Ronald P. O'Hanley faces big challenges now that he is CEO of State Street Global Advisors.
Mr. O'Hanley on April 1
replaced Scott Powers, marking his return to money management after
quitting as president of asset management and corporate services at Fidelity Investments about a year ago. Mr. Powers will remain at the Boston-based company through August to help with the transition. He had been CEO for seven years.
Among the hurdles Mr. O'Hanley faces are keeping the passive business strong amid increasingly stiffer competition, especially in exchange-traded funds; figuring out what to do with SSgA's significantly smaller active business; and making sure he receives the resources needed from parent State Street Corp.
“The investment marketplace is incredibly competitive. There are low barriers to entry and some very formidable competitors in the ETF space,” Mr. O'Hanley said in a telephone interview.
Earlier this year, Vanguard Group Inc., based in Malvern, Pa., overtook SSgA as the second-largest exchange-traded fund provider. Data from analytic website ETF.com show that, as of the close of business Jan. 20, Vanguard had $432.65 billion in ETF assets, while SSgA had $431.8 billion.
(More: State Street, facing historic redemptions, slashes ETF prices)
A report from
BlackRock Inc. showed Vanguard had $454.9 billion in ETF assets as of Feb. 28, while SSgA had $441 billion.
One investment banker to money managers, who asked not to be named, said “SSgA needs a more drastic shift to avoid the slow slide in relative position.”
The banker added that losing the No.2 spot to Vanguard “is a blemish, though Vanguard is a tough competitor. They (SSgA) aren't likely to get it back. Smaller, more nimble competitors like WisdomTree and First Trust have been much more innovative and growing faster. They aren't going to catch up to SSgA any time soon, but SSgA could use an infusion of innovation.”
He said he doesn't believe SSgA will get that infusion from Mr. OHanley alone, because Mr. O'Hanley doesn't know the ins and outs of the ETF business. He is, however, someone who understands the asset management business, can formulate a strategy and bring in new talent as needed, the investment banker said.
Andrew McCollum, managing director at Greenwich Associates, noted one way Mr. O'Hanley can grow SSgA's passive business is to focus on fixed-income ETFs. Fixed-income ETFs accounted for 8.4% of SSgA's $466 billion ETF business as of Dec. 31.
“The big opportunity in their ETF business is going to be on the fixed-income side,” said Mr. McCollum. “Investors are looking to ETFs for greater liquidity in their fixed-income portfolios, so that'll certainly be something Ron will want to look at.”
MORE ACTIVE?
Although SSgA is known as a passive manager, Scott Fletcher, a partner at executive recruiting firm Jamesbeck Global Partners in San Francisco, said Mr. O'Hanley's extensive experience in active management might lead him to seek to grow the firm's active capabilities. Neither Mr. Fletcher nor his company was involved in the search.
“A question that's been swirling around SSgA for years is the relative success of their active business vs. their passive business, which has had a higher degree of success,” said Mr. Fletcher. “They have some quantitative active businesses that have had a moderate degree of success, but Ron, who came from the active side, might be able to push it forward a bit.”
In a separate interview, Mr. Powers said the firm has been working on growing its active business for the past few years. “We want to grow it,” he said. “Clients have a need for alpha.”
Mr. O'Hanley said: “In the active-passive debate, my thinking is: I don't think it's active or passive, I think it's active and passive.”
Mr. McCollum said that “leveraging its passive offerings to cross-sell their active products” is another “big growth opportunity for SSgA.”
He also suggested Mr. O'Hanley can build up SSgA's outcome-oriented solutions, or custom portfolio construction.
“One of the things that Ron can bring is his experience working at firms that have done a good job of developing outcome-oriented solutions for clients,” noted Mr. McCollum. “He was instrumental at bringing all of BNY Mellon's capabilities together when he was there. This is something Ron can bring to the table that would be valuable to State Street.”
Some sources said they had heard rumors that Mr. Powers was leaving due to frustration over not getting the resources he needed from the bank to grow SSgA's active management business. One investment banker said “SSgA is a truly difficult challenge. As long as it is part of State Street, there is a lawyer stapled to every executive, so managing there is like swimming with a boat anchor.”
Mr. Powers, however, dismissed the rumors. He said he's leaving because he accomplished what he set out to do, and wanted to leave on a high note.
“We've raised a trillion in assets in the last five years. When I joined in 2008, our clients were suing us. For an asset manager, there's not a worse place to be. So I'm very proud of restoring SSgA's status as a trusted adviser,” he said.
“When I was growing up, (former NFL player) Jim Brown was a hero of mine, and he retired at the top of his game. I felt I'd rather go out too young than have people whisper that I've lost my edge.”
In terms of what his plans are, Mr. Powers said, “the plan is to do nothing for a little bit. Maybe play a little golf, pick up a surfboard and figure out what's next.”
As for Mr. O'Hanley, industry observers said with his experience at Fidelity, BNY Mellon and consulting firm McKinsey & Co. Inc., he is primed for the SSgA post.
“He's a seasoned leader of global organizations that have a broad mix of products, so I'd say it's a coup for SSgA to have a guy like Ron,” said Mr. McCollum.
Michael Rosen, a principal of Santa Monica, Calif.-based investment consultant Angeles Investment Advisors, agreed, describing Mr. O'Hanley as “a highly qualified leader” who is “very experienced and very knowledgeable in the money management world.”
CONTINUITY
Mr. Rosen added that although he doesn't know where Mr. O'Hanley will take the firm, “there's a connection with Scott that goes back a long way, so my guess is there'll be a fair amount of continuity.”
The two previously worked together at what is now BNY Mellon Investment Management.
Mr. O'Hanley said he took the SSgA job because he thinks “both State Street and SSgA are remarkably well-positioned” to address “a retirement crisis in the country. ... (If) State Street and SSgA can help solve that crisis, that would make me very happy.”
He noted that “SSgA is leader in ETFs, a leader in beta management and a leader in taking the next step, which is quantitative analysis.”
SSgA had $2.448 trillion in worldwide assets under management as of Dec. 31, according to State Street's fourth-quarter earnings statement. Of its total, $1.436 trillion was in passive equities, $302 billion in passive fixed income, $111 billion in alternatives and $97 billion in multiasset-class solutions.
