Exclusive: Morgan Stanley lays out plans to enter the ETF market

The $1.5 trillion investment manager is designing a full-scale ETF platform, and plans to launch its first ETFs this year.

Morgan Stanley Investment Management is ramping up operations to launch an exchange-traded fund platform, with plans to get its first ETFs to market later this year.

The plans were announced internally this week in a memo from Morgan Stanley managing director Daniel Simkowitz, who cited recent hires from Goldman Sachs and BlackRock who will lead the new initiative.

“A first-class ETF platform will further enable us to match our world class investment capabilities with the diverse set of investment vehicles our clients increasingly demand,” the memo reads in part.

Simkowitz said a “multi-asset ETF platform that covers active and systematic strategies will also complement our leadership in separately managed accounts driven by Parametric’s premier position in customization, the distinguished mutual fund history at MSIM and Eaton Vance and our private fund platform that now has over $200 billion in alternatives capital for clients.”

Over the past two weeks, Morgan Stanley hired Anthony Rochte as global head of ETFs and Allyson Wallace as global head of ETFs capital markets.

Rochte, who joins from Goldman Sachs, has more than 18 years of experience in the ETF space, including helping to launch the ETF platform at Fidelity Investments.

Wallace, who joins from BlackRock, brings fixed-income expertise, suggesting a diverse, multi-asset ETF buildout.

Morgan Stanley, which has $1.5 trillion under management following last year’s acquisition of Eaton Vance, is one of a handful of major asset management companies that has yet to enter the fast-growing ETF space, which saw a record $1 trillion worth of inflows last year.

Some major fund companies that have entered the ETF space over the past few years include American Century, Capital Group, Federated Hermes, Dimensional Fund Advisors and T. Rowe Price.

Rochte, who doesn’t have a lot of details at this point, stressed that the ETF platform will be comprehensive, including “multi-jurisdiction, multi-asset class and multi-brand.”

“Our focus is on building a world class ETF platform that will enable us to match out investment capabilities,” he said. “It is driven by client demand.”

Jacques Chappuis, Morgan Stanley’s global head of distribution, echoed the sentiment that the migration into the ETF space is giving clients what they want in terms of an ETF wrapper.

Regarding the types of strategies likely to land on the new platform under the asset management brands of Morgan Stanley, Eaton Vance and Calvert, Chappuis said they likely will not deviate from what the asset managers are already offering through mutual funds and separately managed accounts.

“You’ll likely see those strategies we already have put into the new shell, first in the U.S., with the intention of taking it global,” he said. “We’re viewing it as a way to give clients an option on the vehicle they can access to get exposure.”

On the risk of the ETF platform cannibalizing Morgan Stanley’s mutual fund business, Chappuis said that’s “not a concern.”

“We would expect there could be some clients that would prefer this [ETF] product,” he said. “If that’s the case, it shows we’re serving clients better by giving them a vehicle they prefer, and that’s exactly what we’re trying to do.”

Todd Rosenbluth, head of research at ETF Trends, said the growing appeal of ETFs, particularly among financial advisers, is driven by liquidity, transparency and lower fees.

Even though Morgan Stanley is somewhat late to the game, Rosenbluth said the ETF space is still in an upward growth trajectory and there is room for newcomers.

“It’s sort of surprising that they’re doing it now, because at this point a lot of money managers have already dipped their toes into the ETF space,” he said. “But it’s still relatively early days for active ETFs, and there’s still lots of room for growth.”

Rosenbluth said that although Morgan Stanley’s asset management business operates independently from its brokerage side, there are “benefits of familiarity.”

“Asset managers with a strong following will have a leg up in the ETF space,” he added. “It’s extremely competitive, and scale and distribution matter.”