State Street expanding adviser-facing salesforce in mutual fund push

Advisers crucial to the fund giant's expansion into active management, mutual funds

May 28, 2014 @ 3:05 pm

By Trevor Hunnicutt

State Street Corp. is tapping wirehouse expertise as it works to expand its reach with advisers beyond its characteristic benchmark trackers, including the first and most heavily traded exchange-traded fund on the market.

The bank's asset management unit, which helped bring what became the SPDR S&P 500 ETF to market in 1993, is vastly expanding its adviser-facing salesforce and doubling its lineup of mutual funds as it branches into active management and outcome-oriented products.

At a conference in New York on Wednesday, State Street chief executive Joseph L. Hooley said passive investing and solutions-oriented products like target-date funds for retirement plans are the “two big themes for us.”

But the decision to pivot to product development in active management and mutual funds is a shift for the company that helped bring the ETF to public securities exchanges, a move that many think has fundamentally changed the way advisers approach portfolio construction.

If successful, the ramp-up could greatly enhance State Street's place in the portfolios built by advisers.

The firm is already one of the top five money managers globally, and a major back-office servicer for other fund companies. But competitors like Fidelity Investments and the Vanguard Group have far deeper roots as providers of open-end mutual funds, with a combined $3.2 trillion in the products, compared with State Street's $3 billion, according to Morningstar Inc.

“Advisers are moving in the direction of using a passive core and rounding it out with active,” said T. Neil Bathon, founder and partner at FUSE Research Network, an asset management consultancy that's done work for State Street. “Firms that can bring together a packaged solution where it's already combined into one – they have an advantage.”

So the firm has picked up Ken Bossen, a nearly three-decade veteran and former exchange-traded fund model portfolio manager at Morgan Stanley, to help the firm showcase how its products might fit into an adviser's portfolio.

They've brought Mario Gallotto over from John Hancock Investments to focus on developing “business intelligence” on advisers and their firms.

And State Street has also hired UBS Wealth Management's head of exchange-traded products and derivatives, Robert Forsyth, to develop sub-advisor relationships and other new business.

Mr. Hooley, contrasting State Street with its competitors, said “we're the only one” to use “a strategy of not only 'rep-ing' our own investment products, but being willing to partner with other firms” like the BlackStone Group, which sub-advises on the SPDR Blackstone/GSO Senior Loan ETF (SRLN), and MFS Investment Management, which works with the firm on several actively managed ETFs.

Advisers, brokers and their employing firms will be key to the firm's strategy going forward, according to James E. Ross, global head of State Street's ETF business and head of the firm's adviser-distribution efforts in the U.S.

To complement the beefed-up sales force, the company is putting more executives, like Michael Arone and Brie Williams, a former Putnam Investments marketing and communications specialist, in front of advisers. Mr. Arone, a former portfolio manager, will talk investment strategy. Ms. Williams will focus on practice management issues.

The firm declined to provide its total number of wholesalers, but any increase represents a major investment for a company that has struggled to rein in costs and has been cutting overall headcount. Last quarter, the firm disappointed Wall Street when it reported that earnings were down 22%.

(See also: Investment managers report lackluster quarter)

“Today the adviser would say, 'Great ETF sponsor and tried really hard to support us and our business.' And what I want them to say in a year, two years and three years is that we're a great partner with some great differentiated products that is helping me support my business,” said Mr. Ross. “When we're sitting in front of an adviser, we can talk holistically about how to position their portfolios for success for their clients.”

Today, State Street Global Advisors, or SSgA, offers 13 mutual funds, including four money-market funds, and has a managed account business as well as its well-known ETF business, the second largest, which manages $381.7 billion, according to research firm ETF.com.

Now, the firm has filed with the Securities and Exchange Commission to offer 15 new funds, including 10 in a target-date series, a managed-volatility fund and two emerging markets funds. State Street's most recent mutual fund was launched in 2005.

But Mr. Bathon said the firm's major test will be investment performance rather than distribution and marketing, in a market driven increasingly by “professional buyers … people who have a really thorough, formalized due diligence effort.”

“I think they are driving over half of the industry's decisions about which products to use,” said Mr. Bathon.

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