Last month, State Street Global Advisors revealed numerous changes meant to modify its core teams in the traditional asset space. This included a merger of its active quantitative and enhanced equity teams, as well as an expansion of its fixed income and cash units to "extend further on the credit spectrum," according to the June 19 announcement.
Specifically, SSgA's fixed income and cash teams will be combined under one umbrella and Steve Meier, chief investment officer of the cash unit, will head the group as chief investment officer of fixed income and cash. Secondly, Ali Lowe, chief investment officer of global equities, departs at the end of 2013 as part of proposed changes to its active quantitative developed and enhanced equity efforts. Current Global Enhanced Equity Head Ted Gekas will lead the new team as global head of active quantitative equity and CIO.
Global CIO Rick Lacaille recently spoke to Money Management Executive about how SSgA's changes will better position the company in the market.
Why has SSgA chosen to take on these structural revisions in Fixed Income and Cash?
We are aligning our fixed income and cash businesses because we believe that the boundaries between fixed income disciplines are blurring and that a broad view is best to manage client portfolios in the dynamic and volatile markets we expect going forward. For instance, it is clear that cash management is moving away from a traditional money market framework, towards one where the optimal portfolio management incorporates skills typically associated with managing longer dated fixed income securities.
Additionally, the upcoming regulatory changes in the U.S. and Europe may result in a new regime where the cash team could need more of the tool kit that would normally be associated with fixed income from a risk management perspective. We are also expanding the depth of our fixed income strategies to extend further on the credit spectrum targeting areas such as structured credit, high yield and emerging market debt. We want to pick our spots and invest in the parts of the fixed income business where skill pays off, but we don't want to invest in areas where we can't differentiate ourselves.
What was the premise behind the active quant equity revamp, a business that has been headed by SSgA for over 30 years?
We decided to combine our active quantitative equity and enhanced equity teams because we think they operate best as a single discipline. We've had some great ideas over the past 25-30 years, and developed many investment models but our commitment is continually improving our process to deliver results for our clients. This includes looking at our core stock picking model as well as different models for different circumstances and risk levels. We are also working to improve our speed to market and to centralize our ability to put all of our ideas and intellectual capital together in one place, which means combining research teams, portfolio management and IT resources all in one place.
Did client demands fuel these adjustments or is SSgA proactively addressing needs during this volatile period?
Our clients are continually expecting performance and they expect us to continually develop our investment processes to deliver that performance. The world is always changing, and I think we've seen that in the way that quant models have developed. We really have to look in the mirror and decide what strategy makes the best sense. There is never an option to stand still.
Specifically, how will core indexing, advanced beta and ETFs be impacted with the management head transition changes?
These businesses continue to deliver nicely and we continue to invest in new strategies that we think are interesting and valuable for our clients. There has been no change to the organizational structure.
Switching gears for a moment, how are target-date funds answering the retirement income problem?
Conceptually, they answer an important need in retirement savings and are a very elegant way of dealing with risk management through a participant's life cycle. So we absolutely endorse and advocate the target-date concept, and want to continue to invest and improve our particular manifestation of that process which includes how it will develop outside of the U.S. The income side of the equation is very interesting, whether you are looking at the U.S. or elsewhere. People want choice and they also want sustainable income over a long time period, so we continue to look at ways to address that need.
New regulations under review by the Securities and Exchange Commission and the European Union are looking to impose net asset value guidelines on the money market mutual fund marketplace. What is SSgA doing to better weather the storm of new regulations as they gain approval?
Because this potential regulation is coming to us in the U.S., in the European Union and perhaps other places as well, it is unclear exactly how it will all play out. The fixed income and cash changes are part of our preparation for that. For example, if we do enter an environment where variable NAV is much more significant, we may see our clients thinking about their investment problem in a different way, particularly as it relates to what risks they want in their portfolio based on a credit and return perspective. I think we may be at an interesting inflection point, but it is still too soon to tell how the regulatory environment will develop on a global basis. It's prudent to be prepared, and that's essentially what we've done, and we will offer more choices for our clients whatever the circumstance of those reforms.