State Street is eyeing the expansion of its exchange-traded fund (ETFs) franchise in Asia by helping local and regional asset managers launch new products and services covering new asset classes in local and offshore markets.
In an interview with The Asset, Neil MacDonald, Asia-Pacific head of the asset managers segment at State Street, says the firm is expanding both on the product manufacturing and securities servicing of new and existing ETFs.
State Street is particularly well-positioned to expand in Asia with the acquisition and forthcoming integration of Brown Brothers Harriman (BBH), another asset service provider which is particularly strong is servicing ETFs in the region. Although the acquisition was announced in September 2021, BBH still exists as a separate business but will be integrated into State Street next year. BBH won the “Best ETF Custodian, Hong Kong” under The Asset Triple A Sustainable Investing Awards for Institutional Investor, ETFs, and Asset Providers in 2021 and 2020.
“The ETF markets across Asia are definitely at different stages but they are all seeing pretty healthy rates of growth, whether it’s the mature Japanese market where most of the growth is coming from thematics, or whether it’s the Asian-Australian market where you’ve seen a lot of growth in the active space,” says MacDonald, whose appointment was announced in May 2021.
The huge growth in demand for new ETFs, particularly in thematics, sustainability, and cryptocurrency, provides strong opportunities for State Street, which is servicing the requirements of not only global but regional and local asset managers as well.
“We always thought that the Asian market place was characterized by a bias towards active management and a bias towards stocks rather than funds even with retail investors. I think some of those biases persist and some of it is just that the culture of investing here is different from the culture of investing in the US, certainly in Hong Kong,” he says.
In terms of servicing the ETF requirements of Asian asset managers, State Street provides advisory capabilities that help them launch the ETF that is most suitable for their investors’ requirements.
“Clients come to us and say, ‘We’re thinking about launching an ETF in the Hong Kong (for example). Can you please explain to us what the local registration process is, what the buying behaviour is, what has been the local success story in terms of the ETF?’ So we’ve taken an advisory role in terms of helping them understand what it is they’re getting into as well as helping them service the product when they launch it,” MacDonald says.
As Asian asset managers begin to invest offshore, State Street is also positioning itself to be able to service their requirements in multiple jurisdictions.
“I often point this out to our US colleagues that the APAC does have multiple languages, multiple jurisdictions, multiple different regulatory environments, multiple tax environments. And, therefore, when we talk to clients about stepping offshore for them, that’s a big step, it’s not something that they should take lightly. It’s not something that we take lightly,” he says.
“In our advisory role, we sit down with a client and say if you take a step into Thailand (for example), these are the local regulations, this is what you can do onshore, and potentially say this in terms of client service offshore. This is the operating model we will bring to you to help you support that Thailand business.”
State Street can also provide Asian asset managers technical information on the latest trends in ETF investing in other markets. For instance, in the US market there is a trend towards onboarding new active managers who have been inspired by the ETF rule 6c-11, which has made it much easier, cheaper and faster to launch ETFs, as well as the recent approval of semi-transparent ETF products, which protect an investment manager’s intellectual property.