New Tracker Fund manager cuts fees by 31pc

Hang Seng Investment Management has been appointed the new manager of Tracker Fund of Hong Kong, the largest exchange-traded fund in the city, and will cut management fees by 31 percent.

The subsidiary of Hang Seng Bank will take over the role from State Street Global Advisors Asia, which has managed the fund for more than 20 years.

The transition to the new manager is expected to be completed in the third quarter this year, subject to regulatory approvals, the fund said in a filing yesterday.

Hang Seng Investment Management (HSVM) will lower the effective management fee of TraHK to 0.022 percent per annum in the first three years, equivalent to a 31 percent reduction compared with TraHK's management fee schedule, the fund said.

HSVM will further reduce the effective management fee to 0.019 percent a year from the fourth year onwards, which represents about a 40 percent reduction.

In a separate statement, the supervisory committee of TraHK said seven exchange-traded fund managers were invited to submit their credentials and proposals and the appointment is taking into account "HSVM's relevant experience, expertise and sizable presence in Hong Kong as well as the latest market developments and TraHK's future development."

State Street, which still remains the custodian of the fund, said it is supportive of the decision and also regards the change in manager to be in the best interests of unit-holders.

With more than HK$100 billion worth of assets under management, TraHK has been the largest and most popular ETF in the city.

The change of manager could date back to a controversy amid the Sino-US tensions last January when SSGA said it would stop making any new investment in US-banned companies following an executive order from former US President Donald Trump, but reversed its decision two days later after it was criticized by Hong Kong's former central bank chief.

SSGA is the Asian unit of Boston-based State Street Corporation.

Later last year, SSGA said US citizens and companies will not be able to trade any units after June 3 in 2022.

The Tracker Fund is designed to track the Hang Seng Index, which includes three firms blacklisted by the US: telecom giants China Mobile (0941) and China Unicom - whose subsidiary is China Unicom (Hong Kong) (0762) - as well as major oil producer CNOOC (0883).

The Tracker Fund was set up in 1999 to dispose of shares acquired by the Hong Kong government in its fight against speculators during the Asian financial crisis.

It is now widely used by institutional investors as a proxy for the Hong Kong stock market or an investment option for the city's Mandatory Provident Fund Scheme.

SSGA's initial decision had attracted scrutiny from the Hong Kong Monetary Authority and was criticized by former HKMA chief Joseph Yam in interviews with local media.

The HKMA said last May that if the supervisory committee of the Tracker Fund decides to change the fund manager, it will carefully evaluate different candidates.

This came after a local media report that the authority has appointed independent third parties to audit the Tracker Fund and is considering whether to change the fund manager.

HSVM and CSOP Asset Management were the two strong candidates for becoming the fund manager of the Tracker Fund, earlier reports said.

HSVM, who started managing index funds in 1995, manages 48 ETFs and retail funds, out of which 17 are index or index-related funds and nine are ETFs.

It is one of Hong Kong's largest asset managers with assets growing at an annualized rate of 17.5 percent and is ranked the second-largest ETF manager locally in terms of total assets.

"It is a privilege for Hang Seng Investment Management to be given the responsibility of managing TraHK, which holds a deep meaning for Hong Kong," said Diana Cesar, executive director and chief executive of Hang Seng Bank.