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ETFs and Institutional Investors


With over $1.4 trillion in assets under management, exchange traded funds have become a popular tool among retail investors, but some large institutional investors are still on the fence.

Large investors are still weighing the benefits of ETFs to institutional funds, commingled trusts and separately managed accounts, writes Ari I. Weinberg for Pensions & Investments.

“Many ETF providers just haven’t done a good job of reaching out to the institutional market,” Lawrence Petrone, Boston-based head of research at distribution consultant kasina LLC, said in the article.

While the larger ETF providers have successfully attracted institutional interest, but the “off-the-shelf” indices have fallen short. Observers argue that of the 1,400 ETFs on the market, most don’t meet the complex needs of pensions or endowments.

“We constantly get requests for custom hedges, different currencies, removing countries or sin stocks, for example,” Ken O’Keeffe, managing director at Russell Investments, said in the article.

Nevertheless, running indexed ETF assets can create opportunities for money managers trying to reach out to institutional investors. Providers will have to be flexible in providing investment strategies and product structure to expand their client base. For instance, Benjamin Fulton, managing director for Invesco PowerShares, believes separate mandates for modified index strategies will complement its current ETF lineup.

“It was clear that in order to scale, we would need to be able to serve different clients with different needs in different structures,” Adam Patti, chief executive officer at IndexIQ, said in the article.

Additionally, PIMCO’s successful clone of its flagship bond fund with PIMCO Total Return Bond ETF (BOND) helped show other money managers that ETFs can provide institutional offerings.

For more information on the ETF industry, visit our current affairs category.

Max Chen contributed to this article.

Full disclosure: Tom Lydon’s clients own BOND.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.