Selena Li

HONG KONG, (Reuters) – A Hong Kong supervisory body has decided that a unit belonging to the central bank will be replaced. State Street Corp (NYSE:), as the manager for the region’s largest exchange traded fund, more than $14 Billion. It was the first such action since the vehicle launched over two decades back.

State Street announced Tuesday that its State Street Global Advisors unit (SSGA), which had been managing the ETF, dubbed TraHK since 1999, would be closing down. This comes after SSGA made a U-turn last year due to an investment decision tied to U.S. restrictions on Chinese companies.

State Street remains the custodian, but Hang Seng Investment Management Ltd., a subsidiary of Hang Seng Bank and an affiliate of HSBC was selected to be TraHK’s new manager.

Hang Seng Investment Management stated in separate statements that the appointment is subject to regulatory approvals. The transition is expected to take place in the third quarter 2022.

This ETF is very popular with Hong Kong retail investors as well as pension funds. It was established in 1998 by the Hong Kong government in order to sell shares that it had acquired during the Asian financial crisis.

“TraHK underpins the retirement (and) wealth proposition for much of Hong Kong’s working population, with Mandatory Provident Fund (MPF) investments accounting for approximately 17.5% of TraHK’s assets,” Diana Cesar, CEO of Hang Seng Bank said in a statement, referring to compulsory pension savings.

SSGA stated that it will stop purchasing shares in the two largest constituents of the. This was due to a decision not to invest in securities from U.S. sanctioned organizations.

Three days later, SSGA stated that it will resume investment in stocks denied U.S. investor under an executive Order by Donald Trump.

Anger at the TraHK decision to cease investing in prohibited securities prompted some investors to call for SSGA replacement by a manager capable of buying the stocks.

Last year, the Hong Kong Monetary Authority asked a seven-member long-standing supervisory committee for permission to review seven ETF managers headquartered across different jurisdictions.

Hang Seng’s proposal of a lower management fee was cited by the committee as one reason to select the local-grown manager. Hang Seng has pledged to cut the current charge at 0.05% to 0.022% for the first three years and then to 0.019% in the fourth.