Institutions own nearly $1.3 trillion in ETF assets, but that represents just 4.2% of the $31 trillion they have in U.S. professionally managed assets, Cerulli Associates said in a news release regarding a report released Dec. 7.
Just 25% of the institutional investors polled by Cerulli use equity ETFs and only 24% use fixed-income ETFs, according to the report, "U.S. Exchange-Traded Fund Markets 2023: Product Development Opportunities for a Maturing Structure."
According to ETF issuers, preference for other vehicles was the biggest challenge to ETF adoption by institutions, with 37% of ETF issuer respondents reporting that as a significant challenge, an executive summary of the report said. Other top challenges were limited institutional client ETF education and reluctance by consultants and/or outsourced chief investment officers to recommend or use ETFs; both were cited by 26% of respondents as a significant challenge.
Report author Daniil Shapiro, director, product development at Cerulli, cited the role of education when asked in an interview what issuers can do to promote greater institutional adoption of ETFs.
"ETF issuers should continue to provide the necessary education to these clients and explain the use cases for the products to them," Shapiro said.
Issuers reported that more than 80% of industry ETF assets come from retail rather than institutional clients, the report summary said.
The ETF issuer survey, conducted in the third and fourth quarters of this year, had approximately 30 respondents, he said. The asset owner survey, conducted in the first half of 2022, had about 200 survey participants, Shapiro said. They included executives at public and corporate defined benefit plans, endowments, foundations and insurance companies as well as other institutional channels he said.
