Keep pulling the thread on Wes Gray.
The minimum recommended seed capital to launch an ETF is now $25 million, up from $5 million four or five years ago, primarily to convey credibility to the market.
Wes Gray expects to soon raise the minimum recommended seed capital for an ETF launch to $50 million.
The all-in startup cost to launch a generic ETF is approximately $50,000, while ongoing annual operating costs are around $200,000.
Wes Gray advises new ETF sponsors to almost always use an active fund structure, even for 100% systematic strategies, due to lower overhead costs and greater operational flexibility.
Wes Gray advises new ETF entrants to focus on boutique and niche strategies that require special expertise or are not massively scalable, as they cannot compete with firms like Vanguard and iShares on large-scale, low-cost market beta products.
ETF Architect provides a turnkey white-label platform for launching ETFs, which handles legal, compliance, operations, and portfolio management for its clients.
Ritholtz Wealth Management is partnering with ETF Architect to launch a new ETF later this year.
According to Wes Gray, a new ETF needs to be able to operate for at least three to five years to successfully establish its story in the market.
Wes Gray characterizes the ETF market as being dominated by monopolistic competitors such as BlackRock and Vanguard.
ETF Architect can launch a relatively straightforward ETF within approximately four months from the signing of a letter of intent.
The market generally perceives the break-even assets under management (AUM) for a new ETF to be between $25 million and $50 million.
Under Section 351 of the tax code, an ETF can be seeded tax-free through the contribution of property, such as a portfolio of public securities.