Two listing experts have shared tips for fund managers when it comes to launching their first exchange-traded fund (ETF) on an index.
ETF assets under management have passed $255 billion in Australia, and EY has forecast it could reach US$25 trillion ($39.6 trillion) globally by 2030. This has led mid-tier asset managers to consider the space as a way to boost their profits and expand their reach.
In the past quarter alone, there have been launches by smaller firms like Resolution Capital, Coolabah Capital, India Avenue Investment Management and GCQ Funds Management, many of which were active ETFs. These are in addition to those launched by large existing ETF providers like Global X and Betashares which also enacted new launches.
With fund managers opting to launch ETFs as a way to expand their reach and broaden their product range, Oran D’Arcy, head of listings, APAC, at Cboe, said the exchange is challenging the ASX for first-time launches. D’Arcy has worked at Cboe for the past four years following seven years at the ASX.
Cboe Australia launched in 2011 under the name of Chi-X and rebranded as Cboe in June 2021 when it was acquired by Cboe Global Markets. It has over 1,300 ETFs listed globally with 36 in Australia. However, this is far smaller than the volume on the ASX which stands at 350.
Half of all first-time ETF issuers had opted to list on Cboe in the last 12 months, D’Arcy said, and the exchange works with firms including Schroders, PIMCO, Janus Henderson, and Australian Ethical.
“Clients tell us that our offering is very appealing to new entrants as it reduces cost, optimises product development, and expedites listing time frames. We typically have clients’ ETFs listed and trading on market within four to six weeks of receipt of application,” he said.
Speaking from a regulatory perspective, Lisa Lautier, partner in asset management and investment funds at law firm K&L Gates, said: “Cboe has really established itself in the market as a credible player against the ASX.
“The ASX has been around so long so is a well-trodden path that people are comfortable with and there’s an element of trust there. But, I’ve heard, Cboe gets their products to market quicker and offers a more efficient process. They’ve done a lot in terms of building up the platforms they’re connected with, so they are on an equal footing with the ASX.”
Reflecting on what they have witnessed and learnt from these listings, D’Arcy and Lautier both shared several tips and emphasised the importance of distribution beyond the initial launch.
D’Arcy said: “Outside of the investment strategy itself, two of the most important elements of a successful ETF launch are: choosing your service providers well, and developing a robust sales strategy. Choose partners that understand your goals, bolster your internal capabilities, and have the expertise to help you to meet your objectives.
“It is important to focus on sales and marketing – this is something that we spend considerable time on with our clients and it has proven effective. Sometimes it can feel like the product launch details are the most important and challenging – in reality, the sales element is equally important.”
Lautier added distribution is a particular struggle for overseas managers who are looking to list in Australia for the first time and have less understanding of the intricacies of the Australian market.
“Getting up and running is the easy part, but having the relationships with the adviser networks and the platforms for the distribution is the real challenge. The difficult part is selling your strategy to the Australian market, and a US strategy may not necessarily translate to the Australian market because the markets are quite different, so some thought does need to go into the distribution strategy.”
D’Arcy said Cboe offers a collaborative sales strategy which combines marketing, trading and analytics, and direct engagement with key brokers and financial advisers to maximise the ETF’s launch and future reach.
