Goldman Sachs wades into third-party ETF business

The first exchange traded funds launched through Goldman Sachs’ third-party fund platform listed in the US today.

The rollout is the first time a big-name financial institution has helped smaller ETF issuers come to market, marking the latest stage in the development of the fast-growing $10tn ETF industry.

Three actively managed ETFs run by Brandes Investment Partners, a $17bn, 50-year-old San Diego-based mutual fund manager listed on the Cboe exchange today, covering US Small Cap Value (BSMC), US Value (BUSA) and International equities (BINV).

They are the first fruits of a wider rollout, with GMO, a $61bn value-oriented house co-founded by the veteran investor Jeremy Grantham, and Eagle Capital Management, with $22bn of assets under management, also having filed to launch ETFs via Goldman’s platform.

The bank said its first Ucits ETF launches in Europe, where the accelerator is also being rolled out, were likely to follow in the next two quarters.

Goldman’s platform is similar to the “white label” services available in both Europe and the US.

These operations allow smaller fund managers and new entrants to launch ETFs more quickly and cheaply, with the white labeller providing services such as distribution, marketing, capital market support, custody, compliance, seed funding and administration.

Goldman, however, insists it is a “service provider”, rather than a white labeller: it is listed as a “consultant” to the ETFs registering to use its platform, rather than an adviser or sub-adviser, as white labellers typically are.

The distinction may be in part due to Goldman’s desire to avoid any accusations of a conflict of interest given that it has its own in-house ETF arm, with $30bn of assets. Goldman is also a major authorised participant, acting as a market-maker and broker-dealer to facilitate trading in a wide range of third-party ETFs.

Lisa Mantil, global head of the accelerator, denied there was a conflict of interest, as Goldman “is not the adviser, sub-adviser or affiliate. We are not the promoter. That’s really the key difference.”

The accelerator will instead focus on “providing services across fund launch and integration into the ETF ecosystem, along with portfolio implementation and capital markets solutions”.

“We had so many clients pick up the phone and say ‘we want to go into the institutional ETF market but we don’t know how to do it’,” said Mantil.

“Clients were telling us it would take a couple of years, they would have to hire dozens of people and they would have to spend millions of dollars just to get to the launch of their first ETF. We can get them into the market more quickly and efficiently than they could do it themselves.”

The platform will focus primarily on the active ETF industry, which has grown rapidly to account for 6 per cent of ETF assets in the US, and which Mantil said accounted for 97 per cent of its client pipeline.

The white label market is currently dominated by lower profile specialists that do not have their own in-house ETF arms, such as Tidal Financial Group, Exchange Traded Concepts and Alpha Architect in the US, which service about 100 ETFs between them.

The European market is dominated by HANetf, although rivals such as Waystone, Axxion and Tidal have entered the market more recently.

“White label ETF providers are growing in popularity, and for good reason. They connect issuers with resources they would otherwise need to build themselves, reducing the need for scale,” said Bryan Armour, director of passive strategies research, North America at Morningstar.

“Goldman’s accelerator programme signifies another entrant to the white label ETF market.”

Todd Rosenbluth, head of research at VettaFi, said Goldman’s accelerator “taps into the company’s broader expertise and connections within the ETF industry.

“They are a larger liquidity provider and authorised participant and have a broad array of institutional relationships with asset managers.

“The ETF ecosystem can be hard to navigate so having friends to lean on can help a new entrant get to market faster and smarter,” Rosenbluth added.

He did not see the development as a conflict of interest, given that the accelerator “operates independently from Goldman Sachs Asset Management”.

Armour agreed, saying: “I don’t think it creates a conflict of interest despite the potential for white label ETFs competing with Goldman ETFs. The ETF market is highly competitive, and other white label providers exist if there’s any concern for the would-be issuer.”

“We are the only global investment bank that is doing this,” Mantil said. “We are the first provider that has a global platform. For Goldman Sach’s global clients, the concept of being able to onboard and get access to the globe is incredibly powerful.”