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Institutional ETF holdings represent just 4.2 per cent of professionally managed channel assets: Cerulli Associates 


Despite collectively owning nearly USD1.3 trillion in ETF assets, institutions (e.g., insurance general accounts, state and local defined benefit plans, endowments) make up a mere fraction (4.2 per cent) of the segment’s USD31 trillion in US professionally managed assets, according to The Cerulli Report—U.S. Exchange-Traded Fund Markets 2023: Product Development Opportunities for a Maturing Structure.  

ETF usage among institutions is not only limited in terms of depth, but also breadth, the firm says. Just 25 per cent of asset owners polled use equity ETFs; only 24 per cent use fixed-income ETFs. While large segments of institutions indicate they are willing to consider equity (51 per cent) or fixed-income (36 per cent) ETFs, only 8 per cent of asset owners agree they will increase use of ETFs over the next 24 months. 

According to ETF issuers, asset owner preference for other vehicles is the most significant headwind to ETF adoption. Cerulli research finds that asset owners more commonly plan to increase their use of co-investments (31 per cent), private direct investments (19 per cent), private commingled funds (18 per cent), and separate accounts (16 per cent). Separate accounts have historically been a preferred way to access strategies, given their lower relative cost to operate, flexibility in customizing mandates, and ability to negotiate fees. 

Meanwhile, 26 per cent report limited institutional client ETF education as a significant challenge, followed by limited client awareness of ETF issuers (22 per cent). Issuers also cite a lengthy institutional buying process, noting the tremendous effort required to provide education and go through approval procedures.  

“While the pace of ETF adoption amongst institutional investors remains slow, the segment still holds more than USD1 trillion in ETF assets, a figure that will continue to grow, making it worthwhile for managers to engage and overcome longer investment processes that can involve boards and committees,” says Daniil Shapiro, director. 

Cerulli writes that it encourages asset managers to continue to invest in seeking to penetrate the large institutional market with a focus on helping participants understand key ETF use cases and benefits for their channel. “As the range of options amongst active ETFs grows—and more ETFs reach the asset range to be attractive to institutional buyers (e.g., by virtue of having a larger base where the institution’s investment is a smaller slice)—an opportunity exists to expand institutional ETF access,” concludes Shapiro.

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