The white labelling trend has really taken off with four independent white-labelling platforms popping up in the last year.
HANetf launched last August as the UK's first independent white labelling platform. In February, LGIM's former head of strategy implementation and Vanguard's former head of equities announced they were seeking FCA registration to launch their white labelling platform Market Beta. There are also reports that US-based Exchange Traded Concepts is moving into the European market and last month Allan Lane's Algo-Chain fintech start-up, a white-labelling solution for ETF model portfolios, was launched.
This concept of white labelling, while relatively new to Europe, has unsurprisingly been going on in the US for some time with providers such as as Forum Investment Advisors, Nottingham, ALPS and others offering this service.
There are lots of positive things to be said for it and some market participants even wager that this could be a real game changer for the ETF space.
The growth of ETFs has largely been driven by demand for low-cost products from investors. They typically have the option of accessing ETFs from providers on ETF platforms. However, for an asset manager wanting to launch their own ETF it is a costly and complex process. Developing the eco-system for a physically-backed ETF runs into the hundreds of thousands of pounds and can take several years to get to launch. By going to a white-labelling platform asset managers are able to bring a strategy (through an index) and launch it through the ETFs on the platform in the space of a few weeks. In the case of model portfolios, it's what is in the model portfolio.
The platforms that have all launched are similar but there are subtle differences. HANetf offers a one-stop solution; the platform allows asset managers to retain the intellectual property of the strategy they bring to the platform, despite it being issued through Han's funds. There are rumours it is in the process of signing its first client. Market Beta will provide services including product development, compliance, capital markets, sales, marketing, and distribution. Exchange Traded Concepts platform in the US plan, build, launch and manage ETFs for their clients; and Algo-Chain FinTech platform focuses on model portfolios
The thinking behind it is to help lower the barriers to entry for prospective ETF issuers, which is a good thing. It is a really compelling story, but I wonder how far it can go right now? Is there enough demand for all of these platforms or is there going to be a race to get the handful of clients that are interested?
ETF Securities white-labelling platform Canvas which launched in 2013, gives some indication of what demand is like for these platforms. It's since been sold to Legal & General Investment Management, but the platform has assets of around $3.26bn across 20 products and is listed across multiple stock exchanges in Europe and licensed for distribution in 14 European countries.
European-listed ETFs assets stand at $805bn at the end of March, according to data from BlackRock. This makes the assets on Canvas's white-labelling platform only 0.4% of total European assets, which is where the disconnect lies for me.
What is interesting is that each platform is starting from a good base. McNeil and Nik Bienkowski are a force to be reckoned with when it comes to setting up ETF platforms; ETF Securities and Boost ETP are examples of what they can do. The platform is focused on smart beta, active ETFs and thematic ETFs and McNeil explains that they can do everything on the platform, which is a step further than the US platforms, which don't usually offer distribution. There is even a selection of market makers available.
Exchange Traded Concepts has the advantage of being established in the US, but it is going to need to develop a distribution network if it's going to compete with its competitors.
Canvas already has assets and also the benefit of LGIM behind it, which could mean a pool of previously untapped investors.
Algo-Chain FinTech is the only one in the model portfolio white labelling space - It's different to the other white labelling solutions that offer to build ETFs and also different to trading platforms offering model portfolios, where model portfolios are housed. Its focus is on asset managers and IFAs. "We offer our algorithms to help decide what to go into the portfolios so it means we are able to offer systematic model portfolios," says Lane. To date they have four clients signed up.
I like the concept of white labelling and breaking down the barriers to entry, competition is good, I'm just not sure on whether it is too early for Europe or whether it will be the spur that Europe needs.