The European ETF white label market is red hot as Brexit barriers fuel demand

The European white label ETF market grew from one to four in a month this summer

Rising barriers to entry due to Brexit and growing interest in Europe’s exchange-traded products (ETP) and burgeoning active ETF market has seen the number of new entrants into the white label space grow four-fold in a month.

Until June this year, HANetf was the only issuer of white-label ETFs and exchange-traded products (ETPs) in Europe, but competition has intensified over the summer months.

Leverage Shares launched its white label offering on June 13 and Iconic Funds announced its ambitions just days later, both looking to capitalize on the burgeoning ETP space. the following month, ETF stream unveiled Waystone ETF’s market entry and hired two heavyweights as the company plans to offer a full range of ETF solutions for interested wealth managers.

Traditionally a way to overcome the cost and complexity of launching ETFs from scratch, white labeling provides the infrastructure needed to launch ETFs and ETPs including platforms, regulatory approvals, seed capital, exchange listing, fund administration , trade networks and distribution.

While Europe has a legacy in the white labeling space, it remains somewhat distant from what currently has eight different white label houses. In 2013, Canvas ETF was launched in the UK by ETF Securities, a company which was later sold through model portfolios to Legal & General Investment Management and Algo-Chain.

HANetf took over the baton in 2018 and founders Hector McNeil and Nik Bienkowski have managed to gain a significant lead over its new competitors who have grown to over $3 billion in assets under management (AUM) continue to market.

barriers to entry

One of the biggest problems for wealth managers looking to launch ETFs in Europe is the Brexit hangover. The transition period since Brexit has been a driver for the European white label market, particularly the UK, as players looking to jump in could face staggering legal costs and lengthy delays until the new Overseas Funds Regime (OFR) is implemented becomes.

This has been the problem for Roundhill Investments, which launched the world’s first Metaverse ETF in March but does not want to distribute it through the UK’s Financial Conduct Authority (FCA) current Temporary Permissions Regime (TPR).

The problem is potentially costly for new entrants. The UK accounts for about 25% of Europe’s ETF market, a figure US firm Grayscale – which entered Europe via HANetf in May – was reluctant to ignore. McNeil said: “It’s a problem for anyone who wants to get fully involved in the market. The FCA’s TPR means it takes years to get on board, not in the UK, and potentially £50k to £100k per ETF.”

This can potentially cause problems for Europe-based white label providers that have recently entered the market, such as Waystone ETF. However, the company said its platform scaling ensures we have multiple umbrella structures that have TPR permissions.

Paul Heffernan, CEO of Waystone ETF, said: “One of Waystone’s core businesses is providing institutional platform solutions to clients. This means we are taking investment ideas from our clients as the Brexit hangover and demand for new types of ETFs and ETPs open up new opportunities for companies in the European ETF white label market as Brexit barriers increase demand , whether illiquid or liquid, and place them in a fund packaging. We can do this in both ETF and non-ETF wrappers and across multiple domiciles for international distribution. We have a strong presence in all major mutual fund markets including the US, Europe and Asia Pacific.”

hot demand

Raj Sheth, commercial director at LeverageShares, which entered the white-label market with its Kronos Strategy ETP (KRON), said the mature ETF ecosystem in Europe has allowed smaller white-label companies to enter the market come.

“It used to be a big boy game. Now you have lower platform prices that open the market structure to more market participants,” he said. “The market has matured to the point where costs can be reduced to create an ecosystem that people are much more comfortable with.”

Sheth added that an oversaturated, broad-beta ETF market is leading larger money managers to convert their existing mutual funds into active ETFs, while spurring demand for innovative products like thematic ETFs and digital asset ETPs. “The main passive strategies have been implemented,” he said. “Growth will now come from big houses cannibalizing their active products or looking at entirely new asset classes like crypto.”

White label issuers in Europe have quietly tripled in a week

It’s the potential demand for active ETFs in Europe that has caught Waystone ETF’s interest. The issuer is targeting active managers who have not yet entered the ETF space but now recognize that they need to “get in the game”. Speak with ETF stream At the launch, Heffernan said, “We believe our product structuring capabilities can help bring to market some of these active strategies that may or may not fit into mutual fund conversions.

We’re seeing the trends emerging in the US, and we expect those trends to follow in Europe.” On the product side, McNeil said demand is being driven by US issuers, who see a gap in the market for more innovative ETPs in Europe to have. Of HANetf’s 28 UCITS ETFs, 12 have US-listed counterparts. “If you look at the US, there are so many more issuance entrepreneurs where there is almost zero in Europe,” he said. “That’s because the barriers to entry are so high here.”

room for everyone?

While white label ETF issuers embrace competition overall, it’s crucial for participants to have differentiators. Sheth said LeverageShares’ offering would come at a lower cost than its ETP competitors. “Our costs are much lower compared to our competitors and this opens up the market structure for many more people who might want to take advantage of it.”

The company said it aims to have five to 10 white-label products by the end of the year, noting that the higher end represents “critical mass” for the business. Despite the emerging rivalry in the market, McNeil sees competition as positive, underscoring demand and legitimizing the white-label model. “Increasing competition gives the industry more credibility. People generally don’t like just one provider either, which keeps us on our toes as well,” he said.

Heffernan agreed, “Competition is great for any industry. We believe clients want freedom of choice when deciding how to enter the European ETF market. We are happy to be part of the discussion and to help where it makes the most sense.”

This article first appeared in ETF Insider, ETF Stream’s monthly ETF magazine for professional investors in Europe. To access the full edition, click here.

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