State Street’s role as manager of Hong Kong’s largest ETF under scrutiny

Hong Kong’s central bank is working with the Tracker Fund’s supervisory board to review State Street Global Advisors’ role as manager of the territory’s largest exchange-traded fund.

There have been high-level discussions about replacing the manager since he did an about-face earlier this year on whether to implement the Trump administration’s investment bans on companies linked to the Chinese army.

The Hong Kong Monetary Authority has been working closely with the six-member oversight committee of the Hong Kong $ 94.43 billion ($ 12.03 billion) Hong Kong Tracking Fund since January, when State Street turned around after initially deciding to divest from the banned Chinese. companies.

The widely read Hong Kong Apple Daily newspaper reported Government officials on Wednesday commissioned an independent study to examine the role of the Boston-based fund house in running the strategically important ETF, which it has done for more than two decades.

It comes at a time when a number of Chinese and local asset managers have clearly attempted to replace State Street in running the Tracker Fund, which is Hong Kong’s largest retirement savings vehicle, managing money. of nearly 200,000 retail investors.

“If the supervisory board decides to change directors, we believe it will do a careful assessment and consider different candidates,” HKMA told Ignites Asia.

The Supervisory Board, which has the ultimate power to change the ETF’s manager and trustee, is made up of veterans from different backgrounds including academia, the Hong Kong Stock Exchange and the asset management industry. investments.

A Hong Kong-based senior executive said the situation was getting more and more complicated for State Street and the oversight committee, as well as the HKMA.

This is more than a business decision, and the decision to decide which company should manage the Tracker Fund has now become very political, given the size of the fund, the operational challenges and the manager’s duties towards -visible from the largest ETF in Hong Kong.

Rebecca Chua, founder and managing partner of Hong Kong-based Premia Partners, said it was premature to say that State Street would be replaced and that the review appeared to be aimed at putting in place a contingency plan and deciding whether the current configuration was most suitable for unitholders of the fund in Hong Kong.

US President Joe Biden is apparently keen to maintain and even expand investment limits in blacklisted Chinese companies, despite calls from many US financial institutions to abandon the strategy. In January, the U.S. Treasury extended the ban’s effective deadline to May 27, but Biden has yet to decide whether or not to uphold former President Donald Trump’s executive order that introduced it.

The Tracker Fund was established 21 years ago by the Hong Kong government with the aim of disposing of a substantial amount of shares it acquired during the Asian financial crisis. The fund’s assets have declined significantly from the start of this year, from HK $ 107.18 billion on January 7, before the fallout, to its current size.

CSOP Asset Management and Hang Seng Investment Management have been identified as two of the most likely candidates to replace SSGA as manager of the Tracker Fund if the decision is made to extend Trump’s executive order.

Earlier this month, CSOP AM launched an ETF tracking the Hong Kong Hang Seng Index, directly calling State Street moves in January as raising concerns for investors.

“The response to sanctions from the current US fiduciary manager, which manages the largest HSI tracking ETF, has worried investors as it could lead to significant tracking errors for the largest HSI tracking ETF,” CSOP told the ‘time.

The CSOP Hang Seng ETF possesses approximately HK $ 160.8 million in assets under management.

Hang Seng ETF from Hang Seng IM, which was launched in 2004 just a few years after the Hong Kong Tracker Fund, has an AUM of around HK $ 48 billion.

State Street said the company has not commented on the market rumors.

The company added that State Street has invested in all of the constituent companies of the Hang Seng Index for the Tracker Fund of Hong Kong and remains committed to achieving the stated investment objectives of the fund in order to deliver investment results that match. closely to the performance of the Hang Seng index.

Additional reporting by Selena Li

* Ignites Asia is a news service published by FT Specialist for professionals working in the asset management industry. It covers everything from new product launches to regulations and industry trends. Trials and subscriptions are available at ignitesasia.com.

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