UK – Leen Meijaard, the newly installed head of EMEA sales at iShares, has told IPE that the BlackRock-owned exchange-traded fund (ETF) provider is working on a solution to enable UK institutional pension funds to use the instruments.
“In the UK, in order to trade ETFs, you have to be FSA-registered, which only about 25 are,” said Meijaard.
“We are working on a solution to that, together with a number of consultants.”
While the project is at an early stage and details have not been worked out, Meijaard indicated that the solution would involve iShares and its investment bank partners working alongside pension funds’ custodians.
Even outside the UK, institutional investor appetite for ETFs has so far been modest, but Meijaard points to a number of trends working in their favour.
Total expense ratios (TERs) have come down thanks to increased competition, but Meijaard also notes that investors are more aware of the offsetting income that is generated by securities lending, too.
As individual ETFs gain critical mass, they also begin to offer better levels of secondary-market liquidity than are available from the underlying securities themselves, cutting down on trading costs – especially in fixed income credit markets, where liquidity has dried up significantly over recent years.
While that is making ETFs competitive against some passive cash-market mandates, they do remain expensive relative to derivative exposures.
But Meijaard points to the growing complexity and pressures on collateral management in a low-LIBOR environment, and the cost pressures of regulatory measures such as Basel III and EMIR.
Meijaard replaced the retiring David Gardner as head of EMEA sales in December 2012.
Previously he was head of BlackRock’s EMEA institutional sales, so the appointment signals iShares’ ambition to expand its footprint with these investors.
The business has been expanding its fixed income suite recently: it is launching interest rate and currency-hedged corporate bond ETFs during the second quarter, with more products slated for the rest of the year.
IPE contacted Lyxor Asset Management, State Street Global Advisors’ (SSgA) SPDR ETF business and Vanguard to enquire about similar plans to facilitate ETF use by UK institutions.
Lyxor indicated that it was aware of the barriers and had discussed them internally.
SSgA and Vanguard did not respond before the deadline.