The Active ETF Evolution

The ETF industry is experiencing a pivotal shift with the emergence of ETF 3.0—a phase characterized by increasingly complex toolsets and sophisticated portfolios. This evolution from simple building blocks to actively managed vehicles holding exotic instruments (swaps, futures, bank loans, and securitized products) represents a significant opportunity for asset managers while creating new demands for specialized talent.

While active ETFs globally hold less than 10% of total ETF AUM, they captured 20% of ETF net flows in 2023. That momentum has accelerated in 2024, with active ETFs expanding at a compound annual growth rate of 40% over the last decade. This trajectory signals a fundamental transformation in how investment vehicles are structured, managed, and distributed.

Regulatory Catalysts for Growth

The U.S. ETF Rule (Rule 6c-11) enacted in 2019 has been a pivotal catalyst, streamlining the creation of actively managed ETFs with custom creating and redemption baskets. This regulatory shift reduced barriers to entry while increasing tax efficiency and reducing transaction costs. Further potential SEC approval for multi-share class structures could allow efficient replication of existing investment strategies in ETF form, potentially creating an additional surge in active ETF offerings.

Europe and Asia are experiencing their own regulatory evolutions. Ireland and Luxembourg, as leading ETF domiciles in Europe, have structures in place that facilitate retail investment in active ETFs. In Asia, Taiwan has lifted its ban on active and multi-asset ETFs, while Japan is implementing policy changes set to take effect in May 2025 that will remove impediments to active ETF growth.

Retail & Institutional Investor Demand

Retail investors have embraced active ETFs for their diversified exposure, lower fees compared to mutual funds, and transparency of holdings. In Australia, retail investors account for 74.6% of ETF investors, with active strategies representing 55% of new ETF launches in 2023. The dual-access structure, allowing investors to access funds through exchanges or traditional unlisted distribution channels, is becoming increasingly important.

Institutional investor interest has also grown as the asset base for ETF issuers has accelerated. With the consensus around the merits of the ETF wrapper firmly established, many asset managers are positioning themselves for this new era of complex but accessible actively managed ETFs.

Executive Talent Acquisition Challenges

This landscape creates unique executive recruitment challenges for asset managers. Traditional mutual fund distribution expertise does not necessarily translate to ETF success, as distribution channels, investor types, and marketing requirements differ substantially. Asset managers need leaders who can navigate regional nuances, understand customized investment baskets, and build appropriate service partnerships.

The executive talent intelligence needed goes beyond portfolio management to encompass distribution strategy, regulatory expertise, and technology infrastructure knowledge. Asset managers must identify and recruit leaders who can express each firm's distinct investment identity amid the growing complexity of active ETF products.