Prudential’s  Stephen Pelletier, who runs the company’s U.S. operations, echoed that sentiment last week when he said his firm would potentially focus more on active ETFs since the passive space is “ thoroughly spoken for.”

Insurers are jumping in after using ETFs to manage their own money. Almost half of those surveyed by Greenwich Associates for a report last year said they’d started using ETFs within the past two years, and almost 25 percent started buying within the previous 12 months.

A regulatory change will make these funds even more attractive to invest in. The shift will tweak the accounting treatment of ETFs for insurers in a move that could lead them to add more than $300 billion to debt ETFs alone over the next five years, according to BlackRock, the largest U.S. ETF provider.

“As people are becoming more educated and more familiar with ETFs, you’re seeing the usage of them increase proportionately,” Lance Humphrey, a money manager in the global multi-assets team at USAA, said Oct. 24. The San Antonio-based company is using what it learned investing $5.5 billion in these funds to build its own ETFs.

Standing Out

Other insurers are doing the same. And, as both investors and issuers of ETFs, they have a secret weapon: their own capital.

Principal’s biggest fund, the Principal Active Global Dividend Income ETF, grew in less than six months into one of the largest active equity ETFs in the U.S. with more than $450 million -- almost entirely thanks to its own money. Similarly, TIAA owns almost 40 percent of Nuveen’s Nushares Enhanced Yield US Aggregate Bond ETF, and New York Life’s money management unit owns more than 50 percent of IndexIQ’s IQ 50 Percent Hedged FTSE International ETF.

That’s a huge boon, since with scale comes access. Wirehouse brokers often require a minimum amount of assets in a fund before they’ll offer them to clients, and some investors are restricted from buying smaller funds. By putting in their own money, insurers can leapfrog this hurdle and get their products in front of outside investors almost immediately.

Still, with more than 2,000 ETFs competing for investor assets in the U.S. alone, these nascent issuers have to stand out in an already crowded market.

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