Warburg Pincus plants flag in ETF industry after buying stake from investment banks

Michael Bow
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US PRIVATE equity giant Warburg Pincus made its first foray into the increasingly competitive world of exchange traded funds (ETF) yesterday by taking a majority stake in fund provider Source.

The buyout house, which also owns half of Santander Asset Management, has bought a 51 per cent stake in the ETF business from its five investment bank owners – Bank of America Merrill Lynch, Goldman Sachs, JP Morgan, Morgan Stanley and Nomura.

The banks will retain a minority stake in the company alongside management. The deal gives the company an enterprise value of about $300m. Warburg funded the deal entirely with cash from its buyout fund.

In a sign of Warburg’s determination to take on the biggest ETF provider, BlackRock, it has installed the former chief executive of BlackRock’s ETF business Lee Kranefuss as executive chairman.

He will work alongside chief executive Ted Hood, a former Morgan Stanley managing director.

“I think that there is a tremendous opportunity for explosive growth over the next couple of years and believe that Source is well placed to become a top tier ETF provider, not only in Europe but also globally,” Kranefuss said.

ETFs are index tracker funds which trade on the stock exchange just like a share and have seen a burst of popularity in recent years thanks to their comparative cheapness.

Warburg’s interest in an ETF provider mirrors similar moves five years ago by CVC Capital Partners to buy Barclays Global Investors’ burgeoning ETF business, which it later sold to BlackRock. Credit Suisse also sold its ETF business to BlackRock last year. Source has raised over $12.5bn in assets since it was launched in 2009.