BNP Paribas Asset Management is eyeing entry into Asia’s fast-growing ETF sector, a move which would see one of Europe’s top players commence battle with dominant domestic rivals to win market share.
“We are considering the Asian market, where ETFs are booming,” Lorraine Sereyjol-Garros, global head of development for ETFs and index funds at BNP Paribas Asset Management told Financial News.
ETF growth across Asia has been rapid.
According to data from ETFGI, assets across Asia Pacific’s ETF industry, excluding Japan, reached more than $750bn at the end of November 2023. This was up from $196bn at the end of 2018.
Sereyjol-Garros said demand for BNP Paribas Asset Management ETFs — particularly in Singapore and Korea — was being driven by existing clients, which invest in other products the firm offers in those markets.
There is strong appetite for thematic ETFs in Asia, according to Sereyjol-Garros. Offering these types of products, which focus on specific themes or sectors, would be “a way to penetrate the market and offer something slightly different from what currently exists”, she said.
BNP Paribas Asset Management has set up a working group to assess its potential entry into Asia, added Sereyjol-Garros, with input from its generalist sales team.
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However, she added the asset manager would need “at least one to two years” before committing to a dedicated ETF business in Asia.
A push into Asia would be the first time BNP Paribas Asset Management has expanded its ETF reach into a market outside of Europe.
Unlike some of its larger ETF rivals in Europe, BNP Paribas Asset Management does not have an ETF presence in the US — the world’s largest ETF market where assets reached a record $8.1tn at the end of 2023.
In Europe, BNP Paribas Asset Management is the tenth largest ETF provider with $27bn of assets, according to ETFGI.
“We are not present in the US, which is the biggest market. It is very difficult to compete with the US players,” said Sereyjol-Garros.
China Asset Management is the largest ETF provider in Asia Pacific, commanding an almost 8.5% share of the market with $70bn of assets. It pulled in $24bn of new money during 2023, according to ETFGI.
In contrast Vanguard and iShares, which dominate the global ETF market as the largest players, are the eighth and ninth largest in Asia Pacific respectively, with $35bn and $30bn of assets.
Xav Feng, head of Asia Pacific research at LSEG Lipper, said strong retail appetite among investors in Taiwan for ETFs had caused a sharp increase in flows within the local market.
An ETF launched in Taiwan by Yuanta Funds raised more than $5bn in two days, smashing a previous record for fundraising. ETF assets in Taiwan, which stood at $125bn at the end of January, are almost double the level recorded at the end of 2022.
Meanwhile in China, investors are ploughing money into ETFs this year at the fastest pace on record, according to Feng, as they opt for passive exposure.
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“The trend has also caught on as active fund managers in China struggle to make money, and as Beijing uses ETFs to support stock markets and channel funding into strategic sectors such as technology and green energy,” said Feng.
However, firms hailing from outside of Asia Pacific face challenges establishing a presence in a market dominated by established domestic brands.
Yoon Ng, principal for asset management advisory services at Broadridge, said it was “extremely difficult” for foreign asset managers to build scale regionally due to the presence of local giants.
The fragmented nature of the market and distribution challenges also made building a presence more difficult, she added.
“There are pockets of opportunities and conditions which facilitate foreign entry and growth,” said Ng, pointing to Singapore which has one of the highest penetration rates for foreign asset managers and where State Street Global Advisors is among the biggest players.
In addition to growing its Asia presence, BNP Paribas Asset Management is assessing ways to expand its existing European ETF business, which saw assets climb to a record $1.8tn at the end of last year.
Sereyjol-Garros said it was looking to generate higher inflows across its fixed income range, which accounted for 70% of its ETF sales in the region last year.
“The potential is huge,” said Sereyjol-Garros.
“The fixed income market is less crowded and there aren’t as many products.”
Morningstar figures showed fixed income funds across Europe, including ETFs, pulled in €31.8bn of new money in January — the best monthly result since July 2021.
Separate data from Invesco, published earlier this month, showed fixed income ETFs have attracted more than $10bn in new money so far in 2024.
Appetite for fixed income products is likely to remain high, as interest rates start to come down towards the middle of this year and investors look to lock in yields.
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