nik bienkowski co-founder hanetffiles.hanetf.com/hanetf-presentation.pdf · printed, so the market...
TRANSCRIPT
ABOUTTHESPEAKER
NikBienkowski
Co-Founder
HANetf
KeyTopicsForToday
• StateoftheEuropeanFundandETFMarket
• EuropeanandUSETFMarketCompared
• OpportunitiesforETFIssuersinEurope
• ConsiderationsforLaunchingETFsinEurope
• DistributionofETFsinEurope
• Conclusion
StateoftheEuropeanFundandETFMarket
StateoftheEuropeanFundsMarket
• EuropeIsWorld’sSecondLargestFunds
Market– Roughly31%ofGlobalAssets
• EuropeIsWorld’sSecondLargestETF
Market- Roughly17%ofGlobalETFAssets
• TotalFundsAUMUp6%inEuropein2016
• TotalETFAUMUp13%inEuropein2016
StateoftheEuropeanFundsMarket
• InvestmentFundsRepresent52%
ofAUM,andDiscretionary
MandatesMakeUpTheRest
• EuropeanUCITSAUMTotals
Approximately8.7trn,withthe
BalanceinAlternativeInvestment
Funds(AIFs)
• Over30,000UCITSFundsExistIn
Europe
StateoftheEuropeanFundsMarketPassiveInvestments,ThoughSuccessful,StillHaveRoomToGrow
IndexAssetsRepresentRoughly12%ofEuropeanAUMvs.30%intheU.S.
ETFsEarned60%ofNetIndexCashFlowsOverPast10Years
StateoftheEuropeanFundsMarket
• BondsAccountfortheLion’sShare
oftheEuropeanInvestment
PortfoliomanagedinEurope,
OutpacingEquities.
• ThatPositionHasRemainedSteady
• “Other”StrategiesAreGrowing
Fast
Source:EFAMA
StateoftheEuropeanFundsMarket
• Since2008,theShareofCashand
MoneyMarketInstrumentsHas
DeclinedSharplyFrom16%to7%.
• OtherAssets– IncludingReal
Estate,HedgeFunds,Structured
ProductsandPrivateEquity– Have
Soared
Source:EFAMA
StateoftheEuropeanETFMarketAsofJune2017:
• 2,286ETPs
• 5,896Listings
• 60Providers
• 27Exchanges
• 65%ofAUMisinEquities
TopETFIssuersByMarketShare:
• BlackRock:46.4%(€253b)
• db X-trackers:9.8%(€53b)
• Lyxor:9.3%(€51b)
• UBSETFs:5.5%(€30b)
• Amundi:4.6%(€25b)
• Vanguard:4.4%(€24b)
Source:ETFGI
NewEntrantsToEuropeanETFMarketplaceWithrecordinflowshascomerecord
newlaunchesandnew
developments,including:
NewIssuers:• WisdomTree,ChinaPost,BMO,
Fidelity
PendingIssuers:• JPMorgan,FranklinTempleton,
GoldmanSachs,MultipleChinese
AssetManagers
NewProductThemes:• ESG,Factors,Thematic
Source:Morningstar
EuropeanVs.USMarketFeatures Europe US
Product • 2286ETPs- $686bnAUM
• Shareclasscurrencyhedgingallowed
• UCITSregulationsdon’tallowsingleassets(e.g.gold)ormorethan2xleverage
• Syntheticreplicationpossible
• 2041ETPs- $2,973bn AUM
• Shareclass currencyhedgingnotallowed
• 3xleverageandgoldarepossibleinafund-likestructure
• SyntheticreplicationonlypossibleasaCPO
Issuers • Primarilybanks&assetmanagers
• Start-upissuersuncommon(exceptionsincludeETFSecurities,Boost,Think)
• Singleproductcompaniesnotpossible
• Dominated byassetmanagers
• Startup/entrepreneursmorecommon(PowerShares,GlobalX,Direxion,etc…)
• One-offentrepreneurspossible:HACK
Investors • 80/20splitinstitutional/retail • 50/50splitinstitutional/retail
Regulators • EUtrying tobeconsistentbutnotallcountriesareintheEU
• Localdifferencesstillexist,e.g.:activeETFs(portfoliodisclosure),bitcoin(howtotreatit),
commissions,iNAV,tradereporting
• Multiple regulatorsbutrarelyareregulationscontradicting
Distribution • ETPs mustberegisteredineachcountryforpubicsale
• Retailinvestorsprefertobuyalocallylistedproductinlocallanguage¤cy
• Marketing iscountryspecific,locallanguagesvary
• Taxrulesdifferbycountryandinvestortype
• Single market
• Commontaxrules
• Commonlanguage
• Singlemarketingstrategy
Trading&
Settlement
• Marketmakerscanbepaidbytheissuertosupport theirproducts
• Liquidityisspreadacrossmultipleexchanges(27)indifferentcountries
• Each ETFislistedonaverageon3differentexchanges
• Multipletradinglinesinmultiplecurrencies+multiple shareclasses
• Settlement occursinlocalcountrydepots,withdifferentbuy-inrulesandfines.Market
makersneedtomoveinventorybetweenmarkets
• Approx. 70%ofETFtradingisOTCwith30%beingon-exchange
• Marketmakerscannotbepaid
• LiquidityfocusedonthreeExchanges
• Onesettlement systemthroughDTCCandcommonrules
• Onemaintradingcurrency(USD)
• Approx.70%ofETFtradingdoneonexchange
• Alltradingreportedtoconsolidatedtape
Platform • Highbarrierstoentry
• Regulation andcomplianceinfrastructurerequiredacrossmultiplejurisdictions
• Multipledomicileoptions– Dublin,Lux,plusotherEUcountries
• Lower barrierstoentry
• Commonregulationandcompliancerequirements
• Commondomicile
Retailvs.InstitutionalGrowthInEurope• ThegrowthoftheEuropeanETFmarket
remainsdrivenbydemandfrominstitutional
investors.
• Funddistributionchannels,particularlyin
ContinentalEurope,remaindominatedby
commercialbanks,whichhavetraditionally
favoured theplacementofhigh-margin
products.
• Manyofthelargefundplatformsserving
financialadvisors—particularlyintheUK—have
beenreluctanttoundertakethenecessary
investmentintechnologythatisrequiredto
facilitatethedistributionoffundsthattradeon
anintradaybasislikeETFs.
• Shortofthependingregulatorychanges,the
statusquoisbeingchallengedbythegrowing
popularityofrobo-advisors.
Source: Analysis by The Vanguard Group, Inc. using data as at June 30, 2012, from The Vanguard Group, Inc., Bain & Co. and Investor Economics. UK / Continental Europe Institutional classification includes Wealth Managers.
OpportunitiesForETFIssuersInEurope
OpportunitiesForETFIssuersInEurope2ndlargestETFMarket:
• TailwindsbehindglobalETFmarket,risingtide
• Europeisthe2ndlargestETFmarketandgrowingat
~20%p.a.
• Accessuntappeddemand
• Totargetalargershareofgrowingglobalflows,you
needtobeinthelargestmarkets
OpportunitiesForETFIssuersInEuropeMarketStructureEvolving:
• Commissionsstillallowedinmanycountries… fornow
• NotallplatformsacceptETFs… butthat’schangingfast.
• Retailinvestorsaccountforapprox.20%ofETFAUM.Setto
growfueledbyRDR,MIFIDIIandthegrowthofrobos
• EuropeanbanksdevelopingtheirD2Cplatformsandmaking
ETFsavailableforthefirsttime
• Small%oflocalAMsofferETFs,butthisischangingfast.Time
isripenowtogetinbeforetoolate.
• Structuredproductsarebecomingmoreregulatedwithhidden
feesbeingattacked
OpportunitiesForETFIssuersInEuropeUCITSIsAWorld-RenownedWrapper:
• AddUCITSsolutionto”star”localproducts,makingAsset
Managersofferingglobal– UCITScanbepreferredto40Act
fundsbymanyLatAm,Asianclients
• ManyUSwealthmanagersneedUCITSfor“offshore”client
portfolios
• Accesslocalinvestorswithtaxandlegalfriendlywrapper– US
ETFscanbedisadvantageous
• Offersabilitytoaddextrashareclassestosamefund,whichis
notpossibleintheUS
RegulationFavoringETFs• Positiveregulatorychangesalongwithcontinuedfavour forlowcostpassiveinvestment
solutionsisdrivingETFAUMgrowth
• Regulationsarefocusingonincreasedliquidity,fees,commissions,benchmarks,and
transparency
• Intheretailmarket,regulationsuchasMiFIDIIandtheRetailDistributionReview(RDR)is
helpingtobringmoreindividualinvestorsintotheETFmarket.MiFIDIIisbringingliquidity
toexchanges:undertheDirective,whetherthetradeisonscreenordoneviaOTC,itwillbe
printed,sothemarketwillseethewholespectrumofliquidity.
• TheUK’sFCApublishedtheAssetManagementMarketStudyInterimReportinNovember
2016andthekeythemecomingfromthereportisthatactivelymanagedfundsare
underperformingtheirbenchmarksaftercostsarededucted.
RegulationFavoringETFs• MIFIDIIisanimportantandwide-rangingpan-
Europeanpieceoflegislationthatwillsupport
ETFgrowth
• Focusonincreasedtransparencyisexpectedtostrengthen
thecaseforETFs
• ETFswillbecapturedbyposttradereportingrequirements
• 50%to80%ofETFtradingvolumeistradedOTC,mostof
whichiscurrentlyunreported
• AEuropeanconsolidatedtapewouldincrease
transparencyaroundETFliquidityandhelpdriveAUM
• Lookstoaddressconcernsaroundcommissionbased
advisorymodels
ConsiderationsForLaunchingETFsIn
Europe
ConsiderationsWhenComingToEurope(1)HomeJurisdiction Wheretoincorporatethefundcompany.LuxembourgandIrelandaremostcommon.Otheroptionsexist.Ireland hasbeenmorecommonfor
ETFswhileLuxembourghasbeenmorecommonformutualfunds
Languageandfamiliarityofserviceproviderscanbeadecidingfactor
USmanagerstendto endupinIrelandandChinesemanagershavetendedtoLuxembourg
ListingVenue WheretolisttheETF.Multiplelistingsgivelocalinvestorsaccessintheirhomecountry,aswellaslocallanguage,local brokers,localPR,and
familiarity
Shareclasses AUCITScanbelaunchedwithmultipleshareclasseswitheachadditionalshareclasscostinglessthan40%ofanewfund.Thismeansinvestor
demandscanbemaximised underthesameETF,allowingscaletobeachievedfasterandcheaper. Mostcommonarenon-distributingversus
distributing,orcurrency-hedged
Tax Taxrulesindifferentcountriesfordifferentinvestortypescaninfluenceproductstructure
Taxcanoccur attheinvestmentlevel, fundlevel andinvestorlevel
Taxesinclude:WHT,FTT,incomeandCGT
DublinhasafavorableUStaxtreatyrateoverLuxembourg.15%vs.30%
Registration orPrivate
Placement
Registrationallowsaccesstoretailinvestors.Insomecountriesregistrationisevenrequiredtoaccessnon-retailinvestors
Private placementischeaperbutmorerestrictive.Needtokeepdetailednotes
Distribution Multi-country registrationandagentsrequired.Locallistingspreferred.Multi-lingualsalesteamsrequired.
ProductStructure DoesthestrategymeettheUCITSrules.Forexample,3xleverageandsinglecommoditiesarenotUCITScompliant.
ETNs/ETCscanalsobeissuedunderadifferentstructurewhichallowforunderlyings notpossibleunderUCITSsuchassinglecommoditiessuch
asphysicalgold,oil,and3xleverage
Physical&Synthetic Botharepossible althoughtrendisforphysicalreplicationwherepossible,especiallyforplainvanillabenchmarks
MulticounterpartyswapsarethenormforsyntheticETFs,withtransparentanddiversifiedcollateral
AssetClasses AllassetclassesarepossibleunderUCITS,includingcommodityindices
ConsiderationsWhenComingToEurope(2)Short&Leverage Amaximumleveragefactorof+2xand-2xiscurrentlyavailableunderUCITS
Timeline Istimetomarketimportant? Thiswilldriveyourentrydecision.Build,partneroroutsource
Scale Scaleisimportanttobenefitfromeconomiesandbuildacredible brandwithinvestors
Beingtoosmall,orhavingfewproductsofinterest,makesitmuchmoredifficulttogaintheattentionofgatekeepers,decision makes,and
productapprovalteams
Serviceproviders ServiceProvidersareoftenthesamebetween USandEUbutcanvary.ServiceofferingsandcostsmayvarybetweenEuropeandUS,thus
impactingchoiceofserviceprovider
APandMMresourcesarefiniteandtheyareselectiveinwhomtheyworkwith.APsdifferbetween EuropeandUSandmustbesignedupwith
localAPagreements
PortfolioManagement Where aforeignmanagerplanstouseitsownexistingportfoliomanager,itisnecessarytocheckifthatforeignPMmeetstheregulatory
requirementsforUCITS
Hiring FinitenumberofexperiencedETFspecialists inthemarket.RecruitmentfromoutsidetheETFmarketwillbeimportantiftheETFmarketisto
grow
Corporatedecisions Organisational structurerequirestaxandlegalinput
BoardstructureneedstobeconsideredasboardmeetingsrequiretraveltoEuropeevery3months.Professionallocaldirectorscanbehired
andcanalsobeoutsourcedtoserviceproviders
Reportingcurrency:mostcostswillbeinEuroandGBP.CurrencyfluctuationswillaffectP&Lbackathome
TimelineofAnETFLaunchInEuropeCorporatestructuring 3-6months
Serviceprovider DDandnegotiation 3-6months
Officeandhiring 6-12months
Fund documentationandset-up 3-9months
Authorisation andlicensing 2-6 months
Listing andtrading 3-6months(assuming multiplemarkets)
Passporting /cross borderregistration 3-6months(assuming5-6mainmarkets), butthiswillbeon-going
Signup ofAPs 2-12+ months
Investorduediligence andfundtrackrecord 3-36 months
TOTAL timetolaunchfornewIssuer 12-30 months (dependingonproductcomplexity,urgency,serviceproviders,
recruitment)
DistributionQuestionsand
ChallengesInEurope
DistributionQuestionsKEYQUESTIONS
• Whichcountriesto
targetandhow
• Registration(Passport)
orprivateplacement
• Exchangelistings
• MarketingandPR
• Sales
• APsandMMs
• Localpeculiarities:tax
reporting,eligible
assets,andmore.
Source:PWC2016
DistributionQuestions– WhichCountries?
• EUhastheUCITSdirectiveintendedtomakecrossbordermarketingoffunds
moresimpleandremovinglocalregulatorfromcompletedisapproval
• SwitzerlandisnotpartofEUandhasitsownSwissauthorisation processwhich
isawell-wornpath(asdoothernon-EUcountries,includingAsiaandMiddle
East)
• TheissuerwillneedtodetermineitsoverallstrategyandgoalsforEurope,while
specificproductsmayalsobetargetedtospecificclientele (eg.leverageETFs
havedonewellinItaly)
RegistrationorPrivatePlacement?
• Passporting ETFsacrossEUmemberstatesgenerallyallowsretail/public
marketing
• Passporting /registrationisnecessaryifcross-borderlistingalsodesired
• RulescanslightlyvaryacrossEUcountriesincludingwhatdisclosure
documentsarerequired,languageandaccesstoinformation
• NeedtoconsiderwhathappenstoUKpost-Brexit
• Privateplacementispossible,howeverrulesconstantlychange:
• SomecountriesOKtoaccessviaprivateplacement,e.g.Switzerland
• Othercountriesnot,e.g.France
• Rulesvary:qualifiedinvestordefinition;definitionofsolicit,inboundvs.
outboundqueries;numberofinvestorstocontact;etc.
• Itisimportanttokeepdetailedrecordsandhaveaproperprocessinplace
Cross-BorderListing?
Source:DillonEustace
Marketing,PRandSales
• NotABuild-It-And-They-Will-Come
Market
• SignificantOpportunityButYouMust
KnowTheMarket
• EachMarketIsDifferentAnd
RequiresSpecializedEfforts
Source:Deloitte.com Performancemagazineissue22
Conclusion
• TheEuropeanETFmarketisgrowingandthereareopportunitiesfornewentrants
• UCITSstructuresareattractivetoEuropean,AsianandLatAm clients
• BarrierstoentryinEuropearehigherthantheUS
• TheEuropeanmarketismorecomplexandfragmentedthantheUSmarket
• Europeanexpertiseandexperiencedtalentisimportant
• Can’tassumethatwhatyoudidbackathomeisoptimalforaforeignmarket
• Awell-coordinatedplanisrequiredaswellasserviceproviderswhounderstandand
wanttoworkwithyou
Appendix– SourcesofInformation
• SourcesofInformation:
• Accounting&consultancyfirms:E&Y,PWC,KPMG,Deloitte
• Lawfirms:DillonEustace,WilliamFry,Matheson,Maples,Goodbody,
• Assetmanagementbodies:EFAMA
• Regulatorybodies:CESR,CBI,FCA,BaFIN,FINMA,etc
• Stockexchanges
• ETFissuers
• ETFGI,ETF.com,DBXETFreport,BlackrockETFreport,variousMarketMakerETF
reports
Appendix– ShareClassHedging
InEurope,itispossibletoissuemultipleshareclassesofthesamefund:
• Eachshareclassisconsideredtobethesamefund,andtheassetsareconsideredtobeassetsofthe
fund
• Ifthreeshareclassesexistwith$2m,$1mand$97mofAUM,thefundassetsare$100m,makingall
shareclassesequallydesirableasthefundhas>$100mAUM
• Thecostsoflaunchingadditionalshareclassesareusuallynomorethan40%ofthecostofanewfund,
thuscostsavingsaremadeversuslaunchingacompletenewfund
• ThisfeatureofUCITSfundsisnotasreadilypossibleintheUS
FeaturesofETFshareclassesinclude:
• Distributingversusnon-distributing.TheETFstrategyandtargetinvestorwilldeterminetheoptimal
shareclass(es)
• Localtaxdifferenceswillalsodeterminewhetheraccumulatingordistributingisoptimal
• Currency-hedgingisallowed.Forexample,aUSequityfundcouldbeissuedwithunhedged,EUR-hedged,
GBP-hedgedandCHF-hedgedclassesofthesamefund
• DifferentshareclassescanhaveadifferentTER