How Goldman’s $2B Innovator Deal Could Reshape ETF Consolidation

It’s a good day to be a buffer.

Last week, Goldman Sachs announced plans to acquire defined-outcome ETF provider Innovator Capital Management in a deal worth $2 billion. The move will catapult Goldman from an early-stage defined-outcome issuer, having launched its first buffer products in 2023, to the second-largest player. As new product providers continue to spring up — some 50 ETF brands have already launched this year, according to VettaFi investment strategist Cinthia Murphy — issuer consolidation is expected to become a mainstay in the industry in the years to come.

“This pace of expansion will likely lead to consolidation and M&A activity because competition in this industry is only getting fiercer,” Murphy said. “While some ETF providers may look for scale and distribution muscle through M&A, others may look to grow their footprint by acquiring unique expertise and product innovation. The Goldman Sachs-Innovator Capital deal is a great example of that.”

Stealing the Spotlight

Up until recently, much of the attention has been directed at M&A in the independent advice space, as RIA dealmaking activity continues to break records. But ETF consolidation is set to take off, particularly as wealth managers bring more niche strategies to their clients, said Greg Stumm, CEO of American Beacon Partners. “I think [there will be demand for] defined outcome [and] buffered ETFs … fixed income ETFs, as well as more truly active ETFs,” Stumm said. Push will come to shove, he added, when firms are faced with the choice of whether to build or buy. “[The Goldman deal] shows the importance of scale and breadth of product,” Stumm said. “When you’re seeing consolidation here, you’ve got specialist firms that have very unique, interesting products now partnering with bigger platforms that have broader product offerings to offer a more complete set, especially to the financial intermediary world.”

The Goldman deal will also:

• Place the bank second in terms of its defined outcome assets behind First Trust, which has $33 billion in the category.
• Bring Innovator’s more than 150 defined-outcome products and their $28 billion in assets under the Goldman Sachs name.

Get With the Times. Goldman currently has three buffer ETFs with about $36 million in assets under management. Buying up another company’s products can bring a provider’s own offerings in line with what’s popular, Murphy said. “The timing also seems opportune,” she added. “We’ve seen demand for defined-outcome ETFs grow as investors get more comfortable with the mechanics of these funds and look for downside protection in an uncertain market.”