From peripheral tool to core strategy

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  Serge Nussbaumer
  Chefredaktor

Just a decade ago, the idea of a major pension fund or sovereign wealth manager incorporating exchange-traded funds (ETFs) into their core investment strategy would have been met with polite scepticism. «When I started at BlackRock, institutional clients would often ask, why would we need this? We already have direct market access», recalls Kirst Kuipers, Head of Institutional ETF Distribution for Europe.

Today, however, that picture has fundamentally changed. In this comprehensive discussion, Kuipers outlines the key structural shifts, market catalysts, and forward-looking trends that have accelerated ETF adoption among Europe’s largest asset owners.

A crisis that reshaped perception

The inflection point, as Kuipers highlights, came during the market turmoil of March and April 2020. «Markets froze, particularly in less liquid asset classes such as fixed income, but ETFs remained accessible. Spreads widened, yes, but remained within tradable ranges. Many institutional investors took note.»

This exposed the crucial need for liquidity under pressure. «Pension funds and insurers, typically aligned with long-dated liabilities, realised they needed tools that could respond quickly to market stress. ETFs proved to be such instruments.»

Furthermore, the U.S. Federal Reserve’s decision to incorporate fixed income ETFs into its monetary policy toolkit greatly enhanced the institutional credibility of the asset class.

The structural appeal: efficiency and transparency

Beyond crisis response, structural factors continue to drive ETF adoption. «Over the last ten years, the global ETP market has grown from USD 2.5 trillion to over USD 15 trillion. This growth has reduced management fees and improved efficiency across the board,» says Kuipers.

However, the total cost of ownership reveals more. «It’s not just fees. Lower bid–ask spreads and reduced tracking error contribute to ETFs being cost-effective – often more so than mandates or direct investments.»

He offers a compelling example: trading EUR 100-200 million in BlackRock’s IHYG ETF might cost around 5 basis points. Executing the same trade with individual high-yield bonds could cost up to 60 basis points. «That cost differential is significant, not to mention the operational burden of manually replicating an index.»

Global ETF assets under management are expected to rise from USD 14.7 trillion in 2024 to USD 27 trillion by 2030. For iShares alone, AUM is projected to grow from USD 4.2 trillion to USD 7 trillion globally. In Europe, the ETF industry is forecast to grow from EUR 2.3 trillion to EUR 3.9 trillion in AUM, with European iShares growing from EUR 0.9 trillion to EUR 1.6 trillion.

From broad exposure to precision instruments

Institutional ETF usage is evolving from basic diversification to highly targeted exposures. «Larger investors today are typically not using ETFs for generic MSCI World exposure. They’re leveraging them for specific credit segments, regional equity tilts, or sectors such as emerging markets and high yield,» explains Kuipers.

According to BlackRock data, approximately 70% of institutional ETF assets in Europe are allocated to equities, 29% to fixed income, and 1% to commodities – an allocation that complementing in-house capabilities. «Many institutions manage sovereign debt internally. When it comes to credit or niche markets, ETFs provide efficient access.»

The pattern varies by institution size. «Large asset owners, those with over EUR 100 billion, tend to use ETFs tactically and with high granularity. Mid-sized institutions still rely on ETFs for broad market exposure in asset classes where internal portfolio management resources are limited.»

Retirement trends and the shift from DB to DC

One of the most significant long-term drivers for ETF adoption is demographic. As Europe’s population ages, pension systems are transitioning from defined benefit (DB) to defined contribution (DC) models.

«Today, DC assets in Europe stand at around EUR 4 trillion. By 2030, we expect this figure to reach EUR 12 trillion,» says Kuipers. «ETFs are uniquely suited to this shift, offering diversification, transparency, and investor choice within a scalable framework.»

He cites the growing popularity of ETF savings plans across Europe as an indication of the future prevalence of ETF-based retirement solutions.

ESG and regional nuances

The adoption of ETFs is not uniform across regions. «Two main factors influence uptake: the specificity of ESG requirements and the average size of institutional investors in a given country,» explains Kuipers.

For investors with highly customised ESG criteria, ETFs may not provide a solution as a too narrow investor base will limit ETF liquidity. Similarly, in regions where a few very large investors dominate, adoption may be slower due to the availability of in-house capabilities. «That said, our data show that six out of ten of the largest institutional investors in each of the 16 European markets already hold iShares products.»

Even central banks are involved. «Today, 17 central banks across Europe use our iShares ETFs,» he confirms, understandably declining to name specific institutions.

Expanding the toolkit: thematic, active and digital assets

As the ETF ecosystem matures, product innovation is accelerating. «We’re seeing strong interest in themes such as defence, artificial intelligence, and sustainability-linked strategies, as well as in active ETFs,» says Kuipers.

While active ETFs are still in their early stages in Europe, they are gaining traction. «The ETF wrapper has proven to be highly efficient. Combining it with active investment strategies adds flexibility and potentially additional return drivers.»

Interest in digital assets is also rising. «The launch of our US Bitcoin ETF was the most successful in history. Although many European institutions are not yet permitted to invest in such products, there has been a high level of interest. We expect gradual growth in adoption as policy evolves.»

Looking ahead

Although Kuipers refrains from making short-term market predictions, he is confident about the long-term prospects for ETFs. «We continue to see consistent growth, particularly among first-time institutional users. In Switzerland, for example, over 50% of inflows from institutional clients in 2024 came from first-time ETF users. In fact, around 30% of ETF inflows in Europe last year came from institutions buying ETFs for the first time.»

In terms of UCITs ETF flows, the industry saw USD 14 billion invested in European equities and USD 115 billion in U.S. equities in 2024. However, this trend reversed in early 2025, with just USD 9.9 billion flowing into the U.S. equity market compared to USD 40 billion into European equities, highlighting the dynamic role that ETFs play in tactical allocation decisions.

In a landscape increasingly shaped by cost pressures, regulatory changes, and global complexity, ETFs are becoming indispensable tools for both tactical positioning and strategic portfolio construction.

«ETFs have earned their place,» concludes Kuipers. «What was once a niche solution is now a core component of institutional portfolios across Europe.»

Thank you very much, Mr. Kuipers.

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Kirst Kuipers
Managing Director, Head of Institutional iShares Sales EMEA & Head Official Institutions Sales Europe at BlackRock

Kirst Kuipers, Managing Director, Head of Institutional iShares Sales EMEA & Head Official Institutions Sales Europe. Mr Kuipers maintains and develops relationships with institutional investors, alongside leading the iShares Institutional and the Official Institutions sales teams. From 2014 to 2019 he was Head of iShares The Netherlands, responsible for BlackRock’s iShares business in this region. Prior to joining BlackRock Mr Kuipers worked at ING as Managing Director in commercial banking where he advised financial institutions. Before this was Head of ING Group Strategy and Head of ING Direct Corporate Development. Mr Kuipers managed large scale M&A projects and acted as lead negotiator on behalf of ING’s Executive Board. He also was a Regional Director within ING Private Banking. From 2000 to 2004 Mr Kuipers led a wide range of client engagements at McKinsey & Company. Previously he was a strategist and sales advisor within the financial markets divisions of ABN AMRO and ING Barings, serving institutional investors in fixed income and derivative products. He started his career in 1993 in Atlanta as an intern with Rodamco, then the largest global REIT. Mr Kuipers is a Certified European Financial Analyst. He studied at the UCLA, the College of Charleston and the University of Groningen and has cum laude master degrees in Economics and Business Administration.