Institutional Asset Owners Boost ETF Use

⦿ Executive Snapshot

What: Institutional asset owners are increasingly adopting exchange-traded funds (ETFs), with nearly half planning to increase allocations in the next 24 months.
Who: Key players include Cerulli Associates, Invesco, and institutional asset owners with over $1 billion in assets.
Why it matters: The growth in ETF use signals a shift in investment strategies among large asset owners, highlighting evolving market dynamics and potential for increased efficiency in capital deployment.

Institutional ETF assets reached approximately $337 billion in 2025, with a 14.4% compound annual growth rate from 2020 to 2025.
Nearly half of surveyed institutional decision-makers expect to increase their ETF allocations in the next two years, with 16% of non-users planning to start using ETFs.
Active ETFs represented 31.2% of total ETF net flows in 2025, despite comprising only 10.9% of total ETF assets.
Significant adoption of ETFs among public pension plans, which accounted for 17 of the top 25 ETF users in the survey.
The Invesco MSCI North America Climate ETF, co-manufactured with Finnish pension insurer Varma, launched with $2.4 billion in assets, marking the largest ETF launch by assets.

The rapid increase in ETF usage by institutional asset owners reflects a broader trend of diversification and efficiency in investment strategies, moving from traditional active management.
The growth of active ETFs indicates a market evolution where institutional investors seek innovative products that blend active management benefits with the liquidity and cost-effectiveness of ETFs.

Immediate implications include heightened competition among ETF providers to cater to the growing demand from institutional investors, leading to more innovative product offerings.
Long-term implications suggest a potential redefinition of investment management practices, as asset owners increasingly rely on ETFs for both core and tactical allocations across various asset classes.

Potential regulatory hurdles could impact the growth and structure of ETF products, particularly in the realm of active management.
Competition among ETF providers may lead to market saturation, making it challenging for new entrants to gain traction and for existing firms to maintain profitability.

Upcoming ETF launches and innovations from major players like Invesco and BlackRock could signal continued trends in institutional adoption and product evolution.
Monitoring the performance and adoption rates of active ETFs will provide insights into their viability in the institutional investment landscape.