Participants in the no-frills exchange-traded fund business tend to be realists, grounded in the economics of cheap beta and low switching costs. But even the most down-to-earth attendees at the recent Exchange: An ETF Experience conference in Miami can be excused for seeing ghosts.
Years after its involvement in some of the first exchange-traded funds, Morgan Stanley is gearing up to enter the ETF business, leaving some at the conference wondering how big of a player the company could have become if it had built on earlier work.
Via an internal announcement, Morgan Stanley Investment Management said it was building out an ETF platform, hiring Anthony Rochte from Goldman Sachs Asset Management and Allyson Wallace from BlackRock Inc. They will help the $1.6 trillion asset manager shape its own offerings in the crowded and competitive ETF market, lorded over by passive giants BlackRock and Vanguard Group Inc., but recently welcoming active managers such as Capital Group Cos. and T. Rowe Price Group Inc.
Twenty-six years ago, Morgan Stanley was instrumental to the launch of the World Equity Benchmark Series, 17 country index funds managed by Barclays Global Investors. The funds, which eventually became part of the iShares franchise of ETFs, were based on equity indexes developed by MSCI Inc.
Now (and then) a market leader in global benchmarks, MSCI was 96.6% owned by Morgan Stanley when it first filed for an initial public offering in 2007. The other 3.4%: Capital Group International, a unit of Capital Group.
An entry into ETFs will give MSIM the opportunity to get its brands, research and expertise in front of financial advisers, its own and others. According to Morningstar Direct, Morgan Stanley brokerage accounts (both advised and self-directed investors) held $223 billion in ETF assets across 1,650 products through Dec. 31. At that level, ETFs accounted for 4.5% of year-end wealth management client assets reported by Morgan Stanley in its 2021 annual report.
Morgan Stanley declined to comment.