Luis Berruga, CEO of Global X, has revealed the firm is set to launch its first ETFs in Europe by the end of the year along with bringing in further senior appointments.
Speaking to ETF Stream, Berruga (pictured) said the ETF issuer will have a particular focus on the UK, Switzerland, Germany and Denmark as it begins its expansion across Europe.
Earlier this week, Global X announced its entrance into the European market with the upcoming launch of its UCITS ETF range and two senior hires, a move that has been 12 months in the making.
Prior to launching this side of the Atlantic, Berruga said the firm already had a significant client base in Europe, managing just under $1bn of European client assets.
Before the introduction of MiFID II in 2018, he explained there were no major differences for investors wanting to buy into UCITS ETFs compared to US-listed ETFs. The regulatory implementation meant European investors had to start taking into consideration factors such as suitability requirements and tax advantages when choosing ETFs which were favourable for domestically listed products.
Despite the introduction of MiFID II, Global X has seen some of its European institutional clients still favour US-listed ETFs over UCITS ETFs due to their liquidity advantages and the variety of strategies available.
Therefore, a key reason behind the launch, the CEO explained, was to improve the service for these European investors by launching similar strategies in a UCITS ETF structure.
Berruga said: “The major European markets are the UK, Switzerland, Germany and Denmark and many of our clients within these regions were asking us to launch our strategies in a UCITS wrapper.”
Out of the 78 ETFs launched by Global X, 24 track thematic indices and have gathered $9bn assets under management (AUM) since the firm's first thematic ETF launch in 2010.
“Some of our fasting growing thematic products such as our computing and robotics ETFs have been significantly driven by European investors,” he continued. “Offering them these solutions in a UCITS wrapper is the right thing to do for our investors.”
Global X has spent just over a year developing the European business by liaising with service providers based in the UK and Ireland with the main office based in London.
The two senior hires that have already been announced are JP Morgan's Rob Oliver, who will head-up business development in Europe, and director of research Morgane Delledonne who was part of the BMO ETF business which exited Europe earlier this year.
Berruga said Global X will be adding a few more resources to its European team in the coming weeks with plans to scale the operations rapidly over the next 18 months with Switzerland and Northern Europe the key areas for development.
Kickstarting the ETF offerings, Berruga explained: “As long as everything goes well, we will be launching our first two thematic ETFs before the end of the year.”
Similar to its US business, Global X will be focusing on building its thematic family of products in Europe along with some income-oriented ETFs.
“Given the current environment of interest rates being at historical lows and clients around the world having no easy solution to add income to their portfolios, we do see some opportunity in this space,” he said.
Despite Europe’s ETF market growth and development in recent years, there are some challenges for US issuers wanting to replicate their success in Europe due to the fragmented nature of the market and differences in investor demographics.
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Berruga said Global X’s first step will be to focus on the institutional clients in Europe already buying its ETFs listed in the US. By offering a more accessible platform for these European investors, he is hopeful this will naturally attract more assets to these products.
Another opportunity the firm is looking to take advantage of is the private banking space which is made up of large financial institutions. These investors have shown interest in the thematic space but are significantly less likely to invest in US-listed ETFs so would be a segment of the market for Global X to engage with early.
In the US, the retail adoption of ETFs is far greater than that in Europe and therefore is not a target audience Global X will explore early on in its voyage.
“The retail market in Europe will not be an area of focus right away, however, we do expect to see significant acceleration in that segment of the market in the next 10 years.”
To ensure the ETFs that come to Europe can be traded efficiently, Berruga said the issuer has spent time engaging with capital markets, such as authorised participants, market makers and exchanges, to offer investors a significant amount of liquidity and keep spreads tight.
He added that part of the team expansion will include two senior appointments with a specific focus on capital markets because this one of the major challenges Global X is facing coming to Europe.
Spanish-born Berruga said European expansion is the final step in completing Global X's global coverage and so this move, in particular, was of particular appeal.
"We have been in the ETF business for 11 years and even though we are US-based, our client base has always been global and so this is the last step in the expansion of our business," he concluded.