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Written by: Chen Xunlin
2021-01-14 20:55
Last update date: 2021-01-14 20:55
US President Trump earlier signed an executive order prohibiting US investors from investing in a number of companies alleged to be related to the Chinese military. The Tracker Fund (02800) managed by the US company State Street Global was also affected.
State Street announced on Monday that Tracker Funds would not make new investments in sanctioned entities. This deviation from the fund’s nature of tracking the performance of the Hang Seng Index has aroused criticism. There have been numerous calls from politicians to shareholders for the removal of the SAR government to intervene in the removal of administrators.
After two days of turmoil, State Street quickly switched back and announced that it would resume investing in "sanctioned stocks" in the Hang Seng Index starting today (14th).
State Street’s slingshot made him a laughing stock, but for the Hong Kong government and financial regulators, this is not a farce to laugh at, but about how they perform their duties of safeguarding Hong Kong’s financial security and protecting the rights and interests of investors.
As far as this incident is concerned, the urgent question to be answered is: How to decisively hold accountable investment product managers who fail to fulfill their responsibilities.
State Street Global Advisors, which manages the Tracker Fund, stated on Monday (11th) that under the influence of the US executive order, the Tracker Fund will no longer make any new investments in sanctioned entities from the same date. , And pointed out that the Tracker Fund is no longer suitable for investment by Americans. The US ban came into effect on Monday, and many related derivatives are affected.
Before State Street Global responded, three U.S.-owned vehicle issuers including Morgan Stanley and Goldman Sachs delisted about 500 structured products; index companies removed corresponding shares in response to sanctions, and there were also U.S. companies such as the world’s largest asset management company BlackRock announced that its funds will no longer make new investments in any sanctioned entities.
Tracker Fund is one of the largest funds in Hong Kong, with a market capitalization of 109 billion yuan, and its birth background is special.
During the Asian financial turmoil in August 1998, Hong Kong stock exchanges were attacked by international investment predators. The Hong Kong stock market once rushed into over 50%. At that time, the HKMA used the HK$118 billion exchange fund to enter the market and purchased 33 Hang Seng Index constituent stocks. Under control, the Hong Kong government deployed to delist after the successful rescue of the market, selling stocks in a way that caused the least volatility to the market.
The HKMA established the Tracker Fund in November 1999 to allow Hong Kong people to subscribe through a IPO. Public opinion generally described this as "returning wealth to the people."
The Trustee and Custodian of Tracker Funds is State Street Bank, while the fund manager is State Street Global Investment Management Asia, and the Exchange Fund Company is the holder.
Tracker Fund announced that it will no longer make any new investments in sanctioned entities starting from January 11 or a later date that is effective for sanctioned entities.
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The government ignores the problem?
The special background of the Tracker Fund made State Street announce that it would no longer invest in sanctioned companies, which immediately aroused heated discussions in the market.
Many stock commentators or newspaper investment columnists have "suggested" and urged the government to remove fund managers.
However, Chief Executive Carrie Lam said on Tuesday that Tracker Fund is a market product, not a government action. Some voices in the market suggested that the Tracker Fund Supervisory Committee established by the Exchange Fund should consider changing the manager and trustee. Lam responded It means that the Monetary Authority and the Supervisory Committee should comment.
A spokesman for the HKMA said that the new arrangement of the Tracker Fund will have little impact on the fund's tracking of the HSI, and will not have any real impact on the investment of the Exchange Fund. The bureau will continue to monitor market developments closely.
In this way, neither the government nor the HKMA seem to be willing to intervene, and it seems to imply that they cannot intervene in the replacement of trustees and managers. But is this the case?
Stop investing is like breaking a contract?
Tracker Fund is used to track the Hang Seng Index's component stock portfolio and the weight of each constituent stock in the index. With reference to Tracker Fund’s offering documents, the investment objective of Tracker Fund is to "provide investment returns that closely follow the performance of the Hang Seng Index."
It is true that the investment market is changing rapidly, and the Tracker Fund is only "close to" instead of reflecting the performance of the Hang Seng Index 100%. Its sales document also stated that the Hong Kong government's performance of the Tracker Fund, the net asset value of the fund units, and the managers and trusts The performance of their respective responsibilities is not guaranteed, nor is there any guarantee or guarantee that the Tracker Fund will achieve its investment objectives.
As of the end of October last year, the tracking error between the fund and the Hang Seng Index in the past year was 0.0179%. With reference to the latest figures, there are currently 52 constituent stocks in the Hang Seng Index. The three stocks affected by the “sanction order” together account for only 3.64%, which is a small proportion. Tracker Fund no longer invests in related companies, which has limited impact on stock price performance and tracking errors.
However, the slight impact does not mean that the approach is correct. Without any adjustments to the constituent stocks of the Hang Seng Index itself, State Street has given up investing in some index constituent stocks because of the “sanctions” in Washington and does not want to bear political risks, which is contrary to the original intention of the fund. , Seems to have neglected his duty.
The Hong Kong government is not helpless in this regard.
Even if the Tracker Fund is indeed a market product, as Lam Cheng said, it is not completely unrelated to the government.
In the final analysis, maintaining a reasonable and orderly operation of financial markets is the responsibility of the government.
On December 24, 2019, the Tracker Fund’s sales document trust deed has administrative regulations, which clearly set out the "removal/retirement of managers, trustees and promoters" arrangements, detailing various feasible methods.
State Street gave up investing in some index component stocks because of the "sanctions" in Washington and did not want to bear political risks, deviating from the original intent of the fund.
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Termination of appointment of managers
1) The manager voluntarily retire after submitting a 3-month written notice to the trustee, promoters and supervisory committee
2) When the manager winds up or faces similar legal proceedings; or when the trustee and the supervisory committee have appropriate and sufficient reasons to believe that the switch of the manager is in the interests of the fund unit holders, the supervisory committee instructs the trustee to notify the manager in writing:
3) Unitholders who hold 50% or more in total shall send a written request for retirement to the trustee, or vote to remove the trustee manager at a meeting;
4) The supervisory committee sends a written request to the manager, listing or requiring the manager to retire without listing reasons
Termination of appointment of trustee
1) The original trustee can only retire after the new trustee is accepted by the manager, the Securities Regulatory Commission and the supervisory committee;
2) The supervisory committee instructs the manager to issue a notice to the trustee requesting retirement to the new trustee;
3) Unitholders who hold 50% or more in total send a written request for retirement to the trustee, or vote to remove the trustee at a general meeting
4) The supervisory committee sends a written request to the trustee, listing or requiring the trustee to retire without giving reasons
A written request submitted by the Tracker Fund Supervisory Committee is one of the ways to terminate the appointment of managers and trustees. The Supervisory Committee currently consists of six members, with Wang Guolong, Executive Director and Chief Executive Officer of Link Asset Management Co., Ltd., as the chairman The members include the former Dean of CUHK Business School, the member of the Exchange Fund Advisory Committee of the HKMA, Chen Jiale, and the Deputy Chief Legal Counsel of the HKMA, Luo Chengen. The supervisory committee meets when necessary and at least quarterly to discuss and make decisions.
On the day State Street announced that it would stop investing in "sanctioned stocks," well-known stock commentator David Webb has pointed out that the Tracker Fund’s supervisory committee will have the right to change fund managers.
In response, the HKMA stated that the appointment and removal of members of the Tracker Fund’s supervisory committee is determined by the supervisory committee itself, and the chairman of the supervisory committee is appointed by the Exchange Fund Investment Company from among the members.
Chief Executive Carrie Lam Cheng Yuet-ngor also admitted that the HKMA has "some residual influence" over the personnel appointments of the supervisory committee.
This reflects that it is not impossible to replace managers and trustees.
Ren Zhigang, a member of the executive committee who participated in the establishment of the Tracker Fund and the former president of the Hong Kong Monetary Authority, also stated that the tracking fund is used to closely track the overall price trend of the constituent stocks of the Hang Seng Index. If the manager is unable to trade individual constituent stocks and errors are caused, then Not suitable for this position.
Therefore, instead of focusing on the amount of influence, the determination of the government is the key.
In-depth report on Trump's US sanctions by Tracker Fund