2022 Perspectives for the Public Sector

Citi Perspectives for the Public Sector 19 How Public Sector Institutions Can Use ETFs W ith $9.2 trillion in assets under management (AUM), the global ETF market has nearly doubled in less than three years and is 2.3 times the size of the hedge fund industry (see figure 1): ETFs look certain to surpass projections of $10 trillion in AUM by 2025. Cost, convenience and liquidity are fueling demand and spurring broader adoption among institutions. On the supply side, ETF issuers are innovating with ETFs focused on industry sectors, themes and ESG (products that offset carbon for instance) and converting existing mutual funds into ETFs. Fixed income (FI) ETFs are experiencing some of the fastest growth and modernizing bond markets in the process by facilitating fixed income portfolio trading. Georgi Yordanov Head of Public Sector Emerging Europe, Citi Andrew Park Public Sector Group, Citi Burak Ciceksever Head of CEEMEA Investor Sales, Citi Christopher Gooch EMEA Head of ETF/ Index Sales & Business, Citi The COVID-19 crisis represented a robust test for the ETF market as an investment vehicle: it passed with flying colors. FI ETFs in particular not only held up under stress, but also became important trading and price discovery tools, offering immediate execution at transparent prices — a combination that was often unavailable with individual bonds. As bond markets became more volatile, investors gravitated to FI ETFs which added incremental liquidity (see figure 2). Even the Fed began using ETFs as a capital markets instrument. Source: Citi Business Advisory Services, Broadridge $0.0 $2.5 $5.0 $7.5 $10.0 2015 Q2 2021 2019 2020 2018 2017 2016 AUM (USD Trillions) $3.0 $9.2 $7.9 $6.3 $4.8 $4.8 $3.5 Figure 1: $9.2trn industry