Written by: Scott Coey | Managing Director, Head of EMEA Alternative Investment Services Business Development at BNY Mellon
Historically, asset managers have had two ways to launch an ETF – either fully independently, with all of the costs, risks, and time involved, or partnering with an existing ETF sponsor that may already have some of the infrastructure in place. Nevertheless, neither route could be considered to be particularly easy. In recent years, a third option has arisen and attracted industry interest: an ETF platform.
In this blog series, we'll examine the merits of multiple options for launching an ETF and begin by looking at ETF platforms and why they have risen in popularity recently.
Platforms promise to lower the complexities and costs associated with launching an ETF on your own by outsourcing services such as fund incorporation, operational support, compliance, sales, marketing, and distribution. It’s the very opposite of “Do-It-Yourself” by offering a ready-made support model into which managers can slot their own particular strategy. This approach is proving to be timely as more and more managers, largely from the realm of active management, are taking the plunge into the exchange-traded world while minimizing their investment risk.
Europe’s fragmented, multi-exchange, multi-domicile structure continues to be a challenge for asset managers looking to break through and platforms offered by third parties can help them navigate.
These ‘white label’ platforms offer a common infrastructure along with bespoke branding and delivery. This way firms can efficiently launch ETFs, reducing costs and risk while increasing speed to market.
ETF platforms can be particularly attractive for two types of clients. There are the smaller shops offering bespoke or unique strategies. Take for example, cryptocurrency or millennial-themed ETFs – they are usually long on ideas and short on resources, so a ready-made funds platform can offer a launch pad to quickly get their strategy out to as wide an audience as possible. Then there are the bigger, more traditional firms that may face internal resistance to launching an ETF as part of the core offering, perhaps because they are better known as active managers or there is a need to insulate the ETF from other offerings. For these firms, it can be attractive to separate new ETF products from the rest of their business through a platform.
The bottom line is that choosing the most efficient path of entry to the market must be weighed against the asset manager’s long term ETF strategy. Launching your own homegrown fund umbrella involves a deeper commitment in both capital and time but provides the asset manager with long term control and discretion.
Regardless of launch path, BNY Mellon’s experienced team is positioned to consult asset managers on launch strategy, distribution, operating company set-up, back- and middle-office set-up, and how to best integrate ETFs – either by leveraging third-party platforms or incorporating into existing portfolio management workflows. Contact us to learn how we can help you design, build, manage, and grow your ETF.