ETF issuers are facing increasing pressure to operate efficiently while ensuring smooth ETF trading and liquidity for investors. Functions like custody, fund administration, and even portfolio management are commonly outsourced to specialist providers. But what about Capital Markets—the team crucial for how ETFs actually trade? Can this function be outsourced effectively, or does it need to be in-house?

This article explores the role of Capital Markets, the potential benefits and challenges of outsourcing it, and what issuers should consider when deciding the best approach for them.

What Capital Markets Does

Capital Markets sits at the center of ETF operations, connecting product development, portfolio management, and the trading ecosystem. Its responsibilities include:

• Managing creations and redemptions: Overseeing primary market activity, starting with the seeding process.
• Maintaining liquidity and spreads: Ensuring ETFs trade efficiently and investors can buy and sell at high quality prices.
• Providing guidance on trading: Advising clients and brokers on best execution and market activity.
• Monitoring listings and data: Tracking activity across exchanges and request-for-quote platforms.
• Managing relationships: Building trust with authorized participants (APs) and liquidity providers.
• Providing feedback to portfolio management: Sharing insights on how creations, redemptions, and liquidity evolve.
• Regulatory awareness: Staying up-to-date on rules and policies that impact ETF trading.

In short, Capital Markets ensures ETFs function smoothly in the market while helping issuers make informed product and distribution decisions. It is both operational and strategic.

Why Some Functions Are Outsourced

Outsourcing is common for parts of ETF operations that are complex, specialized, and costly to build in-house. Custody, fund administration, and sub-advisory portfolio management are examples where external providers can handle day-to-day operations, allowing issuers to focus on product strategy, and distribution..

The rationale for outsourcing often includes:

• Cost efficiency: Reducing the expense of having a full team.
• Access to expertise: Leveraging experienced professionals who already understand market mechanics.
• Faster operational readiness: Launching funds quickly without building internal infrastructure from scratch.

For smaller issuers or firms launching a limited number of ETFs, these advantages can be significant. Outsourcing allows a leaner internal team to focus on strategy while relying on specialists to handle complex operational tasks.

The Challenges of Outsourcing Capital Markets

While outsourcing offers clear benefits for certain functions, Capital Markets presents unique challenges.

Integration with Product Development

Capital Markets is involved from the earliest stages of ETF product design, advising on liquidity, market-making feasibility, and trading mechanics. Removing this function from the in-house team can complicate a critical feedback loop, potentially resulting in products that are harder or more expensive to trade.

Legal and Operational Complexity

Managing relationships with APs and negotiating contracts requires legal oversight and trust. Each agreement typically involves multiple parties, and negotiations can take months. Outsourced providers would need to replicate these relationships and processes, which is not straightforward. Maintaining close connections with APs and market makers is essential for ETF liquidity and execution.

Strategic and Reputational Considerations

Capital Markets also plays a reputational role. As the name gives away: How Exchange Traded Funds trade and how relationships are maintained signals to investors and the market how the issuer operates. Losing control of this function could impact credibility and market perception.

When Outsourcing Makes Sense

Despite these challenges, there are scenarios where outsourcing parts of Capital Markets can be the best option:

• Small or emerging issuers: For firms with one or two funds, building a full Capital Markets team may be too costly. Outsourcing can provide access to operational expertise and AP networks without a large internal team.
• Later stage support: Outsourced support can complement an existing in-house team once relationships and processes are established, rather than replacing them entirely.
• Faster market entry: Start-up ETF issuers can rely on external providers to get operational quickly while learning the market and expanding internal capabilities over time.

In these cases, outsourcing can provide operational efficiency and cost savings, allowing the issuer to focus on fund growth and investor engagement.

Retail investors don’t buy tickers – they buy stories. They connect to meaning, simplicity, and purpose. The ETF brands that build loyalty with this audience will follow a different playbook:

1. Speak like humans.
   Replace jargon with clarity. Retail investors don’t care about “smart beta exposure” – they care about what the fund does for them.
2. Lead with purpose.
   Tie each ETF to a real-world theme or idea – AI, clean energy, infrastructure, or innovation. Retail investors back what they believe in.
3. Show up where retail lives.
   Partner with platforms, creators, and educators. The next generation of ETF investors learns from podcasts, YouTube, and newsletters – not product PDFs.
4. Be consistent.
   Brand trust builds through repetition and authenticity, not sporadic campaigns. The most trusted ETF names will be those that keep showing up – week after week, insight after insight.

Retail loyalty might look different from institutional stickiness, but when earned, it’s every bit as powerful.

Lessons from Other Outsourced Functions

Portfolio management offers a useful comparison. Many issuers outsource investment functions or sub-advisory services while retaining strategic control over product design and distribution. The intellectual property lies in the investment strategy and brand, while operational delivery can be handled externally.

A similar modular approach could be applied to Capital Markets, but it is more sensitive because it directly affects trading, liquidity, and market perception. Any outsourcing strategy must carefully consider how to maintain operational control, regulatory compliance, and market credibility. Members of the Capital Markets team regularly interact with an issuer’s clients.

Market Trends

Across global ETF markets, some of the fastest-growing issuers rely on a mix of lean internal teams and outsourced expertise. By leveraging modular services, these firms can scale quickly while focusing internal resources on product strategy and investor relationships.

Fully outsourced, standalone Capital Markets teams are rare. More commonly, providers offer Capital Markets as part of broader operational services, reflecting how deeply integrated the function is with legal, operational, and strategic requirements.

Key Takeaways

Outsourcing Capital Markets can offer real benefits for smaller or emerging issuers, including:

• Reduced operational costs
• Faster fund launches
• Access to established AP networks and liquidity insights

However, there are significant challenges:

• Early-stage product development requires direct Capital Markets input
• Legal and operational complexity makes standalone outsourcing difficult
• Investor and AP relationships are critical for market credibility

For most issuers, Capital Markets remains a function that needs to be in-house, at the minimum before long. It is operational, strategic, and reputational—controlling how funds trade and how the issuer is perceived in the market.

Conclusion

Capital Markets is central to how ETFs function and how investors experience them. While outsourcing can provide operational efficiencies and faster access to expertise, the function’s role in trading, liquidity, and relationships makes it difficult to hand off entirely.

For issuers evaluating outsourcing, the key is balance: leverage external support where it adds value without compromising strategic control or market credibility. Operational efficiency matters, but so does the ability to respond quickly, maintain relationships, and ensure funds trade effectively.