SSgA survey reveals institutional investor usage of ETPs in Asia
29 October 2012
News, Asia, Global, Hong Kong
By David Macfarlane
The global growth of exchange traded products is well known. What’s perhaps lesser known is the way the story is unfolding in the Asia Pacific region. According to a survey commissioned by State Street Global Advisors (SSgA) and conducted by Greenwich Associates entitled ‘East Meets West: Institutional Uses of ETFs’, for which the findings were revealed to an exclusive Hong Kong audience at a seminar held on Tuesday, October 16; institutional investors are looking to use exchange traded products (ETPs) far more strategically than they ever used to.
The seminar provided the audience, which comprised ETP experts from throughout the Asia Pacific region and beyond, with valuable insights as to how institutional investors are adopting exchange traded funds (ETFs) as a key tool in such functions as rebalancing, manager transitions, cash equalisation, strategic allocations and obtaining desired tactical exposures.
In his opening remarks, Frank Henze, head of exchange traded funds, Asia Pacific, at State Street Global Advisors revealed: “Institutions in Asia Pacific are now managing more money than they did previously. That growth is going to fuel the demand for more diverse investments. Although current ETP allocations are small relative to institutions’ total assets under management across all regions, indications that institutional investors will increase their ETP allocations in the coming years, signals tremendous growth opportunities, not only in Asia but also globally.”
During his presentation, Kevin Quigg, global head of strategy and consulting for SPDR ETFs at State Street Global Advisors (SSgA), discussed institutional adoption and usage of ETF in the US and EMEA and recent macro ETF trends from around the world. “Currently institutional investors in Asia most commonly use ETPs for strategic applications such as obtaining investment exposures required in executing portfolio strategies and as a tool for hedging and risk management. These strategic uses may represent longer-term allocations to the market, leading to stickier assets compared to allocations used for more tactical purposes. Fewer institutions in Asia use ETPs in tactical investment functions, such as cash equitisation, rebalancing, and manager transitions so we believe this area represents a strong growth opportunity for increased ETP uptake in the region, in both volatile and more steady market environments,” he observed.
Fion Tan, a consultant at Greenwich Associates, next delivered an analysis on the results of the survey. “Cash equitisation is one clear example of how the lessons learned by institutions in other markets may benefit Asian investors and accelerate the proliferation of ETPs in institutional portfolios here,” she said. “At a time when cash holdings are yielding historically low rates of return, it is in the interest of Asian institutions to investigate the benefits of this tactical play.”
A panel discussion moderated by Mr. Henze followed. Taking part along with Mr. Quigg and Ms. Tan were Manuel Schlabbers, prime services, delta one trading, Credit Suisse, and David Quah, assistant vice president, cash market, trading division, Hong Kong Exchanges and Clearing. Lively dialogue ensued based on the research and the panel covered areas such as: the extent in which institutions in the Asia Pacific region are using ETPs; how institutional investors are employing ETPs to meet various portfolio objectives; projections of future levels and areas of ETP demand; and identifying the steps needed to facilitate the growth of the ETP market in Asia.
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