Tracker Fund names Hang Seng to run Hong Kong’s biggest exchange-traded fund, ending State Street’s mandate
- A seven-member supervisory committee chaired by George Hongchoy Kwok-lung named Hang Seng as the winner of a tender to manage TraHK
- State Street remains the trustee of TraHK, even if Hang Seng has the mandate to run it
Hong Kong has picked Hang Seng Investment Management to manage the Tracker Fund (TraHK), ending a two-decade mandate by State Street Global Advisors that threw the city’s biggest exchange-traded fund (ETF) into the middle of US-China friction last year.
The appointment is expected to take effect in the third quarter after getting the approvals of the Hong Kong Monetary Authority (HKMA) and the Securities and Futures Commission (SFC), TraHK said.
“Like TraHK, Hang Seng Bank and Hang Seng Investment Management are deeply rooted in Hong Kong,” said the bank’s chief executive Diana Cesar. “This will also further strengthen Hang Seng’s footprint and coverage in providing top notch wealth management service to the Hong Kong public.”
Hang Seng’s sizeable Hong Kong market share helped it stand out from among seven ETF managers, including Boston-based State Street, that were contending for the mandate in the tender called last year. State Street Bank and Trust Company, part of the State Street Group, will keep its role as the trustee of TraHK.
The new manager will slash its fee to 0.022 per cent in the first three years, further lowering it to 0.019 per cent per annum starting from the fourth year, translating to savings of between 31 per cent and 40 per cent.
The new mandate will come with periodic reviews, enabling TraHK’s supervisory committee to stay up to date with future market developments, according to the statement.
“The appointment of the new manager will provide good value for investors who hold units in TraHK directly or indirectly through their mandatory provident funds.”
Does Trump want to fence off Wall Street from Chinese firms?
TraHK was set up by the HKMA in November 1999 to dispose of the city government’s equity holdings accumulated in a two-week, HK$118 billion intervention to prop up stock prices during the 1998 Asian Financial Crisis.
State Street was awarded the mandate to manage TraHK in 1999. The fund, with HK$111 billion of assets under management as of March 25, is popular with the 4.5 million investors of Hong Kong’s Mandatory Provident Fund (MPF), with 17 per cent of its assets invested by MPF members.
State Street’s open-ended mandate to manage TraHK was thrown under the spotlight when it flip-flopped last year over its compliance with Donald Trump’s November 2020 ban on American ownership of Chinese state-owned companies. An initial decision in January 2021 to divest the stocks from TraHK’s portfolio quickly drew a round of rebuke by Hong Kong officials, forcing the company to back down three days later.
“State Street is immensely proud of, and grateful for, our partnership with HKMA and the supervisory committee of the Tracker Fund, a collaboration which began over 20 years ago with the creation of TraHK, the first physical ETF in Asia in 1999,” the company said in a statement. “We are confident that our experience, scale and global footprint will enable us to serve investors in [Hong Kong], Greater China overall and across Asia-Pacific long into the future, as we have been privileged to do for the past 40 years.”
