AssetCo‘s move to sell Rize ETF to Cathie Wood‘s ARK Invest highlights the challenges of thriving in the European ETF landscape, a realm controlled by a few giants. Rize ETF was established as an independent ETF issuer in early 2020, accompanied by high hopes. However, Europe has proven to be a difficult market for independent ETF issuers. Whether the entry of ARK Invest will reshuffle the cards in Europe remains to be seen.
Tom Ecket, the editor of ETF Stream, has published an interesting opinion on the ARK acquisition of Rize ETF. He points out that the company had a modest beginning, launching only four ETFs in its first 18 months. Recognizing the need for additional investment to amplify its operations, Rize ETF sought external funding. AssetCo, led by Martin Gilbert, acquired a 63% share in Rize ETF for £16.5m in July 2021. Additionally, AssetCo committed another £5.25m to bolster Rize ETF’s growth trajectory.
This investment facilitated Rize‘s launch of 11 thematic ETFs, amassing $452m in assets under management (AUM) by the close of August. However, AssetCo‘s expectations seemed unmet, leading to a devaluation of Rize ETF by roughly £5m in June, attributing the lag to its thematic concentration. Amidst whispers of Rize ETF being on the market, ARK, led by Cathie Wood, stepped in to acquire the firm, marking its entry into the European ETF domain.
Powerhouses like BlackRock, Amundi, DWS, Vanguard, UBS Asset Management, and Invesco primarily control this European arena. Their dominance stems from strategic mergers and acquisitions or the support of influential European banks with regional clout. ARK faces a steep climb. While it has seen remarkable success in the US, amassing $13.3bn AUM across eight ETFs, the European market presents unique challenges. The US market is unified, whereas Europe is a mosaic of over 30 exchanges across 25 nations. This fragmentation complicates the journey for emerging ETF issuers, especially in terms of distribution.
However, with the surge in Europe’s retail ETF adoption, digital platforms like Trade Republic and Scalable Capital could be pivotal for ARK’s European venture. The European ETF sector is often described as having ‘low entry barriers but high success barriers.’ It remains to be seen if ARK can redefine this narrative.
