For Scott Powers, president and chief executive of State Street Global Advisors, assets under management is not a measure of success – the manager is currently the world’s fourth largest with around $2.5 trillion. Instead it is the ability to provide value for clients in meeting their objectives – whether it be matching liabilities, creating alpha or educating plans on defined contribution models – that keeps Powers striving for excellence and innovation and a more outcomes-oriented environment.
State Street Global Advisors’ heritage dates back over two centuries. It is one of the world’s largest asset managers, employing more than 2,400 people across offices in 16 countries, managing assets of $2.5 trillion. It’s somewhat of a behemoth.
On the surface this would suggest it’s not set up for innovation, or nimble reaction to clients’ needs. But under Scott Powers, SSgA continues to innovate and create a solutions-driven, client-focused environment.
Powers talks at a million miles an hour. He’s articulate and passionate and his story flows off the tongue easily.
His team of more than 400 investment professionals manages investments across the full spectrum – from traditional beta, through advance beta to concentrated portfolios and hedge funds.
The manager’s investment philosophy is underpinned by its values of excellence in research, collaboration, accountability, and innovation.
Advanced beta is an example of an area where research underpins the manager’s product development, where recent recruit Dr Jennifer Bender, formerly of MSCI, leads the research charge.
“We are building a formidable array of advanced beta,” Powers says, very deliberately using the word “advanced” not “smart” beta, as a tribute to the traditional cap-weighted beta which he describes as being in no-way dumb.
“This includes equal-weighted, GDP-weighted, fundamental including size, value, growth momentum, and we are doing active modelling with the combinations of all of those, and have a number of clients looking at that.”
Powers sees the development of advanced beta as having no negative effect on the passive business, but it is a real opportunity to take allocations from active managers which are not delivering active returns net of fees.
“Put it this way, I started my career in a large cap value shop, we were charging 70 basis points for products based on size, volatility and valuation. Now SSgA can deliver that in a systematic rebalanced way for 5 basis points over the index,” he says. “If you’re looking at return after fees and believe in factors, then we can do it cheaply.”
While SSgA can deliver advanced beta in a systematic passive manner, he says clients still need to remember that it is an active decision and that includes determining the pain threshold for underperformance.
“It’s the same decision in choosing an active manager, you have to stay the course.”
As the relationships between asset owners and managers evolve, managers need to adapt their offerings. The traditional relationship, which is dependent on a strategy or return stream, is still important but is not the only way of interacting with clients, and possibly not the most effective or sustainable.
Powers is cognisant of this and is conscious of the advantage that SSgA’s size and breadth of offerings brings to customisation.
“We look at the bigger picture of what clients objectives are, whether it is GDP plus 5, hedging tail risk, managing liabilities, or educating defined contribution participants on their savings levels. This has led to more focused conversation, which is outcome oriented, and we can customise strategies to the discrete needs of clients,” he says.
SSgA has offerings across equity, fixed income, currency, real estate and absolute return, covering the spectrum of investment approaches, including indexed, enhanced and active; and a range of vehicles from private funds, commingled investment vehicles, ETFs, mutual funds and client-directed mandates.
“We are having conversations at a more strategic level. For example we manage relationships with heads of HR and the CIO at corporate funds, and do a lot of work about retirement readiness at the individual level with their members. Partnering with the HR departments of clients to understand the individuals is not just corporate funds, but defined contribution funds like the NEST in the UK,” he says.
As a result of this more strategic level, rather than an asset class, conversation, SSgA has built its own investment solutions group which now has about $200 billion and 70 investment professionals.
“We don’t manage an asset class but an overall solution, it is less benchmark related and more absolute return,” Powers says. “We still have specialist relationships, which are predominant, but for those willing to engage at a different level we are holistic. We ask clients what is your objective and how do we help?”
Of course the answers to all those questions are unique, as all clients are unique, so the packaging and scaling of those solutions, a funds management business staple, is complicated.
“Clients have a variety of risk targets, and their willingness to bare risk can guide the conversation of our solutions. Those clients are all unique so the solutions are client centric and packaging and scaling of that is difficult.”
However the intermediary clients of SSgA are, mostly, using ETFs or funds which are more packaged solutions, and the manager is taking the conversations it has with institutions and synthesising those to a single pool that’s scalable on a targeted basis.
“Then that can be employed at an adviser level or for smaller clients, for the efficient deployment of strategies. It’s not about the best equities fund, but solutions at a multi-asset class level.”
Powers sees this intermediary level as one of three prongs to the manager’s growth.
“I think our growth is with traditional institutions – particularly sovereign wealth funds. These are clients with sophisticated needs and we’re well positioned to serve them. It’s with defined contribution funds globally, and the importance for nation states to meet retirement needs. And thirdly it’s with financial advisers which make up about 25 per cent of the investable universe globally.”
For all of these clients, it’s not about products but about helping clients solve their problems and meet their objectives. Increasingly this is customised via multiple building blocks.
“We care about helping clients solve their problems and meet their objectives, what does it mean for them, and how do clients’ value that?”