AI-focused ETF to be first European fund launched on Goldman platform

An artificial intelligence-focused exchange traded fund will on Thursday become the first ETF in Europe to be launched through a Goldman Sachs-run platform for small fund managers.

The AI-Enhanced Eurozone Equities Ucits ETF, managed by Germany’s Baader Bank and based on an investment strategy designed by Ultramarin, which specialises in AI-based forecasting models, will list on Frankfurt’s Xetra exchange.

The launch marks the first time a big-name financial institution has helped a European ETF issuer to bring a fund to market, a sign of the growing importance of the continent’s ETF industry, which recently passed $2tn in assets.

Goldman’s ETF Accelerator is similar to “white label” platforms designed to facilitate the launch of third-party funds that have proved popular in the US and made some headway in Europe.

These platforms allow smaller fund managers and new entrants to launch ETFs more quickly and cheaply than they could otherwise do, with the white labeller often providing services such as distribution, marketing, capital market support, custody, compliance, seed funding and administration. Goldman’s platform, which went live last year, currently hosts five US-listed ETFs with combined assets of $3bn.

“This is a massive milestone for our business to be able to demonstrate the ETF Accelerator’s global capabilities,” said Lisa Mantil, global head of the Goldman Sachs ETF Accelerator, who lauded the benefits of the Ucits fund structure, which can be distributed to more than 80 countries in Europe, Asia and Latin America.

The launch “really cements the fact that we are the only global service provider in the ETF space. This is our first [in Europe]. It absolutely will not be our last”, Mantil added.

“Our intention is to lower the barriers to entry for any investment manager that wants to get into the ETF space. I think we are going to see a lot more filings, a lot more launches, and that’s global.”

The white label market has taken off in the US, where platforms operated by the likes of Tidal Financial Group, Exchange Traded Concepts and Alpha Architect service several hundred ETFs.

Europe’s undisputed market leader is London-based HANetf, which currently offers 32 ETFs and other exchange traded products with combined assets of $4bn. A dozen more funds are lined up to launch in the near future, according to Hector McNeil, co-chief executive.

McNeil welcomed Goldman’s arrival in the European market. “I wish we would get a bit more competition. I want the industry to grow. When you are the only party it’s difficult to do that,” he said.

The white label route can be attractive to small ETF issuers and new entrants to the market, which face the option of building their own infrastructure, buying an existing issuer or renting space on a white label platform.

Some new entrants have instead gone down the acquisition route recently, with Cathie Wood’s Ark Investment Management entering Europe by buying Rize ETF and Janus Henderson doing likewise by scooping up Tabula.

However, Mantil said build-it-yourself could be “a two to three-year journey” to assemble the necessary expertise, while “acquisitions are not cheap. There will be people who will say ‘we want to spend $10mn, $20mn, $50mn to get into the ETF market’. There will be other people who don’t want the huge amount of time and money that you have to spend.” 

McNeil argued that America’s far more developed white label sector was a key reason why it had some 500 ETF issuers, compared with just 125 in Europe.

He believed that only about 10 per cent of “meaningful asset managers” in Europe had launched ETFs as yet, compared with “50 per cent, getting towards 60 per cent in the US”.

José Poncela, head of product at Leverage Shares, the European number two with five ETPs on its white label platform, said its pipeline of potential sign-ups “is becoming intense”, something he assumed was happening across the industry.

“We keep getting requests from everybody with any strategy you can think of,” said Poncela, with hedge funds wanting to put their strategies in an ETP at the fore.

Paul Heffernan, chief executive of Waystone ETFs, which is also looking to break into the European white label market, said “the wider asset management industry is increasingly aware of the benefits of the ETF wrapper. Given the complexity of navigating a fragmented European market, the white label business has significant appeal in the region”.

However Poncela said he was “very disappointed, but not surprised” that white labelling was presently far less common in Europe than across the pond.

“The fact that [European white label funds] haven’t come to much doesn’t surprise me. Europe is not like the US. In the US, scaling up to $100mn is a little bit easier than in Europe.”

Daniel Willmann, founder and managing director of Ultramarin, which currently manages $100mn in mutual funds, said the launch, which he claimed was the “first AI-based active ETF in Europe” was the nucleus of a family of ETFs it hoped to launch.

“In the next five to 10 years the application and development of machine learning will help humans to make better predictions,” Willmann added.