State Street’s Yie-Hsin Hung: We’re Not Done Innovating

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Welcome to Barron's The Way Forward. I'm Greg Bartolis, and my special guest is Yi Xin Hung, who is the president and CEO of State Street Investment Management, which currently has about $5 trillion in assets under management. She'll be discussing what she's hearing from investors and advisors, recent strategic partnerships, the firm's focus on the retirement market, and its recent rebranding. Welcome to the podcast.

Thanks. It's great to be here with you.

Well, such a pleasure to have you. Thank you again for joining. Please tell us a little bit about your career trajectory and what you're currently doing in your role.

Sure. So I've always been in financial services after having studied engineering undergraduate. But I got very interested in company strategy and how they're pursuing it. And so my avenue was going to Wall Street, becoming an investment banker. And I did that for maybe a dozen years before I switched over to the asset management realm. So I started my career. At Morgan Stanley, moved to a firm called Bridgewater, very large hedge fund, and then New York Life, where I became CEO about 5 years after joining them. It was a multi-boutique model. And then 3 years ago, I joined State Street as the president and CEO.

Okay. And tell me a little about right now, what you're, what you're doing in terms of strategy and otherwise.

So our goal at State Street Investment Management is to be the world's leading partner and provider of innovative investment exposures and tailored solutions for our clients. And I say that because our focus is very much on partnering with other firms that are best in class to bring interesting new products to market. It's also to partner with our clients in delivering solutions and spurring the level of innovation that we're bringing to the marketplace. In many respects, this is how State Street Investment Management was born some 40, 45 years ago, where we we launched a decade into our launching the US-listed ETF arena with our S&P 500 ETF. And we've had a number of firsts along the way.

So many people know your company best perhaps by the SPY ETF and GLD for gold. And while those are enormous, that again doesn't define what you do or reflect necessarily your current strategy. Tell me a little about directionally what what you're looking at, where you're going, et cetera.

So if you look across our $5+ trillion in total assets, we're a global firm.

Mm-hmm.

Uh, we're in 30 different locations around the world, many of which we've been there for decades. And, uh, very strong in terms of customized index portfolios for our, our largest institutional clients, both equity and fixed income, ETFs under the brand of SPDR, as you note, cash capabilities, and then bringing that all together into multi-asset solutions. So some of the There are 3 areas that we're really excited about growth. Fixed income, fixed income indexing in particular, now that we have positive interest rates, growth outside the US in particular in the Middle East and Asia Pacific, and then wealth as a broad category. And even if you look at US wealth as a segment, it's probably the largest and fastest growing investor segment in the world.

The home bias is a well-known phenomenon whereby people, regardless of which country they live in, tend to favor owning equities of the country they're in. Uh, the US of course is no exception. Have you seen a shift, may that be with institutional clients, et cetera, where people are starting to say that the overseas outperformance is not necessarily a blip and they're tweaking portfolios accordingly? Or have you not seen much difference on that count? Because you, you can assume that if, if, if overseas markets continue to outperform for a few years, then you'll get more buying and money flowing in because they'll, think there might be more of a verdict rendered by the markets, if you will?

You know, I think if ETF flows are any indication, and we're a very large player in the—

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ETF market, we're not necessarily seeing a huge amount of money going into international developed. There is some, but the bigger trend is sort of the widening out of the U.S. exposure from the very large caps to mid-cap, small caps that tend to do better in a declining interest rate environment.

Yes. Yes.

And we also see on the fixed income side a view that spreads are pretty tight in both investment grade and high yield. And so the focus has been more on the shorter duration, maybe intermediate duration, but less than— less in credit.

Tell us a little about some of your recent strategic partnerships.

Sure. So I mentioned earlier our focus around products, and that's led us to innovate in a couple of different places. Introducing private credit into investment-grade core plus ETFs that we've launched now, two with Apollo, one intermediate term, one short duration. And we have another asset-backed idea in registration. We also have been longstanding partners with Blackstone. So we have a senior loan active strategy that's been in market for quite some time, but we launched a CLO ETF with them in Europe a few months back. And then lastly, Probably Bridgewater is probably another notable one where they're the largest hedge fund in the world, and we basically worked with them to deliver their all-weather strategy to market, and that's been an incredibly successful launch.

Tell me also about your pivot. You, you, you recently named a head of US retirement for the first time. I thought that was really interesting. Tell me more about the logic and behind that.

Sure. So retirement overall is a very important part of our business. It represents about a quarter of the assets we manage on a global basis. And we remain today the number 2 defined benefit manager. On the target date fund side, we're number 4. And so these segments, especially in the U.S. market, are incredibly important to us. And we've been very involved in SECURE 1.0, SECURE 2.0. We've seen growth in multi-employer plans and state-sponsored plans, and we've been very active in that arena. It's also been a space for us where we've innovated. And so several years back, we introduced guaranteed income within our target date series that's called IncomeWise. And then this year, we're really very excited to have launched the very first private markets allocated target date fund called IncomePlus. And so that's really giving investors, you know, what Basically, the counterpart, which would be a defined benefit plan, would typically have anywhere between 10% and 40% allocated to private markets. In our case, it's about 10% from the very beginning to the end of that target date series.

What was a pivotal reason that you chose to have, you know, name a head of U.S. Retirement? Because you mentioned it's about a quarter of the assets. Obviously, that number doesn't change dramatically. I mean, it ticks up bit by bit, but there was some kind of a tipping point, right? There was something where you said, okay, let's do this. Could you just help explain a little more of the thinking behind the scenes when you did that?

Sure. I mean, you know, we're seeing so many aspects of the investor market, you know, really coming together. And oftentimes within the corporate arena, defined benefit, defined contribution is overseen by the same teams. And, you know, our focus with public plans, whether defined contribution or defined benefit, we're increasingly seeing some of the same issues and questions on participant engagement, participant education. And so it was really that sort of realization of bringing all of our resources together for the benefit of these clients.

Mm-hmm. Okay. And how do you deal with the crosscurrents of increased longevity. You have an AI overlay, at least for people who are not yet retired, who have to, you know, wonder about how this might affect their career.

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And job security. It seems like it's a lot trickier to plan for retirement than it used to be. It used to be more you work until 65, then you're you know, off on the golf course or whatever you're gonna do. And now a lot of times people might have a sabbatical or take a mini retirement, if you will. And it's a very different landscape. So, and I know there's no monolithic simple answer to that, but I'm just curious, you know, how you deal with all that.

Yeah, a lot of it comes down to education. You know, I think we know, right? The earlier in life that you start investing, the better position you are in retirement. And Social Security has been a big part of the equation, but for future generations, it may not be as meaningful.

Mm-hmm.

Same thing as individuals maybe a decade, two decades ago could count on their pension plan also providing that income.

Yeah.

So, so much of the responsibility now resides with the individual.

Absolutely.

And so being in a position to educate, to make it easy for people to make these decisions in terms of You know, a target-date fund, choose a maturity that aligns with your retirement and rely on a manager like State Street to manage that glide path so that you stay fully invested in the market and all cycles up and down. And it also has led us to this retirement guaranteed income product. And the way it works is that when someone is looking at retirement, you know, making a decision as to how much do you annuitize, How much income do you really need? We try to make that super simple for individuals and partnering with firms like MyCruity, which is a technology-first company that just allows people to play with different scenarios and then make the right decisions.

Mm-hmm. Okay, that's great. Let's talk about your, your recent rebrand to State Street Investment Management. Tell me about that and what was the thinking there?

Sure. So we announced our new brand earlier this year. We were formerly known as State Street Global Advisors. And I think, uh, going with something simpler better describes what we do fundamentally. And it also, I think, reflected in the logo and the colors and the look of our sort of growth mindset, moving with greater innovation, speed, and agility. Yet at the same time, core to what State Street is all about is this sort of notion of longevity. We're a company that's been around for over 230 years. Very much focused on taking our full resources and doing the research, the work to help our clients think through whatever challenges they may be facing or what objectives they want to accomplish and partnering with them all along the way. So we've been very excited about that. It's also an opportunity for us as a company to really go to our clients holistically. Our parent is one of the largest custody banks in the world. So And so a lot of the clients they serve are the very clients that we serve, asset owners, wealth managers, and asset managers also.

I wanna ask you about your sponsorship of the WNBA.

We're super excited about this 4-year sponsorship of the WNBA. Increasingly, we know that the next generation investors are gonna invest differently than our generation or the generation before us. And those, well, really educated investors are, making decisions on their own. And we wanted to try to reach them in the same way as we are providing so much in the way to wealth managers and asset owners. And the WNBA is one of the fastest growing sports franchises in the market today. And much of our focus is on this campaign of helping people to get there by starting here. So investing in these women athletes on their journey At the same time, investing more broadly with younger and all investors of all types to help them get where they want to go.

And tell me about the reach of that, because obviously you're with social media and it's already being shared, their photos, their videos. So I imagine from a branding perspective, it might be more powerful than some other venues.

We absolutely see it. So our spokesperson from the WNBA is Lisa Leslie. She's a 4-time Olympian, first woman to dunk a basketball. But she and other, uh, women in the WNBA have talked about, you know, the, um, their thoughts around money, around investing. And I think it brings it very much to home because they're on their journey, they're working hard, they're putting in the effort. And it's a lot of these same parallels that we wanna basically convey to everybody about how it takes to you know, set a goal and then to achieve it.

Yeah. Excellent. Well, I think that's a great place to wrap it up. Thank you so much for joining. I really appreciate it.

Thanks so much for having me.

My guest was Yi Xin Hung. For more podcasts and the latest wealth management news, visit barons.com/advisor. You can also listen to this podcast on iTunes, Spotify, and Amazon. For The Way Forward, I'm Greg Bartalus.

This podcast was brought to you by Wells Fargo Advisors. Looking for a firm your clients can't outgrow? Wells Fargo Advisors offers financial advisors full balance sheet solutions with wealth planning, investment products, banking, and lending that meet the needs of affluent to ultra-high net worth clients. Build your practice your way and on your schedule with independent and employee model options designed to meet your needs today and tomorrow. Learn more at joinwfadvisors.com.