Hong Kong’s Hang Seng Investment Management is taking over management of Tracker Fund, the city’s largest exchange-traded fund and Asia’s first physical ETF, from US asset manager State Street Global Advisors, which has overseen the HK$111 billion (US$14.2 billion) fund for more than 20 years.
The move underscores fallout from China-US geopolitical and trade tensions, and State Street’s quickly abandoned decision in January 2021 to divest Chinese stocks blacklisted by the US government from the Tracker Fund’s portfolio.
The decision to ban Chinese stocks drew fire and State Street backtracked after just three days. The Mandatory Provident Fund, Hong Kong’s largest retirement scheme, is a major investor in the Tracker Fund.
“The U-turn by State Street was a wakeup call for the Hong Kong government that the Tracker Fund, which is 17% invested by the Mandatory Provident Fund, should not be managed by a foreign manager,” an asset manager in Hong Kong tells Asia Asset Management (AAM), speaking on condition of anonymity.
The shift from State Street to Hang Seng Investment is expected to be completed in the third quarter of the year subject to approval from the Hong Kong Monetary Authority (HKMA) and the Securities and Futures Commission, Tracker Fund says in a statement on March 29 announcing the change.
The transition to the local firm will benefit unitholders of the fund, according to a spokesperson for HKMA, Hong Kong’s de facto central bank.
“Hang Seng Investment Management has a strong track record in managing ETFs over many years and will reduce the management fees significantly after assuming the manager role,” the spokesperson tells AAM.
Hang Seng Investment, a unit of Hang Seng Bank, has HK$184.2 billion of assets under management, including 48 ETFs and mutual funds.
According to Tracker Fund, its tiered management fee will be reduced from the already low 0.025%-0.05% per annum to 0.015%-0.045% when the manager takeover is completed.
It says this will cut the effective management fee by 31% to 0.22% per annum in the first three years, and further reduce it to 0.019% from the fourth year.
“There will be no change to the investment objective of the Tracker Fund as a result of the change in manager,” it adds.
The Tracker Fund aims to provide investment results that closely correspond to the performance of the stock market’s benchmark Hang Seng Index.
“As the creator of the world’s first ETF, State Street Global Advisors is immensely proud of, and grateful for our partnership with the HKMA and the supervisory committee of the Tracker Fund of Hong Kong, a collaboration which began over 20 years ago with the creation of Tracker Fund, the first physical ETF in Asia in 1999,” the Boston-based company says in a separate statement on March 29.
The Hong Kong government created the Tracker Fund as a means to exit the stock market after acquiring a substantial portfolio of shares to defend the local dollar during the 1997-98 Asian financial crisis.
The government wrapped the shares up as the Tracker Fund, appointed State Street as the manager, and listed the fund on the Hong Kong bourse in 1999.
State Street had $4.14 trillion of total assets as of December 2021.
