers to entry diminish – as of January 2021, HANetf
has launched 12 ETFs with 9 asset managers, each with very different businesses
and approaches- click for case studies:
Embracing the Future
Asset managers who dismiss ETFs
because “We are active and don’t do passive” are missing the point. An ETF is
just a distribution technology for any investment style or strategy. ETF growth
continues to be propelled by strong regulatory, demographic and structural
tailwinds, with the European ETF market predicted to triple to $3 Trillion by
2029. Clearly, there is a significant fee-base for asset managers to win,
retain or lose.
Asset managers positioning themselves
to compete for this growing fee base recognize that ETFs will be a core part of
their future growth strategy, but understand the challenge is not just
launching an ETF but creating a sustainable long-term and successful ETF
business.
Only the largest firms will be able
to approach the complexity of the European ETF marketplace with their own
in-house ETF offering and team. Some firms will lack the internal resources to
create their own business while others may only want to launch a smaller number
of ETFs for flagship strategies and funds and not have the scale to warrant the
development of a standalone platform.
The ETF opportunity is not just
limited to the largest companies who can dedicate years of time and millions of
dollars of investment in starting an ETF business. ETFs are democratic
investment products and companies like HANetf are making it easier for asset
and wealth managers of all shapes and sizes to participate in the growth of the
market and better serve their clients by removing the structural, commercial
and operational barriers to entry that they have encountered.
As trillions of dollars of assets
migrate towards ETFs, we believe that every asset manager needs an ETF strategy
– now.
Learn more about the HANetf white-label platform.