The industry conclave at Exchange included the session “Taking Your ETF Strategy to Europe,” which featured a panel consisting of VettaFi’s Peter Diel, HANetf’s Josh Palmer, U.S. Bank’s Tony O’Brien, and Simmons and Simmons’ James Cullinane.
The European Exchange-Traded Product (ETP) is seeing rapid expansion. Accordingly, asset managers and institutional investors are looking to ETFs as a core vehicle for strategic growth. This comprehensive panel guided attendees through the entire lifecycle of launching, managing, and trading UCITS ETFs.
An Overview of Europe
According to Diel, Europe has just passed the #3 trillion in AUM threshhold last year, with $390 billion in inflows. In the last two years, ETF investors increased by 69%. “In the next five years, the market will explode in Europe. We’ll see double or even triple of the amount of investors,” Diel said, referring to a recent study.
“[It] feels very much like a pivot point in the industry,” O’Brien said. He offered that five years ago, Europe pivoted to launching more active products, and the pivot today is towards retail investors and retail investor market penetration.
How Issuers Can Come Into Europe
White label platforms like HANetf provide archectecture for issuers to implement those strategies and get them into the market. He sees many U.S. asset managers coming into a European market that is seeing an influx of retail investors.
Palmer shared that there are a few options for coming into Europe. The first one is to do it by yourself and build your own platform. That has some challenges. “You don’t know what you don’t know.” Buying platforms is also an option. Its a turnkey solution, but the multiples are quite large. “You can overpay.” The third option is white labeling, which is also turnkey and can get into market pretty quickly. “We also have a full distribution team,” Palmer said.
Legal and Regulatory
Cullinane said putting together a UCITS-eligible product has a host of legal challenges and regulations that need to be adhered to. It can take four to six months to get a product approved by the central bank. “We’re constantly coming up with new ways to assist in this process,” he said, sharing that AI is deployed to track comments and see what solutions were made to similar comments.
For active products, Cullinane noted, “The first and most important primary decision is to decide on your domicile.” For tax reasons, Ireland is the best choice, according to Cullinane. He added that structure is also important, and cautioned that “the UCITS can be a minefield for new issuers.”
“Where I see managers go wrong, sometimes, is they put distribution on the wrong finger.” He stressed the importance of thinking about distribution well in advance.
The U.S. and Europe Connection
O’Brien shared that products and innovations are being shared rapidly between the U.S. and Europe, but there are some key difference between the markets. He emphasized that “the ability to understand the fragmentation of the market in Europe is vital and its not something you can learn to understand overnight.” He added, “Distribution in Europe is fundamentally different than in the United States.”
Asked what U.S. issuers should do when they come into Europe, Palmer said, “Do what you are good at.”
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