Scale drives success
State Street Global Services: Best ETF Fund Administrator & Best European Smart Beta ETF Provider – Ciarán Fitzpatrick, head of ETF servicing for Europe for State Street, explains that the firm supports 67 per cent of the European market for ETFs, 84 per cent of those registered in Ireland and 47 per cent of those registered in Luxembourg, the two largest domiciles in Europe for ETFs.
Since commencing servicing ETF clients in Ireland in 2010, the team has managed to build the ETF business, from a zero start to USD500 billion of dollars of assets under management at the end of January 2020 in Ireland, and USD118 billion in Luxembourg.
“We have a diverse range of clients from the largest global ETF issuers to a boutique offering products that demonstrate their expertise in very specific ETFs,” Fitzpatrick says. “Our scale, personnel, and technology help to drive our success in applying best practice solutions to all of our clients.”
For State Street and for the whole industry 2019 was a year of record flows into ETFs. “Demand is still driven by the institutional investor as opposed to the retail,” Fitzpatrick says. “But there are a wider range of institutional investors using ETFs as building blocks within portfolio construction, not just trading ETFs but using them in place of a future or a swap to get exposure to certain markets, or certain geographies such as India or China.”
Thematic and active fixed income strategies saw growing popularity in 2019, as did new single market ETF strategies such as Kuwait, Saudi, and China which Fitzpatrick says did significantly well in 2019
“ETFs saw overall use by managers increase in 2019 as opposed to just investing in traditional high cost mutual funds. ESG products were a shining light in Europe in 2019, although only saw marginal flows in the US. ESG ETFs currently represent in the region of 13 per cent of the overall European marketplace whereas ESG represents less than 1 per cent of assets in the US ETF market.
The approval of the semi-transparent ETF model by the SEC is occupying State Street in the US, where the firm continues to work closely with leading ETF issuers who are looking to launch products in this strategy in 2020
“There’s yet to be a launch but it has driven more interest in the model across Europe,” Fitzpatrick says. “One of the significant benefits we see is a semi-transparent structure for equity ETFs given the risk around front running and loss of intellectual property that would exist for an active manager publishing daily holdings in the existing ETF environment.
The European ETF industry is engaged with the Central Bank of Ireland (CBI) and IOSCO on semi-transparent structures and encourages all ETF issuers to actively engage with local regulators if a semi-transparent model is an attractive prospect for their firm.
“The European market is more challenging for regulatory approvals given you are dealing with a wide range of European regulators as opposed to just one in the US. Given it took more than a decade to get the semi-transparent active model approved in the US, I do not see the key European regulators such as in Ireland and Luxembourg approving a similar model overnight.”
Early 2020’s market volatility has proved a challenge for ETFs that has been well met, Fitzpatrick believes. “Flows have significantly increased with State Street experiencing record flows of over 500 plus in primary market transactions on a daily basis across our Ireland client base.”
Managing Director, Head of ETF Servicing Ireland,
State Street Global Services
Ciarán Fitzpatrick is a Managing Director in Ireland with over 18 years’ experience in the Financial Services Industry. Ciarán leads State Street’s ETF servicing team and is responsible for the overall ETF product offering for new and existing clients covering all Exchange Traded Products. Ciarán drives the ETF strategy for State Street Global Services across Europe ensuring that the firm maintains its premier position as the service provider of choice in Europe. Ciarán started his career in Fund Accounting with Investors Bank & Trust in 2003. The company was acquired by State Street in July 2007. Ciarán previously serviced funds for a global mutual fund manager with complex multi-currency fixed income, equity, & derivative products. Ciarán graduated from the Dublin Institute of Technology in 2003 with an Honours degree in Business & Finance.