Institutional investments in ETFs are set to soar to $300bn each year by 2020, according to Greenwich Associates.

The research house polled over 400 pension funds and asset managers globally in a recent survey and found that institutions are growing contributors to ETF demand.

Key drivers include the broadening use of ETFs across applications and asset classes and the migration toward using ETFs to obtain core exposures and achieve strategic goals.

Liquidity needs are also fueling demand for ETFs in fixed income while a growing number of sophisticated investors are using ETFs to replace derivatives.

Innovative exposures like smart-beta ETFs are also set to attract institutions.

“The results of the study suggest future growth of ETFs in the institutional channel will be driven by the continued discovery of new and more sophisticated applications for the funds across investment portfolios,” says Andrew McCollum, a managing director at Greenwich Associates.

2015 was a record-breaking year for ETFs as a category, which attracted more than $350bn in new assets globally.

Institutions that currently invest in ETFs allocate an average 15% of total assets to the funds, with allocations largest among Canadian and US investors at approximately 20% of assets.

Average allocations are considerably smaller among European ETF users, at 9% of total assets, and Asian ETF investors at 2%.

Greenwich Associates projects that ETF allocations will climb to 25% of total institutional assets in North America, 15% in Europe and 10% in Asia.

“While institutional equity portfolios will remain a major source of growth for some time to come, the intersection of an increasingly diverse slate of institutional needs and the inherent flexibility of the ETF structure will spur the spread of the funds into new areas and asset classes,” added McCollum.