A former senior executive of Source ETF has launched an asset management company that plans to issue an array of funds for passive bond investors who are “hungry for new products”.
Michael John Lytle, the chief executive of newly founded Tabula Investment Management, is critical of the bond exchange-traded fund (ETF) market and says innovation has lagged that of equity products.
Tabula will launch ETFs across various bond asset classes, including high yield and emerging markets, as well as ETFs suitable for insurance companies’ solvency rules.
Its sales team will cover the UK, Ireland, Germany, France, Switzerland, Austria, Belgium, Luxembourg, the Netherlands and the Nordics.
Lytle, who is also known as “MJ” and spent 18 years working at Morgan Stanley before co-founding Source, has teamed up with Hasan Sabri, who has held senior management positions at GLG Partners (now part of hedge fund company Man Group) and MyInvest. Sabri was also chief operations officer at MoneyFarm, one of the low-cost, tech-driven fund providers seen by some as industry disruptors.
Lytle said there were currently over 400 fixed income ETFs in Europe, but almost half of the assets were concentrated in the top 20.
As a result, the large incumbent funds continue to gather assets, but “investors are hungry for new products”.
Lytle said: “Passive strategies account for only 5% of fixed income fund assets, compared to 30% for equities. We expect this gap to close, but how quickly will depend on how compelling the available funds are.
“We are optimistic that delivering precise exposure and addressing specific investment needs will resonate with investors and complement existing products.”
Tabula will launch its first ETFs “soon, providing new and more precise tools for passive credit exposure”.
Its offering will be expanded from investment grade and high yield credit into inflation, government debt, emerging markets, bank capital, money markets, ESG – or environmental, social and governance - strategies and funds that can help insurers support their Solvency II requirements.
Tabula is working in partnerships and alliances, the firm said. These include HSBC Securities Services for fund administration and custody of the Irish-domiciled funds.
Lytle said: “Ireland is the natural jurisdiction in which to innovate and develop new fund businesses.”
The firm is also working with IHS Markit, which will provide indices and KB Associates for set-up and governance services.
Until Tabula receives its own authorisation, it will be an appointed representative of Cheyne Capital, which is authorised by the Financial Conduct Authority.
2017 saw record inflows of $140 billion (€117 billion) into fixed income ETFs, according to Tabula research and professional investors expect this trend to continue.
Just over half of the 55 professional investors surveyed believed 2018 would be a record year for inflows into fixed income ETFs and that many expect the market to be worth $1.6 trillion or more by 2020, up from $600 billion now.