ARK-Rize ETF deal: New entrants face impossible task in Europe

The European ETF market is dominated by a handful of giants

Tom Eckett

Tom Eckett

AssetCo’s decision to offload Rize ETF to ARK Invest shows how hard it is to succeed in European ETFs, a market that is dominated by a few big players.

Rize ETF launched its first ETFs to much fanfare in early 2020. Unburdened by the shackles of being “a small cog in a big wheel” at Legal & General Investment Management (LGIM), the four founders – Rahul Bhushan, Stuart Forbes, Anthony Martin and Jason Kennard – set about creating an ETF issuer from scratch.

Following a quiet start to life with the launch of just four ETFs in 18 months, the firm sought further investment to “turbocharge” its business.

After speaking to several parties, the firm found an investor in AssetCo – chaired by Martin Gilbert – which purchased a 63% stake in Rize ETF for £16.5m in July 2021 while committing a further £5.25m to help the ETF issuer’s growth.

The move helped Rize ETF launch a total of 11 thematic ETFs which have gathered $452m assets under management (AUM), as at the end of August.

However, this appears to have not satisfied the top brass at AssetCo which wrote down the value of Rize ETF by approximately £5m in June and said the business remained “materially behind plan”, largely due to its thematic focus.

With rumours circulating that Rize ETF was up for sale, Cathie Wood’s ARK is the latest player to make the plunge into European ETFs after acquiring the thematic specialist.

This is an ecosystem dominated by just a handful of giants, BlackRock, Amundi, DWS, Vanguard, UBS Asset Management and Invesco, to name just a few.

These players have achieved success through either aggressive M&A – see BlackRock’s deal of the decade or Invesco’s acquisition of Source – or had the backing of a European banking giant that is deeply embedded in a certain region.

ARK has its work cut out. The ETF issuer has achieved huge success in the US via its actively-managed range which currently has $13.3bn AUM across eight ETFs.

However, smaller independent players can gather assets in US ETFs due to the huge retail adoption and the uniformity of the market.

While the US is one market with one currency and three exchanges, Europe is highly fragmented. There are over 30 exchanges across 25 countries with multiple currencies, making life as a small ETF issuer particularly challenging, especially from a distribution perspective.

With Europe’s retail ETF adoption in boom mode, digital distribution via online platforms such as Trade Republic and Scalable Capital will be key to ARK’s success.

‘Low barriers to entry, high barriers to success’ is a phrase synonymous with European ETFs. Only time will tell if ARK can break the mould.


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