State Street Global Advisors (SSGA) revealed last week that it had secured a $200m cornerstone investment from the Public Investment Fund (PIF) of Saudi Arabia into its newly launched sovereign bond ETF.
The SPDR J.P. Morgan Saudi Arabia Aggregate Bond UCITS ETF (KSAB), which started trading in London and Frankfurt last month, is Europe’s first fixed income ETF offering targeted exposure to Saudi sovereign issuance.
Saudi Arabia and the oil-rich nations of the Gulf have provided one of the most important sources of new large institutional clients for international asset managers such as State Street, BlackRock, AllianceBernstein, DWS and Wellington Management which have all opened new offices in the region in recent years.
SSGA’s chief executive Yie-Hsin Hung travelled to the UK to publicise the commitment by the PIF with a bell ringing ceremony at the London Stock Exchange where the US asset manager outlined its plans expand its presence in Saudi Arabia.
Ms Hung said she was “delighted” to see the PIF make such a significant commitment to the ETF and that State Street was “honoured to play a part in Saudi Arabia’s economic evolution”.
Noting that State Street has been working in the Middle East for 30 years, Ms Hung said that the asset manager wanted to build and strengthen relationships with clients in Saudi Arabia, an economy that it expects to grow at double the pace of developed nations in coming years.
SSGA also intends to launch more regionally focused products, including Sharia compliant strategies, in the near future after establishing a local investment centre in Saudi Arabia in September.
Emmanuel Laurina, head of the Middle East, Africa and official institutions at SSGA, said that sovereign wealth funds, central banks, pension funds and developments funds in the region were all looking for asset allocation advice and new investment ideas from fiduciary advisers who could act as a "sounding board" for these clients.
SSGA already has around 60 local clients and has established a four person outsourced chief investment office team that can build bespoke strategies on request.
The launch of the new Saudi bond ETF was a “perfect example” of how SSGA could help clients to achieve their objectives, said Laurina.
The ETF, which offers a yield of around 5.25% will invest in A+ credit rated US dollar and Saudi Riyal denominated government and quasi-government bonds. It will also invest in Sharia-compliant bond-like Sukuk issuances.
Saudi Arabia's bond market is likely to be eligible for inclusion in future in JP Morgan's widely followed emerging markets bond index, a move which follows a path already taken by China and India that would further boost international investor interest in the Kingdom's debt market. ,
The London-based boutique Tabula, which is now owned by Janus Henderson, launched the Tabula GCC Sovereign USD Bonds UCITS ETF (TGCC) in January 2023. It invests in bonds issued by all six Gulf Cooperation Council member countries and has delivered annualised net returns of 3% since it started trading in London.
The investment by the PIF, which oversees assets of $930bn, marks the third large scale allocation to support new Saudi ETFs by one of the world's largest sovereign wealth funds which wants to use these commitments to draw more international investors to participate in the development of the Kingdom.
Speaking in London, PIF deputy governor Yazeed Al-Humied said the sovereign wealth fund wanted to “open gateways and enable access” to Saudi Arabia’s capital market.
The PIF’s investment into the Saudi bond ETF would strengthen cross-geographic partnerships as well as boosting international investment flows into in Saudi Arabia, he said.
In December, the PIF partnered with Japan’s Mizuho bank to create the largest ETF investing solely in the Saudi Arabian equities on the Tokyo Stock Exchange with the listing in December of the One ETF FTSE Saudi Arabia Index which had an initial market value of around $100mn.
The PIF’s push to build more bridges between Japan and Saudi Arabia’s capital markets included the signing in October of five memorandums of understanding (MoUs) worth up to $51bn with Mizuho Bank, Sumitomo Mitsui Financial Group, MUFG Bank, Japan Bank for International Cooperation (JBIC), and Nippon Export and Investment Insurance.
The PIF also acted as an anchor investor for the launch of the first Saudi Arabia ETF in the Asia-Pacific region, the CSOP Saudi Arabia ETF which started trading in Hong Kong in November 2023 with an initial $1bn in assets. The ETF listing ranked as the largest initial public offering (IPO) on the Hong Kong Stock Exchange in 2023.
The PIF also supported the launch of two feeder ETFs for the CSOP Saudi Arabia ETF which were listed on the Shenzhen Stock Exchange and Shanghai Stock Exchange in July 2024.
