Asset manager of the year: State Street Global Advisors

In 2018, State Street Global Advisors (SSGA) increased its central bank clients and assets under management by leveraging its global presence and knowledge of a wide variety of markets. Its new mandates reflect the breadth and depth the group has acquired serving official institutions worldwide.

The group, based in Boston, Massachusetts, started working with central banks in 1993, and created the branch serving public entities in 2000, the official institutions group (OIG). Now, it also provides services for sovereign wealth funds, government agencies and supranational organisations. Overall, the OIG works for 78 official institutions, 22 of them central banks. It currently has $418.9 billion under management, $71.06 billion from central banks.

In the process of developing this client base, the OIG has brought to the central banking community the capabilities State Street has acquired in other sectors. For instance, with its wide experience in equity markets, SSGA has contributed to the increasing diversification of central banks’ reserve portfolios. The asset manager has increased its existing equity mandate with the Czech National Bank (CNB) to $7.5 billion, for example.

“For many years, we’ve served central banks in their journey of diversifying their reserves, and that continues,” says Louis de Montpellier, senior managing director and global head of the OIG.

The company reinforced this profile in 2018, securing a new equity contract with an Asia-Pacific central bank. It is a $1 billion equity index-based mandate that includes a factor tilt strategy. “This central bank has looked into sophisticated techniques in investment strategy, and has carried out a diversification of its reserves since it has worked with us,” de Montpellier tells Central Banking.

A senior official at the Asia-Pacific central bank says: “We wanted to develop an equity mandate, and we knew SSGA could help us to reach the goals we aim at.”

Increased fixed income capabilities

In addition to equities, where SSGA has long held established positions, SSGA also appears to have benefited from its 2016 acquisition of GE Asset Management to become more competitive in the credit area of fixed income. “Acquiring GE, we added classic fixed income active capabilities based on credit research and yield curve positioning, which has strengthened our teams,” says de Montpellier.

The former deputy head of the Bank for International Settlements’ banking department adds that this has come at an opportune time because of the search for higher yields at a turn in the bond cycle: “Central banks are diversifying their fixed income, because they’re prudently searching for yield. Now, they’re asking themselves whether the end of the secular bull run in fixed income will necessitate a more active and diversified management of the investment tranche of their reserves in fixed income.”

The increased understanding and capabilities in bond markets proved a decisive factor in gaining a new central bank mandate in South America. This institution awarded SSGA with a $1.4 billion active short-term duration portfolio covering 0- to 3-year US Treasuries. The mandate includes a small non-dollar currency component.

“We were really interested in getting to talk to their analysts, to have access to their insights on US debt, and get a sense of the asset class to monitor risk,” says an official at the South American central bank.

Knowledge transfer

Other SSGA clients praised the responsiveness and overall communication they receive.

The openness to share its market expertise with its sovereign clients is a feature highly valued among long-term SSGA clients. “In contrast to some other asset managers, State Street is always open and willing to share what they’re doing with us,” says the director-general of operations at a Latin American central bank.

Communication is perfect. The fact that we have retained our equity mandate since 2007 speaks volumes about our experience

Jan Schmidt, Czech National Bank

The comprehensive set of assets covered and provision of useful feedback have helped to nurture long-term relationships. Jan Schmidt, executive director risk management at the CNB, says his institution has worked with State Street for more than 15 years: “Communication is perfect. When we consider other ways of reserve management – alternatives to our running strategies – they are always able to assist, providing useful and informed perspectives. The fact that we have retained our equity mandate since 2007 speaks volumes about our experience.”

The CNB’s relationship mirrors what the Latin American central bank has obtained from its co-operation with SSGA. “In the 14 years we’ve worked with them, they’ve offered a very consistent performance,” says the reserve manager. “In this sector, long-term relations are very important – obviously, alongside performance and service. But having an efficient and fluent communication dynamic with an asset manager helps us a great deal to carry out our work.”

Training at all levels

The official at the new South American client praises courses focused on junior as well as senior staff, and highlights one of the gatherings the asset manager organises in the Boston area. There, academics from leading universities based in the area, executives and analysts share their views, and they update central bank staff on their research.

Over the last few years, SSGA has also increased these opportunities. In 2018, it organised five gatherings for official institutions, up from two in 2015.

In addition to this, the group develops on-site tailored trainings for specific clients. “For example, in 2018, we’ve delivered a week of customised on-site training for the reserve management department of a major Asian central bank,” says Andrew Wold, SSGA’s head of OIG client strategy. “And a similar course for another central bank in Africa.”

The official at the South American client says the decision to add the group as an external asset manager was based on its overall strengths. In addition to a willingness to share knowledge, the size of the assets under management, its understanding of numerous markets and the number of central bank clients, all worked in SSGA’s favour.

The Central Banking Awards were written by Christopher Jeffery, Daniel Hinge, Dan Hardie, Rachael King, Victor Mendez-Barreira, Joel Clark, William Towning and Tristan Carlyle