The Asia division of State Street Global Advisors is being forced out from managing Hong Kong’s largest ETF, the HK$112 billion ($14.3bn) Tracker Fund of Hong Kong (2800 HK).
SSGA is relinquishing control of the HK$112bn Tracker Fund of Hong Kong to Hang Seng IM.
The move to revoke SSGA’s mandate stems from the asset manager’s disastrous handling of sanctions placed on Chinese firms in November 2020 by then US President Donald Trump.
The Tracker Fund is linked to the Hang Seng Index, the foremost barometer of Hong Kong’s equity market performance.
The ETF was established in 1999 by the Hong Kong Monetary Authority (HKMA), Hong Kong’s central banking institution, as a means to dispose of approximately HK$120bn ($15bn) in locally listed shares that were acquired to fend off speculative short sellers during a two-week period in August 1998 amid the broader Asian Financial Crisis.
Following the ETF’s establishment, the HKMA appointed SSGA as Fund Manager and State Street Bank as trustee.
The arrangement ran smoothly for more than two decades but began to unravel in January 2021 when SSGA announced that the ETF would cease making any new investments in sanctioned Chinese companies. Chinese telecommunications giant China Mobile, which at the time accounted for approximately 2.3% of the Hang Seng Index, fell under the US’s blacklist of companies supposedly tied to China’s military.
Following an outcry from investors and officials in Hong Kong, SSGA backtracked its position shortly thereafter, stating that the ETF would continue to fully replicate the Hang Seng Index but would no longer be offered in the US or be marketed as suitable for US investors.
The retreat was insufficient to quell disapproval of SSGA’s dithering, and the HKMA began inviting new applicants to bid on overtaking the ETF’s management responsibilities.
At the conclusion of the tender which involved seven companies, including SSGA, a supervisory committee awarded the mandate to Hang Seng Investment Management, Hong Kong’s largest asset manager and a major ETF issuer in the city.
Hang Seng IM is expected to overtake management responsibilities in Q3 2022, while State Street Bank will remain as the ETF’s trustee.
The changes will also bring cost savings for investors. A new management fee schedule will lower the ETF’s effective management fee from 0.036% to 0.022% during the first three years, before being further reduced to 0.019% from the fourth year onwards.
State Street Bank has also announced that the ETF’s effective trustee fee will be lowered to the same level as the management fee.