ETF providers offer more to gain manager business
Skip to main content
pilogo-NEW
Subscribe
  • Subscribe
  • My Account
  • login
  • NEWS
    • Asset owners and the coronavirus
    • Alternatives
    • Consultants
    • Coronavirus
    • Defined Contribution
    • ESG
    • Frontlines
    • Hedge Funds
    • Investing / Portfolio Strategies
    • Money Management
    • Pension Funds
    • People Moves
    • Private Equity
    • Real Estate
    • Searches & Hires News
    • SECURE Act
    • Special Reports
    • WorldPensionSummit
    • Ron Schmitz
      Pandemic drives faster transition for Virginia to private markets
      Mubadala Investment Co. logo
      Mubadala draws on portfolio in coronavirus fight
      T.J. Carlson
      Texas Muni reduces downside risk during pandemic, finding opportunities now
      Scott Davis
      ‘Triage plan’ at Indiana system helped stem losses
    • Close up of Business people shaking hands, finishing up meeting, business etiquette, congratulation, merger and acquisition concept
      Cathay Innovation Partners takes minority stake in Seaya Ventures
      IACPM: Credit managers see stabilizing effect from stimulus programs
      KKR lifts out 3 to focus on clean energy infrastructure
      Richard Johnson
      Appian Capital Advisory adds global investor relations head
    • Callan brings on 2 executives
      Hub International agrees to buy Plan Sponsor Consultants
      Aon names public markets solution leader
      Deloitte to acquire Sydney-based consulting firm Rice Warner
    • IACPM: Credit managers see stabilizing effect from stimulus programs
      BofA: Most managers bullish on economy, markets
      Alternative investment funds faced liquidity squeezes in COVID-19 crisis and 2019
      Jerome Powell, chairman of the Federal Reserve, listens during a Senate Banking Committee hearing in Washington on Dec. 1, 2020
      Fed saw some time before taper conditions met – minutes
    • Pentegra launches pooled employer plan
      Teresa Hassara
      Ascensus taps MassMutual alum as new FuturePlan president
      Economic Group Pension Services scoops up third-party administrator
      OregonSaves gathers $100 million in assets
    • SEC Commissioners Testify Before The House Financial Services Committee
      Commissioner says SEC shouldn't require ESG metrics
      Tracker gives investors insight into progress on social commitments
      Shoppers wear protective masks while visiting an Apple Inc. store at George Street in Sydney, Australia, on June 24, 2020.
      Apple backs SEC mandate on climate disclosure
      Emissions rise from the Kentucky Utilities Co. Ghent generating station in Ghent, Ky.
      Investors, businesses call for ambitious emissions goals
    • Fearless Girl
      SSGA’s Fearless Girl statue now shattering glass ceiling
      Tangen video
      Norges chief dons chef’s hat to boost employees’ spirits
      Ken Griffin
      Ken Griffin donates $5 million to give Miami students internet
      New book culls institutional wisdom from podcast series
    • Karen Karniol-Tambour
      Bridgewater appoints 2 co-CIOs to oversee new sustainable investing group
      Hedge funds post best first-quarter return since 2000
      Jason Kephart
      Managers see good times ahead in 2021
      Jev Mehmet, CEO of Brevan Howard's Coremont unit
      Brevan Howard runs $50 billion unit like BlackRock’s Aladdin
    • SEC Commissioners Testify Before The House Financial Services Committee
      Commissioner says SEC shouldn't require ESG metrics
      Jake Remley
      Commentary: Inflation expectations vs. reality in the bond market
      IACPM: Credit managers see stabilizing effect from stimulus programs
      Connecticut earmarks $200 million to 4 alts funds
    • A pedestrian holding a cellphone walks past BlackRock Inc. headquarters in New York
      BlackRock AUM hits record $9 trillion in first quarter
      SSGA selects head of continental Europe for global institutional group
      BofA: Most managers bullish on economy, markets
      The Absa Group logo displayed in Pretoria
      Absa shuts $6 billion mutual fund, sparking spinoff speculation
    • Ontario Municipal promotes from within for new global equities exec
      Kansas City Employees adopts global strategy with small-cap swing
      Michael C. Viteri
      Arizona appoints new CIO
      A £10 sterling bank note with a pound coin and a ballpoint pen, with focus on the word 'pension.'
      U.K. defined benefit plans’ surplus surges in March
    • Paul Morrissey
      Blackstone Growth picks managing director to lead European investing
      Karen Karniol-Tambour
      Bridgewater appoints 2 co-CIOs to oversee new sustainable investing group
      SSGA selects head of continental Europe for global institutional group
      Ontario Municipal promotes from within for new global equities exec
    • Paul Morrissey
      Blackstone Growth picks managing director to lead European investing
      Bills of euro, dollar and pound currencies, among others
      Ardian closes latest buyout fund at $8.8 billion
      Hand typing on stationary iPhone at an office reception desk
      Private equity’s taste for tech spurs $80 billion deal spree
      Vista Equity promotes 2 to leadership roles on 2 funds
    • CalSTRS indutrial property
      Investors hungry for industrial properties
      Tim Wang
      GLP names co-president of logistics, industrial real estate for China
      Frank Forster
      StepStone Real Estate adds managing director for Europe
      Christine Iacoucci
      BentallGreenOak promotes from within to fill Canadian CIO role
    • Andy Schreiner
      New PEPs targeting firms without retirement plans
      Jackie Walorski
      Contribution catch-up for caregivers gaining favor
      Retirement cartoon
      Hopes rising for retirement readiness in 2021
      Neal and Brady
      Retirement security could be only issue both sides accept
    • Corporate pension contributions
      Eddy Awards 2021
      COVID-19: One year in
      Charging Bull, sometimes referred to as the Wall Street Bull or the Bowling Green Bull, a bronze sculpture that stands on Broadway just north of Bowling Green in the Financial District of New York City
      Top-performing managers Q4 2020
    • U.S. still a key market for investors
      Collected coverage of P&I's 2020 WorldPensionSummit
      Pedestrians pass a large advertisement on the Arndale Center shopping mall reading 'Act now to avoid a local lockdown' in Manchester, England
      COVID-19 puts new opportunities and risks on the agenda - WPS panelists
      Screens display stock price information over the trading floor of the NYSE Euronext exchange in Paris
      Private assets will continue to grow in portfolios – WPS panelists
  • Data
    • Research Center
    • Searches & Hires Database
    • Searches & Hires News
    • RFPs
    • Charts / Infographics
    • Sponsored Research
    • Trackers
    • Q2 2020 searches and hires overview report
      Q2 2020 money manager M&A activity summary
      Q2 2020 legal overview report
      Q1 2020 searches and hires overview report
    • Connecticut earmarks $200 million to 4 alts funds
      Orlando pension funds pick Axiom for emerging markets equity
      St. Louis Public Schools assigns $5 million to value-added real estate
      BayerInvest taps BlackRock to run ESG-focused private debt allocation
    • Connecticut earmarks $200 million to 4 alts funds
      Orlando pension funds pick Axiom for emerging markets equity
      St. Louis Public Schools assigns $5 million to value-added real estate
      BayerInvest taps BlackRock to run ESG-focused private debt allocation
    • Passive Investment Management Services
      Active Extended Global Credit Manager Search
      Actuarial Services
      Investment Management Services
    • Managed account adoption stalls in 2020
      U.S. bonds have worst quarterly return since 1981
      Stable value retains edge over money market funds
      Taiwan Semiconductor’s No. 1 in the emerging markets book
    • Institutional Investors: Shared Expectations, Divergent Paths
      Global Investor Study 2016
      Workplace Financial Wellness
    • U.S. Endowment Returns Tracker
      Pension Fund Returns Tracker
      Earnings Tracker
      Corporate Pension Contribution Tracker
  • Insights
    • Opinion
    • White Papers
    • Industry Voices
    • Letters to the Editor
    • Partner Content
    • Publisher's Update
    • CalPERS cartoon
      Urgency underscores CalPERS' search for a CIO
      Multiemployer plans cartoon
      Money — but no fixes — for multiemployer plans
      Vaccination cartoon
      Rallying to meet the ongoing COVID-19 challenge
      Tesla cartoon
      Don’t confuse wealth creation with retirement saving
    • Bipsync Client Stories: RMS in Action at Pensions and Superannuation Funds
      COVID-19 Makes LP Portfolio Management More Important Than Ever
      China: the outlook is bright for longer-term investors
      Finding Differentiation in Securitized Assets
    • Jake Remley
      Commentary: Inflation expectations vs. reality in the bond market
      Greg Shea and Steven Kindred
      Commentary: The solution for yield-seeking allocators may be hiding in plain sight
      Jim Park
      Commentary: Asian Americans, Pacific Islanders face ‘bamboo ceiling’ in money management
      Jared Gross
      Commentary: Anchors and allocations – breaking the grip of 60/40
    • Writer using a typewriter
      OCIO industry needs to adopt GIPS
      Writer or journalist workplace. stock illustration
      Even as it assails China, Trump administration emulates it
      Skeptical of Main Street support for proxy adviser proposal
      Focus on manager diversity pushes asset owners’ to walk the talk
    • P&I Content Solutions
      Research for Institutional Money Management
      P&I Content Solutions
      Top questions for institutional investors
      Sponsored Content By Newton Investment Management
      Growth and Innovation in Emerging Markets
      P&I Content Solutions
      In Challenging Markets, Systematic Global Macro Strategies Could Hold Opportunity
    • Help us help you by supporting quality journalism
      You Must Believe in Spring
      Everything Must Change
      Tomatoes & Investments
  • Multimedia
    • Videos
    • Webinars
    • Polls
    • Slideshows
    • Charts / Infographics
    • watch video
      1:23
      The passive fixed-income glut
      watch video
      1:38
      Is it time for DC plans to embrace private equity?
      watch video
      5:39
      The coronavirus pandemic: One year later
      watch video
      0:45
      Private funds weathered 2020 turmoil
    • New Outlook on Income: A Framework for Evaluating DC Retirement Income Solutions
      Understanding the PEP Evolution
      Divest or engage?
      Innovations in DC: Helping supercharge retirement outcomes
    • POLL: The Biden infrastructure plan
      POLL: Retirement income solutions
      POLL: Working after the pandemic
      POLL: The year ahead for the 1,000 largest U.S. retirement funds
    • view gallery
      9 photos
      Coronavirus and the markets
      view gallery
      22 photos
      The 1,000 largest retirement funds: 2020
      view gallery
      10 photos
      Outlook 2020
      view gallery
      10 photos
      2019 as seen through the eyes of Roger
    • Managed account adoption stalls in 2020
      U.S. bonds have worst quarterly return since 1981
  • Events
    • Conferences
    • Webinars
    • DC Investment Lineup Virtual Series
      ESG Investing Virtual Series
      Private Markets Virtual Series
    • New Outlook on Income: A Framework for Evaluating DC Retirement Income Solutions
      Understanding the PEP Evolution
      Divest or engage?
      Innovations in DC: Helping supercharge retirement outcomes
  • Careers
  • Research Center
MENU
Breadcrumb
  1. Home
  2. INVESTING & PORTFOLIO STRATEGIES
March 05, 2018 12:00 AM

ETF providers offer more to gain manager business

New strategies hoped to boost investments from more institutions

Rick Baert
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print
    Martin Kremenstein said differentiation is the ultimate goal for the overwhelming majority of ETF issuers.

    Exchange-traded fund providers are broadening their institutional offerings to more niche strategies in hopes their products will be used by money managers in institutional separate accounts and commingled funds.

    Among the strategies recently introduced or expected by sources to be introduced in the next few years are those focusing on environmental, social and governance investing, along with expanded offerings in emerging markets, high-yield and alternative fixed-income strategies.

    Along with those strategies, sources said there are other ways managers are looking to build the use of their ETFs among institutional investors:



    • as a tactical strategy in separate accounts that have high inflows and outflows;

    • as a way for liability-driven investment managers to transition assets when pension plan assets reach certain glidepath triggers; and

    • as a replacement for futures.

    The aim, said Lesley Keefe, executive director, Americas asset management advisory leader, EY, Boston, is not to mimic the offerings of giant ETF providers BlackRock Inc., Vanguard Group Inc. and State Street Global Advisors.

    "Anyone not part of the big three, it's all about differentiation." said Martin Kremenstein, senior managing director, head of retirement products and ETFs at Nuveen, New York. Nuveen, which began its ETF business in September 2016, has $450 million in ETF assets.

    Ms. Keefe added: "When you think of product proliferation, that's where the growth has been. The big three have dominated, but others are trying to figure out how to get some of that business. That's where product innovation comes in. For ETFs, it's all about an innovative product — currency, geographic, proprietary benchmark, country specific. But whatever kind there is, they have to amass assets quickly. ​ That's what makes or breaks new ETFs. The big three have speed to market, product channels, distribution. The next tier can be successful in building those; but smaller, new firms targeting ETFs, it's much tougher."

    Increases in assets, products

    ESG, emerging markets and fixed-income ETFs have seen increases both in assets and in the number of products in the past year. According to data from ETFGI LLP, London, ETF and exchange-traded products in ESG strategies totaled 136 as of Jan. 31, a 35% increase from the end of 2016, with total assets of $17.6 billion, up 77%. However, those assets were less than 0.5% of the $5.148 trillion in overall ETF and ETP assets, according to ETFGI.

    In emerging markets, ETFGI data as of Jan. 31 show a total of 1,300 products, up 12% from Dec. 31, 2016, but with a combined $502 billion, up 63% from the end of 2016. And in fixed income, there were 1,260 products with a total of $834 billion in assets as of Jan. 31, up 12% and 63%, respectively, from year-end 2016.

    And the market for institutional ETF use should flourish in the next few years, according to Darek Wojnar, executive vice president and head of funds and managed accounts at Northern Trust Asset Management, Chicago. According to a January 2017 report by Greenwich Associates, Stamford, Conn., and sponsored by BlackRock, institutional investment in ETFs is expected to grow by $300 billion annually by 2020.

    Drivers of that growth, Greenwich said, are more ETF use across a broader set of strategies, investors' liquidity needs and ETFs being used as a substitute for derivative positions. Robert P. Browne, chief investment officer at Northern Trust Corp., Chicago, concurred with Greenwich's assessment.

    "Increasingly the norm among managers is to allow ETFs to be used in long-only portfolios," said Mr. Browne. "They're used as another form of liquidity managing and as another form of equitization. There's indirect exposure of pension funds to ETFs." Northern Trust had $16.1 billion in assets in its FlexShares ETFs as of Dec. 31.

    The move to more specific investments is an evolution from the early days of institutional ETF use 25 years ago. "Originally, asset managers would only gravitate to the largest and most liquid ETFs," said David Mazza, senior vice president, head of ETF investment strategy, at Oppenheimer Funds, New York. "Now, as the ETF structure has become more standard, we're seeing managers use them for specific exposure to a market or asset class in advance of another investment idea. There's also a lot more focus on the composition of the holdings — sector, industry, market cap and increasingly factor exposure — as opposed to just performance. They're not just tactically trading this; they're getting more cost-effective exposure. They choose ETFs that complement their expertise in specific market or product segments that they might not be as good at."

    Oppenheimer had $2.6 billion in assets managed in ETFs as of Feb. 27.

    Filling gaps

    ETFs in niche strategies, particularly derivative ETFs in commodities and currencies, also are being used to fill in the blanks some managers might have in commingled funds or separate accounts, said Mark Brubaker, managing director, head of outsourced CIO solutions, Wilshire Associates Inc., Pittsburgh.

    "In niche sectors of the market, they can be used for a small allocation of a fund in certain sectors of the equity market, derivatives, short- and long-term exposures," Mr. Brubaker said. "I have seen some clients averse to using futures. That's where ETFs often are used."

    At Wilshire OCIO, "ETFs are used for transitional and tactical reasons, and niche market exposure," Mr. Brubaker said. "Wilshire selects the ETFs to be managed by its OCIO subadvisers, generally for cash-flow purposes."

    The expected proliferation of institutional ETF use has spurred new providers to enter the business, including Nuveen. Its NuShares ETF business "is a startup," Mr. Kremenstein said. "You want to have a look at the long-term arc in the institutional business. It focuses your business on long-range strategies as opposed to immediate, hot issues. But you can't get into the institutional business without first having a retail business. You might get lucky with some forward-looking institution, but that's kind of a Hail Mary strategy. No matter how good a manager you are, (institutions) will look at your retail numbers. Scale really does matter when getting into the ETF business."

    Mr. Kremenstein said popular institutional strategies "on the whole," have focused on straight beta because of investors' cost concerns. "But there's certainly a lot of interest in ESG strategies, especially from smaller institutional investors, pension funds, endowments. Executing ESG through an ETF is a more efficient way to get exposure," Mr. Kremenstein said.

    Firms like Nuveen are tapping their broader expertise and scale in institutional investing to build their ETF business, but others, like Cadence Capital Management LLC, Boston, look to get into the ETF business through partnerships. Cadence, with $4.3 billion in assets under management, all in multifactor equity, announced last month it and Horizons ETFs Management (US) LLC, a subsidiary of Korean money manager Mirae Asset Global Investments Co. Ltd., would co-manage the Horizons Cadence Hedged US Dividend Yield ETF.

    Foot in the door

    Michael Skillman, Cadence CEO, said the agreement with Horizons "helps us get into the ETF business. For Cadence, it's the first step on that path. As we get a track record, we will grow out to institutional investors. We have to walk before we run."

    Oppenheimer's Mr. Mazza said marketing ETFs to other institutional managers goes hand in hand with marketing to retail investors. "On the retail side, certainly it's a competitive landscape," Mr. Mazza said. "But as we have developed new strategies, we've purposely offered products that will appeal to both the institutional and retail market. We want to offer solutions to both asset bases. The best ETFs are owned both by institutional and retail investors, with tight spreads and robust trading."

    In terms of the competition in the institutional ETF market, Mr. Mazza said "Winners and losers will emerge, and that's slowly beginning to happen. The industry used to be solely dominated by market cap-weighted products. The only differentiation was price. But with fixed income or smart beta, for example, there's a much greater need for precision. Institutional investors won't just say, 'Give us the cheapest one.' We'll see new firms enter the space."

    Related Articles
    ETF assets expected to rise 73% by 2020, dominated by institutional investors –…
    ETFs offer plethora of risk management alternatives
    Europe in line for ETF boom, thanks to MiFID II
    High-yield ETF bears wake for spring
    In ETF world, it's a case of what's old is new again
    Impact investing, artificial intelligence on Nuveen CEO's to-do list
    Raising the issue of asset owners as ETF sponsors
    Commentary: The EM narrative is only just beginning
    Vanguard brings on senior ETF capital markets specialist
    Recommended for You
    More funds testing water on crypto-related assets
    More funds testing water on crypto-related assets
    Money managers eager to make leap to opportunity zone investing
    Money managers eager to make leap to opportunity zone investing
    Index investing: Not as passive as you might think
    Index investing: Not as passive as you might think
    In Challenging Markets, Systematic Global Macro Strategies Could Hold Opportunity
    Sponsored Content: In Challenging Markets, Systematic Global Macro Strategies Could Hold Opportunity
    sponsored
    Events
     
     
    Sponsored
    White Papers
    Bipsync Client Stories: RMS in Action at Pensions and Superannuation Funds
    COVID-19 Makes LP Portfolio Management More Important Than Ever
    China: the outlook is bright for longer-term investors
    Finding Differentiation in Securitized Assets
    Green and sustainable bonds in emerging markets
    Portfolio Protection: One Size Fits None
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today
    April 5, 2021 Page One

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    pilogo-NEW
    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    150 N. Michigan Ave.
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2021. Crain Communications, Inc. All Rights Reserved.
    • NEWS
      • Asset owners and the coronavirus
      • Alternatives
      • Consultants
      • Coronavirus
      • Defined Contribution
      • ESG
      • Frontlines
      • Hedge Funds
      • Investing / Portfolio Strategies
      • Money Management
      • Pension Funds
      • People Moves
      • Private Equity
      • Real Estate
      • Searches & Hires News
      • SECURE Act
      • Special Reports
      • WorldPensionSummit
    • Data
      • Research Center
      • Searches & Hires Database
      • Searches & Hires News
      • RFPs
      • Charts / Infographics
      • Sponsored Research
      • Trackers
    • Insights
      • Opinion
      • White Papers
      • Industry Voices
      • Letters to the Editor
      • Partner Content
      • Publisher's Update
    • Multimedia
      • Videos
      • Webinars
      • Polls
      • Slideshows
      • Charts / Infographics
    • Events
      • Conferences
      • Webinars
    • Careers
    • Research Center