A little over a year ago, the $18.5 billion Westwood Holdings Group entered the exchange-traded-funds business for the first time, with the launch of two active, energy-focused funds. Since then, the Dallas-based asset and wealth manager has expanded its lineup to 16 actively managed ETFs, now totaling nearly $200 million in assets.

Westwood CEO Brian Casey told Institutional Investor that, as opportunities in the institutional space narrow, active ETFs offer a better growth path than traditional mandates.

“It is the fastest-growing part of the asset management business, so it’s hard to ignore,” Casey said. “Asset management is still a great business, but the fastest part is ETFs and private equity. They clearly carry a better multiple and are perceived to have higher growth.”

As institutional asset management growth plateaus, more legacy firms like Westwood, which was founded 42 years ago, are pivoting to the increasingly mainstream active ETF space. Mutual fund managers Cohen & Steers, Thornburg, and Russell Investments have all launched their first funds this year. MFS, a pioneer in mutual funds, entered the market with its debut active ETFs late last year.

While the data put their efficacy into question, demand for active ETFs continues to climb. According to London-based research firm ETFGI, active ETFs held a record $1.39 trillion in global assets as of May 30, following more than five years of consecutive inflows. So far this year, they’ve attracted a record $220.25 billion in investor capital.

As opportunities in institutional dwindle, more asset managers are pivoting to retail. “The institutional world has been under a lot of pressure for over a decade,” said NEPC’s Chief Investment Officer Tim McCusker. “Broader investment management fee pressure, the lack of alpha generation, everything except private markets has had a really tough time.” (NEPC was bought by wealth manager Hightower late last year.)

That surge in interest — coupled with fewer institutional opportunities — is prompting long-established firms to rethink their product lineups. Known for mutual funds and institutional strategies, these managers are now betting on ETFs to meet investor demand for tax efficiency, transparency, and intraday liquidity.

Westwood is among those expanding ETF offerings. In addition to its energy funds, the firm partnered with ETF-vet Ben Fulton to create the Westwood Engineered Beta investments platform, which develops ETF strategies designed to offer more stable performance. Westwood has also launched sector-based ETFs.

For as long as Casey can remember, asset management has been the best business in the world — apart from perhaps software and tobacco. But over the past decade, the shift to passive investing has eroded margins and revenues. “So, you can either fight that battle or pivot, which is what we’re doing with ETFs,” he said.

Despite its push into ETFs, Westwood isn’t shifting away from its core business. “We would love nothing more than for our ETFs to grow at a level that is a higher percentage of our AUM, but we are confident our institutional business will continue to grow,” Casey said.