Last Updated: 3 June 2023
David Gardner, iShares’ head of EMEA sales, retired last month—his last day in the office was Thursday 18 January—and he took a one-way flight back to the US on Friday 19.
Hanging up a pair of well-worn shoes, he leaves behind him a lean, mean, exchange-traded fund machine that is by some margin the largest provider by assets under management, both in the US and Europe.
A stalwart of the ETF business, Gardner was one of the original 32 members of iShares and in 13 years has helped grow the business to a global market share of 42 percent and assets of over $700 billion.
Rebecca Hampson, deputy editor of IndexUniverse.eu, asked Gardner to share his parting thoughts with our readers.
IU.eu: Why are you retiring?
DG: It is time. It’s the end of this chapter of my life. I’ve spent the last 13 years working with the team and building up the iShares brand. It is now more successful than it has ever been and I am really proud of what we have achieved. We still work from the original principles we set out, which were to provide transparent products to investors who could come and talk to us.
IU.eu: How did iShares come about?
DG: When we first started we were part of Barclays and they gave us a loan for three years to try and make it work. We would know within 18 months whether it would or not.
In many ways we were quite naïve. We started a business whereby we launched a range of products, targeting a range of investors and how they invested. We didn’t know if it was going to work straight away.
The idea behind it was to create something that was driven by transparency—investors could see and understand the products—which could be the foundation for well-constructed portfolios.
We were an asset manager who built a physical ETF eco-system, which offered clients of all sizes the opportunity to construct portfolios with us directly, and this was something new. Prior to iShares, only large institutions working with investment banks could get this kind of access.
IU.eu: What have been the significant turning points?
DG: Over the last 13 years there have been several significant catalysts, or ‘events’, at which point the ETF market could have turned. But we have seen hockey-stick jumps in growth following two major events in particular.
By September 11 2001 we were trading ETFs on the American Stock Exchange and the events of that tragic day meant that their data lines were damaged and our ability to keep trading was put at risk. However, we negotiated a temporary data line from the New York Stock Exchange, a major competitor to the American exchange. Of course at that point ETFs weren’t as popular as they are now, so it took some convincing. This was a turning point for us in the ETF market, as the iShares ETFs continued trading, and their transparency and liquidity meant that they were used as price discovery tools for the underlying products in the frantic market activity of the time. If the New York stock exchange hadn’t agreed to enable iShares to continue trading then who knows what would have happened.
The other event was in 2008. The fixed income market locked up with the collapse of Lehman Brothers, and again our ETFs were able to demonstrate their robustness at a time of market chaos. We had any number of investors coming to us because they couldn’t get a price on any individual bonds; the risk was too great, the whole market had stopped functioning. However, we continued trading ETFs and were again used by the market as price discovery vehicles for the illiquid underlying assets.
IU.eu: What have been key challenges for you in the ETF industry over the years?
DG: At the beginning the real challenges were getting the market makers on board and the exchanges to adopt what we were doing. It wasn’t until 2006/2007 when the exchanges embraced the concept of ETF trading and this was driven by the electronic market makers hitting the market. They were able to give tighter spreads, which increased liquidity.
IU.eu: Why has the physical ETF model won out in Europe during the last couple of years?
DG: You have to look at the macro landscape. 2008 really shook the financial landscape and any confidence in the market was obliterated. Questions surrounding collateral and counterparty risk came to the forefront and the only thing that was able to answer these worries was physical products. Swap-based products became collateral damage of the financial crisis.
It took a while to gain traction as a physically backed ETF eco-system is hard to implement. It is costly to just set up, let alone adding in maintenance costs, operational costs, firewall costs, regulatory costs, infrastructure, etc. It is not as easy as just tagging it on the side of derivatives desk.