Large institutional investors becoming ETF issuers: Follow Insurers

cheese move

Motif investing is where retail can showcase their asset management expertise, build a track record and issue a Motif that US individual investors can “buy”. The Motif issuer earns a small fee. Motifs are typically thematic and in some cases actively managed.

For better or for worse, retail is being continuously offered more choices.

Over to the institutional world, where the mood is dominated by pressures to differentiate and to scale since fees continue to drop and capital requirements aren’t loosening up. As of Nov.7, 2017 ETFs issued by Blackrock were $1.3billion, by Vanguard $800mil, by State Street $519mil (source, league tables from Insurance companies have been using ETFs to manage their assets mainly because of the extremely low and prolonged interest rate environment that has made their asset-liability management very challenging. These large institutional ETF investors have helped scale ETFs and get them listed in multiple wirehouses which is essential for the mass distribution of these products. Recent surveys from Bloomberg, Greenwich Association and FT, all point to a new trend in the ETF space that is growing exponentially over the past 2yrs.

Major insurers are launching their own ETFs and the magic is that they can scale really fast because they deploy their own capital.

Bloomberg reports that YTD the assets overseen by Insurers via their own ETF structures are $25+Billion; compared to only $1.9billion 5yrs ago. Exactly one year ago, in my post Three market opportunities in Insurance Asset Management,  I highlighted three main areas that insurance companies can monetize and create adjacent revenue streams to their main business which is clearly suffering. One is the area, of Data; the second is the area of third-party Asset management; the third is breaking the silo between these two.I noted that insurance companies are obtaining regulatory approval to become investment managers and create funds, that earn fees for them, a capital-lite type of activity. Allianz, Generali and Standard Life, are a few of such players.

Fast forward to today and it is clear that competitive pressures in the insurance space are pushing more insurers who are traditionally conservative managers, to jump into the active ETF space as issuers rather than investors only. The trick they are deploying is that they can effectively repackage in an active ETF the actual strategies that they have been deploying. By investing their own capital in these active ETFs, they leapfrog the processes that every other ETF issuer has to invest in (i.e. gather enough assets) and they also earn fees by other ETF investors, with very little capital tied up.

Who is Who? Insurance issued ETFs

Before compiling this list, I suspected that I would find mutli-asset funds and lots of Fixed-income active funds. Here are four indicative picks of the ETF offerings from insurers

  • Principal Active Global Dividend Income ETF – 1yr old; $528mil
  • IQ 50% hedged FTSE international ETF – 2+yr old; $429mil ; New York Life acquired IndexIQ in 2015
  • John Hancock launched their ETF business in 2015 and is currently managing $96billion in retail funds and ETFs. Their multifactor ETF list is extensive, see here.
  • Transamerica launched its ETF series this summer with 4 ETF that are volatility hedged and tracks various indices and an ETF for a rising rate environment. TheDeltaShares S&P 500 Managed Risk ETF (DMRL) already manages $405mil (just as an example).
  • USAA launched in October the first batch of its ETF offering with 4 equity funds and 2 debt products on NYSE. The USAA MSCI USA Value Momentum Blend Index ETF (ULVM) has $70mil AUM already.

A new market for insurers

The trend of insurers launching their own ETF listings, will continue. The market is in herd mode in many Fintech sub-verticals and according to a recent Bloomberg article, there is an imminent regulatory change in the US that will favor the accounting treatment of ETFs for insurers and incentivize them to shift assets to debt ETFs. Will they not choose to take advantage of this in-house? Insurers will not only grow differentiated ETF offerings that should be more suitable for their risk management needs, but they will IMHO create a new market amongst them.

The Blackrocks, Goldmans and all other active ETF issuers, are loosing gradually large chunks of assets since insurers will allocate more and more to their own ETFs and to their peers ETFs.

And in case you didn’t see the recent CB insights infographic on what Digital wealth startups insurers have invested in or acquired, stay tuned for next week’s look at that angle.

The blurring of business lines and fewer silos are unstoppable trends.

Efi Pylarinou is a Fintech thought-leader, consultant and investor.

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  1. Dear Efi, this is (again) a very interesting information. So far I have not heard about any German insurance companies issuing ETFs. Maybe one of the reasons is the perceived lack of market potential for the potential new ETFs since the portfolios of insurance companies have not necessarily outperformed in the past? My company Diversifikator ( develops “most passive” portfolios most of which are unique and – since they are “most passive” – very suitable for ETFs. I started to talk to traditional ETF issuers especially about passive Multi-ETF solutions and our good performing ESG “indices” e.g. for listed real estate and listed infrastucture but have not thought about insurance companies as potential issuers. All the best with your interesting Blog! Dirk

    • Dear Dirk,
      Thank you for sharing your thoughts. It is true that the trend I have highlighted – insurers issuing their own ETFs- are mostly out of the US for now. ETF investing, in general, is much more dominant in the US. Whereas Europe uses the mutual fund UCITS wrapper more than the ETF structure.
      Also, most of the ETFs issued by the insurance companies are more active and also focused on the risk management needs of insurers.

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