#2 Hector McNeil - Innovation in the ETF space

The Vestr Securitization Podcast

If you want to understand the forces shaping the future of ETFs — and how entrepreneurs can still thrive in a market dominated by giants — this episode with Hector McNeil is essential listening.

As co-founder of HANetf and a veteran of the ETF industry, Hector McNeil has helped create multiple ETF brands from scratch, launched Europe’s first gold and platinum ETFs, and built a platform that empowers new issuers to bring ideas to life. In this candid conversation, he explains how Europe's ETF landscape is evolving, why storytelling and IP are now critical, and how Actively Managed Certificates (AMCs) offer a cost-effective route to market.

Hector also shares:

• Why AMCs can be a stepping stone for asset managers building track records

• How Europe's ETF market still lags the U.S. — and what that means for innovators

• Why liquidity and market maker concentration could be the next systemic risk

• The creative thinking behind launching thematic ETFs — from cannabis to defence

• What it takes to build a 100M+ business in a competitive and capital-intensive space

We also dig into transparency, regulation, and the future of active ETFs in Europe.

This episode is packed with real-life insights, entrepreneurial war stories, and lessons from someone who has been at the forefront of ETF innovation for two decades.

🎧 Listen Now On: Apple Podcasts | Spotify | Youtube | Podomatic

🎙️ Transcript:  

Hector McNeil: 00:36 Probably the major hurdle has been cost to people doing an ETF, and it's hundreds of thousands of dollars, you know, before you break even. And I think that's where AMCs come into their own, really, that they're so scalable from that level.

Disclaimer: 00:52 The information in this presentation is for informational purposes only and does not constitute an offer, solicitation or recommendation to buy or sell any financial products. It is not intended as investment, legal, tax or accounting advice. Always seek the advice of your financial advisor or other qualified professional regarding your investments.

Stefan Wagner: 01:23 I'm here with Hector McNeil, co-CEO and founder of HAN ETF. Thank you, Hector, for joining me today. You have done quite a lot of entrepreneurial things, but maybe you can share a little bit about your background and what led you to found, actually, HAN ETF.

Hector McNeil: 01:40 Yeah, sure. I mean, I've been pretty much in financial services since I left university at 21 and started my career as a graduate trainee at the London Stock Exchange. So a great place to start learning and worked at various investment banks, Morgan Stanley, Nemura, you know, VZW, which is Barclays Capital now. And then I sort of got involved in ETFs pretty much at the start in Europe. I joined a firm called Sasquahana, were a big ETF market making firm and they were starting out in Europe. I helped them establish their ETF business. I was there for five years in Dublin, set it all up from scratch. And then I went to be one of the founders and owners of ETF Securities. I was a co-CEO there, co-founder, 10% owner. We were famous for inventing gold ETFs, did the first gold ETF in the world in Australia, brought it to Europe, then helped create the GLD in the US. And we were very well known for commodity products, platinum plate, in fact. We invented the first platinum palladium physical products in the world. We own more platinum palladium in the world than anyone else at one point in the vault. And took our business from zero to 36 billion at its peak. And then that's where I met my current business partner, Nick. So Han actually stands for Hector and Nick. We've worked for 22 years now over four businesses and we left ETF Securities, 2010, set up a business called Boost ATP, which was a short leveraged ETF provider. We got to a reasonable size and a firm called Wisdom Tree wanted to come to Europe. They didn't have a business or a team in Europe and they effectively bought Boost and us. And we rolled that into a new entity called Wisdom Tree Europe, which we co-owned with Wisdom Tree. And then they bought us out of that after three years. And then we decided to do Hans. So I think we're the only management team in the world that created four ETF brands from scratch successfully. And actually, interestingly, there's very few entrepreneurs in the ETF issuing space in Europe. Most people are big banks or big asset managers, where the US is different. The US has got a lot of entrepreneurs in the ETF space, but not Europe.

Stefan Wagner: 03:52 Yeah. I mean, was there a specific challenge or opportunity you saw when you found HathiDev? I mean, you're now pretty much leading the active ETF market.

Hector McNeil: 04:02 Yeah, no, I think what's interesting about Han and why it's different than our previous businesses is that we were pretty much selling our own IP in the past, our product ideas, our own product development. Whereas when we've always looked at the ETF business, we always see what's happening in the US and sort of say, well, Europe follows the US sort of three to five years behind, so what's the opportunity? you know, particularly because when we left Wizardry, you know, the market was a 15-year-old market, much more mature, you know, a lot more players, a lot more competition. So you've always got to find the niches, you know, because obviously you're taking on, you know, pretty much the biggest and ugliest, most cutthroat companies in the world, like BlackRock and Vanguard, right? So you have to see where your niches are. And certainly we felt that in terms of US, The market has grown immeasurably, much more than Europe, 500, 600 issuers. And we felt that the market has gone to the point now in the US where the mutual fund is no longer the go-to tool. The US Army Pension Fund has ETFs, the US Post Office has ETFs, even just ask Kevin the YouTuber. as his own ETF in the US, right? So if Europe's going to go to that, we felt that the only way that could succeed is if you can create white labeling or infrastructure, renting. And we felt we could be the first parties involved in that. What's really interesting is that if you look at the European footprint, I mean, our COO, Manoj Mistry, who's in the business here, did the first ETF in Europe. He invented the Eurostox 50 and Stox 50 that was part of the Merrill Lynch Leaders Program. and myself and Nick created the first ETC in Europe, which was the gold product. So both of the two structures make up 100% of all the ETPs in Europe. So we've got both parties who created this first structure in Europe. So there's no more level of experience you can have to offer and sell to clients than that. And we just felt that the ETF market generally had gone from being very passive orientated to being much more open for whether that's more like defined outcome or structured product type stuff or active, et cetera, et cetera. So the door had opened because everybody had avoided the ETF market because you're always going to have to beat iShares and Vanguard. It's very hard to beat those guys on scale and cost.

Stefan Wagner: 06:20 No, their volume.

Hector McNeil: 06:22 But as soon as you go into the active world, it's more about IP brand and content. So the door opens a lot more widely on that versus.

Stefan Wagner: 06:28 Yeah. I think you were also one of the first or the first one of a cannabis ETF in Europe. We were.

Hector McNeil: 06:33 Yeah. Yeah.

Stefan Wagner: 06:35 Cannabis, medical cannabis. Sorry. Let's qualify that here.

Hector McNeil: 06:38 We did try for a broader cannabis, but, uh, needless to say the regulators, uh, slow, slow walks us on that. Uh, I think, I think it's still in the central bank of Ireland. Now they still haven't given us any comments. on the filing even though in Ireland you can have a product that's legal as long as it's legal in the countries where the securities are listed you know so by theory it was it was fine but they've never never replied to us on the general cannabis product so we're still waiting.

Stefan Wagner: 07:05 Might need to get him on the record here.

Hector McNeil: 07:08 Exactly. We need to organize a party, I think, and then see where that loosens their lips. But there you go.

Stefan Wagner: 07:14 Now, if you had no restrictions, in a sense, and you could launch any ETF tomorrow with only constraints, any fun idea?

Hector McNeil: 07:22 I think we've always got great ideas. I mean, I think one of the major frustrations in Europe is how accessible the crypto space is for investors, you know, through, you know, unregulated so-called crypto exchanges. You can't do the same products in regulated products listed on regulated exchange through regulated brokers. There's restrictions on the regulated side, but there's not restrictions on the unregulated side. So I think probably my want would be to be able to provide much more access to the crypto space, and then obviously be able to delineate and differentiate between the real utility value crypto and the, for want of a better word, the dodgy crypto end of the market.

Stefan Wagner: 08:04 Pretty much anybody can set one up, so yeah.

Hector McNeil: 08:07 Exactly. So I think that would be probably the area, because ETFs and ETPs are at their most powerful where they give market access to difficult to access asset classes for the investor. I often say to clients of ours that when they issue an ETF or an ETP, it's the first time my mom can buy their products, you know, and get access to it. It's probably the most democratic structure that you can get from that perspective.

Stefan Wagner: 08:31 I mean, it leads me a little bit back also, like what we just discussed, but also on the active side, you know, transparency versus protection. How do you see this? You know, people who really have an active management, do they want to give away full transparency? What always happens? How do you approach that? What do you think is the best solution? I mean, on the other hand, just seeing what somebody else does doesn't necessarily can re-engineer his logic behind it.

Hector McNeil: 08:58 Look, I think… It's got relevant arguments on both sides. I mean, interestingly, the transparency argument is something that the ETF market has used to beat up the active world when it was really just passive products. And it's very convenient. And the only reason ETFs are transparent is because you get the ability to give your holdings to the market maker daily. It was like a requirement. And I've always said to the regulators, if it's such an important tool to have, Why don't you retrofit it to mutual funds then? Because most mutual funds are monthly or quarterly.

Stefan Wagner: 09:32 You get the top 10 holdings if you're lucky.

Hector McNeil: 09:35 Exactly. And if you think about it, if you found on an electric car, if you found a safety feature that was applicable to petrol and diesel, like an airbag, you'd apply it to all of them, wouldn't you? You wouldn't differentiate. But I do think in discussions with some of the active managers, particularly where you have concentrated baskets and very conviction-related strategies, it probably does make some sense to be able to have some protections there. And I think actually when you talk to end investors, They actually want that as well, because they don't want to be paying, because these tend to be a bit more higher fee than the more competitive areas of the market. So these investors sort of say, well, I don't want to share that with everybody. I want to keep that to myself and to the firm I'm using. I think the central bank actually announced last week that they were going to allow a principle-based approach to non-transparent or semi-transparent ETFs. The funny thing is, in the US, is that's the way the market went fully at the start when Active came along, but it never really took off. So the market voted with its feet, and largely every product's transparent now. So I think from that perspective, I think it's probably going to be a niche area, but I think there will be something maybe like a small cap high conviction or an EM frontier market high conviction fund. I could understand why you want to keep like a transparency in that, you know, on the basis of just protecting your thought process and your IP.

Stefan Wagner: 10:58 The other thing I wanted to ask you on is liquidity. Are you worried about it? I mean, there's 1,800 plus ETFs now out there and I think the majority of them are all market made by the same people or a big chunk of it. Is there a risk that there's too much concentration on the liquidity providers?

Hector McNeil: 11:16 Yeah, I think, I mean, obviously, working for Susquehanna in the past, it's an area I know very, very well. I mean, what I would say is that That is one area we don't extol the virtues enough from a competition perspective versus mutual funds, because the traders at the Jane Streets and Sasquaners, they're going to be pretty much the smartest guys on the planet. They've got the best technology. It's an arms race, that business. Essentially, when you have an ETF, the portfolio management gets outsourced to those guys because you tell them what the basket you want. So I'd much rather trust those guys to do an EM corporate bond trading than I would Fidelity's internal dealing desk. So I do think you get a higher level of expertise in that. But you're exactly right. It is a chalk point for the industry. And if someone like a James Street ever got into trouble in the markets, then I think you would find that that would be a massive failure point for the ETF market. Funny enough, I've often advocated and thought that the exchanges actually should get together and build a utility market maker, one that's not particularly focused on taking proprietary positions, but just acting on the utility of being delta hedged and providing liquidity. Because they've all got the big enough balance sheets to do it now. They've got the technology. And I think a utility market maker, either per exchange or jointly through the exchanges, could be a solution to that. So far, the response has been muted or is… Yeah, I think, I mean, interestingly, if you look at things like the TMX buying Vetify and, you know, NASDAQ, how it's diversifying its business, you know, they're definitely calling, getting more into what they're calling issuer services. But obviously, the Jane Streets and the Flow Traders are huge clients of the exchanges. So I think it will be a big leap. for them to do it. But I do think the market does suggest that. I mean, the other choke point is obviously custodians and administrators, you know, for similar sorts of reasons. But I do think market makers is probably the area, you know, particularly as, you know, as you're saying, it's proliferating products left, right and center. I mean, there was, I think, a catastrophe bond listed in the US last week. and they had to launch without a lead market maker in the US. I think their market maker has been okay, you know, but the US has a lot deeper liquidity pool than Europe does. So I think Europe would need it, especially because we have the fragmentation of exchanges in Europe. So there is definitely a little bit more of a challenge there than the US.

Stefan Wagner: 13:38 I mean, what other sort of trends do you think or what keeps you awake at night? One or the other?

Hector McNeil: 13:44 Yeah, well, I mean, obviously being an entrepreneur, that keeps me awake at night a lot, you know, because obviously it's my own capital and my business partner's capital that we put to work. But then again, you know, there isn't many industries you can invest in that's got a 30% CAGR for the last, you know, 20 plus years and doesn't look like it's getting any less anytime soon, you know, and it's a very innovative industry. I mean, I am very proud that we employ, you know, 45, 50 people all across Europe. We see ourselves very much as a European firm. you know A lot of investors were very anti giving a U.S. firm investment to put into European defense stocks, given the geopolitical reaction from Trump and also what potentially his reach into that firm as well and policy. So we were actually inundated with Reddit requests and various things for us and other European firms to step up to the plate and bring one out. So we're actually listing that tomorrow. And you are stepping up to the plate. Exactly. Exactly. Great, great ticker as well. It's going to have the ticker army. No way. Which is pretty good. Yeah. So in, in, in, in, in, on the London Soccer Shed, you have two quotes, you have a sterling quote and a USD quotes and the USD quote is army and the sterling quote is Navy. So, uh, so you're able to get army and Navy, and then we've got NATO for our global, global products as well. That's one of the fun things about ETFs is coming up with tickets for sure.

Stefan Wagner: 15:20 Speaking of innovation sort of a little bit, and I'm probably come from a little bit my background where I'm working on sort of ETFs versus actively managed certificates. I mean, in some places, they start getting closer to each other. You know, if you have a listed AMC, it becomes an ETN. If it's, you know, securitized, it nearly becomes like the same format that an ETC has. What do you see happening there? And is this something you want to make use of as well in your business?

Hector McNeil: 15:47 Yeah, look, I mean, we've looked at AMCs a few times because they are nice stepping stones to ETFs. I mean, you know, the Gen 2 guys and the ETI products. In some ways, when people talk to me about tokenization, I sort of say, why do you need tokens? This stuff already exists. You know, an AMC, an ETI, all those things, you know, they get an ISIN. One of my early jobs I've done at Stock Exchange, I ran the securities master file at the Stock Exchange. I was one of the guys who were part of the original group that invented ISINs. And the London Stock Exchange had a very useful code called the CEDAW. I remember that one, yes. And we used to get a lot of requests for CEDAWs from people who wanted it for fine art or for vintage cars or whatever, you know. So to me, using the CEDAW like that to put on ledges and portfolios is very similar to an AMC or a a token. It was a way to actually get it into your ledgers and value things. So I think ETIs and AMCs have a great role to play. If we had more bandwidth and more ability, we would probably look at that space a little bit more actively. But I would say we probably had over 3,000 inquiries for people wanting to ETF since we started. Most people think they've got alchemy and we should pay them rather than the other way around. Probably the major hurdle has been cost to people doing an ETF. And it's hundreds of thousands of dollars, you know, before you break even. And I think that's where AMCs come into their own, really, that they're so scalable from that level.

Stefan Wagner: 17:11 You can start building your track record, yeah?

Hector McNeil: 17:13 Yeah, start building your track record. So I think they've got a great role to play. I mean, the only problem I suppose they have is they don't have the harmonized passporting or registration process. If you had that, then I think they would be a lot more attuned to what people need.

Stefan Wagner: 17:27 Yeah, different countries, even though part of the EU's treat them differently in a sense. Yeah. And besides cost between AMCs and ETFs, so what advice would you give to an investment or considering launching their own ETF?

Hector McNeil: 17:43 Look, I think you've got to be prepared for a three-year payback. Like any investment product, you can't time the market all the time. When market cycles go through market cycles, you've got to hit that sort of 50 million level AUM. We work best where clients have stories. We work very closely with an asset manager called Sprott out of Canada, who are very famous for resource products like uranium and copper and gold. We did a Physical Uranium Trust for them recently, where we list out London and Germany. They've got really strong stories to tell. And the storytelling is what can differentiate you from an iShares or a Vanguard. Effectively, Walmart, you can turn up, buy a box of strawberries or a pack of bacon or a pair of jeans. It's not going to be the best, but it'd be good enough. And it'll be about cost and scale, right? We have to go out and do the whole food story. We have to give a better reason for clients to turn up and spend a little bit more money and get a better service, et cetera. So that's it for us. We're not going to be the Eurostox 50 guys at two business points cheaper than a Mundi. That's not going to be our business.

Stefan Wagner: 18:51 Yeah, that's going only one way, basically. Three questions I always like to ask everybody at the end of the interviews. Number one is what is your definition of success for you personally?

Hector McNeil: 19:04 Yeah, really good question. I mean, I've had two exits already in my life. I'm over the mid 50s now. So, you know, from that perspective, I don't have any more of these in me. This is the last one. So I think for success for me for this would be, I would hope we could get a valuation of over 100 million for the business, dollars, pounds, actually more than dollars. So maybe 100 pounds, $150 type stuff. And I think that's not really from a perspective of wealth. It's more from a perspective of achievement, because my previous businesses have been in the tens. And then just really enjoy it. We often say to our staff, you get a free MBA when you come to HAN, because you don't just learn about the products and what it's all about, but you will learn how to set up a business and create a business. I would say there's no they in our business. When you've got a big faceless management in your company, they've done this, they've done that. If the bins don't get put out or the meeting with the CEO of Goldman Sachs doesn't happen, it's because we haven't done it. So there's no they in the business. So I want everyone to come out here. And I often go to industry events like ETF stream or whatever. I think 25% of the room are my alumni that have worked for me at some time. And seeing how well they've done, some of them even better than we've done, that's very satisfying. And I would say that the difference between when we set an ETF business up versus other people, they're sitting in a big bank or big asset managers. pulling the pieces of string together, you know, the ops compliance, marketing, et cetera. You know, whereas, you know, Nick and I sit in Starbucks and say, let's do it. You know, we don't have a laptop or a checkbook or a, or a name, you know, so every rivet that's gone in the boat, we've done it. So, so I think it's, you know, success would be that sort of valuation point, seeing the staff succeed, enjoy it and, uh, creating a, you know, a lasting brand in the market, really. I think that's, that's the.

Stefan Wagner: 20:51 That's the thing. You definitely have a brand very well known in the market. And the other question always I like to ask is sort of what is on the top of your current music playlist when you get in the car or exercise or train for rugby?

Hector McNeil: 21:05 Good, good question. So I'm a big 80s man. So my two favorite bands are The Smiths. So I'll always have a good Smiths playlist there and New Order and Joy Division. So Love Will Tear Us Apart by Joy Division is probably one of my favorite songs, I think, for sure.

Stefan Wagner: 21:21 It is an excellent song. If people want to get hold of you, what's the best way to get hold of you?

Hector McNeil: 21:28 I would just come in through info at hannetf.com. People think it's really weird, but I answer every info box email personally. Wow. And I've always done that in every business I've had.

Stefan Wagner: 21:38 That's very impressive. Thank you, Hector, for taking the time. Thank you. Thanks very much. Thanks, Stefan.