This rapid period of growth has resulted in several areas of strain for ETF managers and created opportunity as investors continue to flock in increasing numbers into this area. Software vendors and service providers initially began to support the ETF market needs on the bones of legacy mutual fund oriented systems and processes. While it was not too difficult to support such needs this way in limited volumes, the myriad of workarounds and manual interventions have added up as the number of funds and assets have grown. This growth, coupled with the broadening complexity of the ETF investment strategies, has presented very real risks. Plans for scalable and profitable growth to coincide with the increased assets have been restrained by the manual approaches necessary to bridge the gap between available technology and business demands. Leaders in this space have lived through the pain of forcing a square peg through a round hole that is inherent with using traditional mutual fund based approaches and have begun to develop platforms targeted specifically to meet the nuanced needs of the ETF community.
Vendors have been slow on the uptake. ETF shops across the industry have been forced to develop their own black boxes to meet their business technology needs to varying degrees of success. While vendor offerings are certainly a part of the general solution ETF managers deploy, the workarounds and bespoke solutions required to fill gaps and connect all the pieces still play a significant role in the platforms used across the market.
Market trends and investor behaviors strongly indicate that ETF's are in a prime position to experience continued significant growth for the foreseeable future. Firms offering ETF products will need to make corresponding investments in their technology infrastructure and operating models if they intend to capitalize on this growth opportunity. Those who understand the nuances of the ETF business and have a good perspective on the competitive landscape are implementing best of breed solutions and separating themselves from the herd in this increasingly competitive space where speed to market makes a huge difference.