As large mutual fund providers eye the exchange traded fund space, many are finding that the old way of adapting tried funds into the ETF structure does not always fit. Instead, a growing number of sponsors are working with service providers to craft active strategies.
Beacon Consulting Group believes a significant shift in technology investment is required to meet the rapid growth in the ETF industry, reports Jackie Noblett for Ignites.
“Jury-rigged accounting systems couldn’t scale. I don’t think [service providers]ever intended them to be long-term solutions and they are certainly not proving to be long-term solutions,” Adam Lerner, managing director at Beacon Consulting Group, said in the article.
For example, the growing popularity of fixed-income, international and active ETF strategies is putting pressure on operations and technology, the consulting group said.
Looking at the technology side of ETF operations, one of the most important aspects includes the portfolio composition file or basket file – the electronic file is created after the net asset value is struck and is unique to ETFs. The file is used in ETF creation or redemptions, along with predicting stock splits, dividends and corporate actions.
As the industry adapts, new methods will be required. For instance, the industry has proposed non-transparent active ETFs, and the new structure could force service providers to create systems to accommodate the blind-trusts or NAV-based trading for the active ETFs.
For more information on the ETF industry, visit our current affairs category.
Max Chen contributed to this article.