Marching to European ETFs

Vin Bhattacharjee, head of EMEA intermediary business at State Street Global Advisors, talks to Joanne Young about the firm’s expansion into Europe and the untapped potential of ETFs

Vin Bhattacharjee is something of a veteran in a still nascent ETF industry. Previously head of intermediary sales in Europe for Barclays Global Investors, he was instrumental in bringing the first wave of iShares products to Europe over ten years ago.

“It really was a pioneering exercise; at that point the challenges were not the same as those we face today. Back then we were asking questions like, ‘is anyone going to buy these, is this product going to have any traction in the European space?’ Initially at least, it felt very much like an uphill struggle. Obviously it was a huge success over time.”

Bhattacharjee is now head of EMEA intermediary business at State Street Global Advisors (SSgA), a new role focusing solely on this client base. He explains: “I was hired to extract this segment from generalist coverage and give it some focus and direction.

“The model we are moving towards is passively managed beta products at one end and actively managed alpha solutions at the other. The beta products will be delivered in ETF form, and we are focusing on building that out over the next year and a half.”

SSgA has already signalled its intentions for a major European push this year. Bhattacharjee says: “We’re not going to blanket cover the market, but we will certainly aim to have a fund family of 50-plus ETFs over the next couple of years.”

Wealth of knowledge
Bhattacharjee will be looking to harness SSgA’s experience and success across the Atlantic, where it is the second largest ETF provider after iShares. The firm recently renamed its French-domiciled streetTRACKs family of ETFs to bring them under the SPDR umbrella, leveraging off the widely recognised State Street brand name.

As one of the biggest players in the US ETF arena, the move into Europe was inevitable. “Why not earlier is the better question. I was in discussion with State Street back in 2007, but then the credit crunch hit and prevented any further expansion plans. One can look back and say that was a mistake, but the reality is management just did not have the bandwidth at the time.”

The firm will focus on core, traditional strategies, launching on broad equity and fixed income indices using passive, physically-replicated funds. However, Bhattacharjee adds: “We’re not going to copy-paste the US set.” He also notes State Street is one of the largest managers of emerging market assets, in an area that is increasingly being regarded as part of core allocations.

Despite SSgA being the provider behind the world’s largest ETP, the SPDR Gold Trust, Bhattacharjee says the firm does not have any plans for commodities products in Europe, and he is sceptical about the demand for leveraged and inverse ETFs among the firm’s institutional and wealth management clients. He adds: “We wouldn’t really be looking to second guess them and create products along those lines.”

Key factors
State Street’s reputation will be key to the success of its expansion, while its size will be instrumental in delivering liquidity and tight spreads. “We’re not going to come in and price aggressively. The key advantage we have is we are one of the best indexers out there. For us, ETFs are a further expression of our indexing capability.”

SSgA currently offers a platform of 13 ETFs in Europe, mostly covering European sectors. Bhattacharjee says the products have seen some reasonably heightened levels of activity since the start of the year, validating their usefulness.

Utility is a measure of success Bhattacharjee returns to more than once. He is fairly reserved in his ambitions, denying that State Street is targeting iShares’ position as market leader. He adds: “Ultimately as a business what we’re here to do is provide products that are of use to our clients. If we do it well and get the detail right then I think one of the outcomes will be a place as a leader in the ETF field. But that is not an end in itself.”

He also sees the company playing a constructive role within the industry. “I think there is pent-up demand for products that provide transparency and can play into new regulatory frameworks. That also needs to converge with the right product provider, to come in and help crystallise demand and help drive investment practice. I think we’re going to have a positive impact on the market.”

The firm may have been initially thwarted in its plans for the European market, but State Street’s delayed arrival comes at an auspicious time. The UK’s Retail Distribution Review (RDR) is widely expected to boost retail use of ETFs, while an ongoing review of Europe’s Markets in Financial Instruments Directive (Mifid) could push for similar effects across the continent.

Bhattacharjee is cautiously optimistic about the RDR’s likely effect. “As long as it is not completely watered down – in which case it would be a waste of everybody’s time – it will have some positive impact for the end investor.” He sees his work with the intermediary market as a gateway into retail. “The initial growth in the European market was all institutional; now we have a rising intermediary segment which will propel growth over the next three to four years. That will then feed into the retail movement.”

State Street’s plans are the broad, over-arching ones typical of a big player. Bhattacharjee describes the firm’s aim as creating a “consistent and holistic” product set, with the challenge being one of orientating existing distribution capacities towards selling ETFs.

As an architect of the European ETF market though, Bhattacharjee’s sights are not confined to the status quo. He muses about the yet unexploited benefits of the products. “What would be interesting would be figuring out a way of lending off the ETFs themselves.

“If you’re an investor with a portfolio of ETFs and you’re not lending them out then you’re missing out on earning returns. There is a lot of niggling operating detail that prevents this happening, but it ends up as a major market inefficiency. Now that’s something we’d like to look at.”

Biography

Vin Bhattacharjee joined State Street Global Advisors’ SPDR ETF business in 2009, from private equity provider India Co. Ventures. He has previously worked with Barclays Global Investors in London as a member of the team that introduced iShares products to Europe.