WEBVTT - State Street's Anna Paglia Talks New ETF, SEC Scrutiny 

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news. Let's go now to

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<v Speaker 1>the intersection of public and private markets. About two weeks ago,

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<v Speaker 1>State Street and Apollo launched a new kind of ETF,

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<v Speaker 1>granting access to private assets in the public market. Within

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<v Speaker 1>hours of the launch of priv the SEC sent both

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<v Speaker 1>firms a strongly worded letter listing multiple concerns. For more

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<v Speaker 1>on that, we're pleased to say. Annapaglia joins us now.

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<v Speaker 1>She is the executive vice president and chief business officer

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<v Speaker 1>at State Street Global Advisors, that is one of the

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<v Speaker 1>firms behind the new ETF. I'm also joined by my

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<v Speaker 1>ETF IQ co host, Katie Greeifeld.

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<v Speaker 2>Katie, great to see.

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<v Speaker 3>You both, especially not on a Thursday. Usually we talk

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<v Speaker 3>on Mondays. So Trina also, great to see you in

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<v Speaker 3>studio with us. And I want to start with the

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<v Speaker 3>SEC because it was really unusual to see the SEC

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<v Speaker 3>send this letter post launch, really specifically laying out their concerns.

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<v Speaker 3>What did your conversations look like with the SEC pre launch.

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<v Speaker 3>I think there's a lot of confusion about how this happens,

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<v Speaker 3>and I'm just wondering if you discuss these issues with

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<v Speaker 3>the agency prior to actually trading beginning.

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<v Speaker 2>Sure, Katie.

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<v Speaker 4>First of all, thank you for having me, and I

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<v Speaker 4>know that this is the hot topic of the day

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<v Speaker 4>or the last couple of weeks, so I'm really happy

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<v Speaker 4>to have this conversation with you today. Let's put that

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<v Speaker 4>into perspective, because it is true that we get additional

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<v Speaker 4>comments from the SEC after we launch the fund, but

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<v Speaker 4>I would also say that this is not a unique

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<v Speaker 4>I mean, it happens from time to time. This fund

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<v Speaker 4>that had been in registration for five months, so if

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<v Speaker 4>you compare that to a traditional fund launch that takes

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<v Speaker 4>usually seventy five days, that will tell you that we

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<v Speaker 4>have had a very healthy dialogue with the SEC. Four

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<v Speaker 4>rounds of comments and we answered those comments.

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<v Speaker 2>And then the way.

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<v Speaker 4>Are some lingering ones without the process have concluded it

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<v Speaker 4>had not. We got the new comments and we answered

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<v Speaker 4>those within twenty four hours.

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<v Speaker 2>So in the last couple of weeks.

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<v Speaker 4>I think that's more drama than it was warranted was

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<v Speaker 4>created in the market. And I have read so much

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<v Speaker 4>stuff that I think it's worthwhile trying to distinguish facts

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<v Speaker 4>from fiction. So the one thing that I've been reading is,

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<v Speaker 4>you know, this fund that may not be fully operated

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<v Speaker 4>in compliance with the forty Act.

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<v Speaker 2>I mean that's fiction.

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<v Speaker 4>This fund is being managed, administered, operated in full compliance.

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<v Speaker 2>With the forty Act. That's a fact.

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<v Speaker 4>Interesting, then I have also read something to the effect

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<v Speaker 4>that we have not fully addressed the comments from the SEC.

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<v Speaker 4>There was a line around when is the next shoe

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<v Speaker 4>gonna drop? Now I know a thing of two about shoes,

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<v Speaker 4>and I can tell you that that's fiction.

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<v Speaker 2>There are no other shoes to drop.

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<v Speaker 4>And as you can see on Edgar, even the correspondence

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<v Speaker 4>of the secs so that the stuff has no additional comments.

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<v Speaker 2>That's a fact.

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<v Speaker 3>So given that, and given that you were having these

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<v Speaker 3>conversations with the SEC leading up to launch and the

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<v Speaker 3>fund did go effective, were you surprised to see this letter?

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<v Speaker 3>Certainly from where I was sitting at my desk in

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<v Speaker 3>the newsroom, I was surprised to see it.

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<v Speaker 4>So I was surprised and not surprised, because again, this

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<v Speaker 4>construct is novel, and it's not the first time that

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<v Speaker 4>the SEC gives you comments after a registration statement is effective.

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<v Speaker 4>So now it was unfortunate because it was made up

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<v Speaker 4>very public in a fund that had been you know,

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<v Speaker 4>in registration for five months, and where the flash lights

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<v Speaker 4>were but to me, that is part of a dialogue

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<v Speaker 4>with the SEC now was that ideal was not ideal,

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<v Speaker 4>But the fact that we addressed it within twenty four

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<v Speaker 4>hours tells you the health of the conversation and the

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<v Speaker 4>dialogue that we had with the stuff and with the

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<v Speaker 4>omission over the prior months.

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<v Speaker 1>Thank you for sharing all of that. The other thing

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<v Speaker 1>we can't help noticing is that this ETF was launched

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<v Speaker 1>during a shift change at the SEC. Gary Ginster has gone,

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<v Speaker 1>Paul Ekins has not yet been confirmed. There's an interim chair.

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<v Speaker 1>Do you think that that impacted this whole process for you?

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<v Speaker 2>I wouldn't say.

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<v Speaker 4>I wouldn't say that it is because I have been

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<v Speaker 4>working with the SEC, with the staff for almost two

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<v Speaker 4>decades now and I have the highest respect for the staff.

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<v Speaker 4>And even if the chairs and the leadership is changing,

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<v Speaker 4>there are some very incredible experts of Fortiact EXPERSUS securities

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<v Speaker 4>experts at the SEC that are not changing with the administration.

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<v Speaker 4>So I don't think. I don't think that the change

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<v Speaker 4>in administration and an impact. And whether this funder went

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<v Speaker 4>to market or.

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<v Speaker 3>Not, yeah, it's a good reminder it's not just the

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<v Speaker 3>guy at the top. You know, there's all these teams

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<v Speaker 3>within the agency as well. So this obviously, like you mentioned,

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<v Speaker 3>has been a hot topic. I have a podcast with

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<v Speaker 3>Matt Levine called Money Stuff, and we've been talking about

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<v Speaker 3>it on that podcast, and we had actually a listener

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<v Speaker 3>right in basically asking about the relationship with Apollo. They asked,

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<v Speaker 3>with the advent of a private credit ETF, isn't adverse

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<v Speaker 3>selection an inherent issues?

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<v Speaker 2>So I'm wondering.

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<v Speaker 3>Whether State Street has the expertise in house to evaluate

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<v Speaker 3>what Apollo is putting into the ETF.

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<v Speaker 2>We do.

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<v Speaker 4>We do have the expertise in house. Not only did

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<v Speaker 4>we have the expertise in house when thinking about the

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<v Speaker 4>h this fund and how to structure this fund, but

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<v Speaker 4>we also made the new hire set to make sure

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<v Speaker 4>that we had the right talent in seats. In the end,

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<v Speaker 4>s SGA is the UH is the advisor. By design.

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<v Speaker 4>We wanted us to be in a position to make

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<v Speaker 4>selections and have investment discretion on what task sets to

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<v Speaker 4>take or not to take from Apollo, and that type

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<v Speaker 4>of expertise was critical.

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<v Speaker 3>And you mentioned, you know, it was unfortunate that this

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<v Speaker 3>letter came after the ETF had already launched it. It's

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<v Speaker 3>out in the public like that, and I want to

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<v Speaker 3>bring that conversation to flows that have come into the ETF.

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<v Speaker 3>This is a first of its kind ETF, so there's

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<v Speaker 3>typically a way and c sort of period. But it's

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<v Speaker 3>only taken in two days of net inflows since it's launched.

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<v Speaker 3>Told me about five million dollars in assets so far.

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<v Speaker 3>Do you think that that overhang is impacting muting flows

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<v Speaker 3>to any extent.

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<v Speaker 4>It's funny you say that, because in this cases, success

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<v Speaker 4>is in the eyes of the beholder. If I look

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<v Speaker 4>at if I look at the treading volume, so I

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<v Speaker 4>separate the trading volume of from flows. Treading volume for

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<v Speaker 4>this fund that's been incredibly healthy. Let's remember it's an

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<v Speaker 4>active ETF. And if you look at all the other

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<v Speaker 4>active funds or even the wider ETF universe, all new

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<v Speaker 4>funds have registered are roughly an average of four million

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<v Speaker 4>dollars a day of treading volume. This fund that has

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<v Speaker 4>been an on par with the average, and at times

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<v Speaker 4>it has even been healthier than the average. And the

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<v Speaker 4>first ding, the first day it registered, the five million

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<v Speaker 4>dollars of trading volume, and we got to to creates

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<v Speaker 4>in the first two trading days, which you know, it

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<v Speaker 4>may sound like only two, but it's very unusual for

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<v Speaker 4>a new active fund that to ever creates in the

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<v Speaker 4>first week. I mean with active strategies. As you may appreciate,

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<v Speaker 4>people wait for the fund to create a little bit

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<v Speaker 4>of a performance record, the trading record.

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<v Speaker 2>So everything we see in.

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<v Speaker 4>Market the first of all, is not unexpected, is actually

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<v Speaker 4>better than we anticipated. So we are really pleased with

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<v Speaker 4>the trading volume and the attention that we are getting

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<v Speaker 4>from investors.

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<v Speaker 1>And making private assets were widely accessible to investors has

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<v Speaker 1>long been a goal, not just for you, but for others.

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<v Speaker 1>The challenge was always how to do it. At investment

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<v Speaker 1>firms like Blue Owl and Blackstone, some are choosing to

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<v Speaker 1>do it as interval funds, which would allow investors to

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<v Speaker 1>cash out during certain periods. Was that ever under consideration

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<v Speaker 1>for the private funds that you did launch.

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<v Speaker 4>It was everything was on the consideration. Everything is on

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<v Speaker 4>the table. We like to think of ourselves as a

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<v Speaker 4>rap pagnostic firm. We always look at the best exposure.

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<v Speaker 1>But you're the og ETF firm.

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<v Speaker 2>We are the OGETF forum.

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<v Speaker 4>But we do have target data funds, we have index

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<v Speaker 4>mutual funds and other mutual funds, So there are different

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<v Speaker 4>ways to repackage the content, and for us at democratizing

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<v Speaker 4>a private assets was paramount and this is why we

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<v Speaker 4>said that let's let's be very creative and see if

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<v Speaker 4>there is a way to incorporate this as a class

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<v Speaker 4>into ETFs.

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<v Speaker 3>So this launch was interesting from so many different levels.

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<v Speaker 3>But one of those levels was State Street's partnership strategy.

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<v Speaker 3>Because you have this partnership with Apollo, you have a

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<v Speaker 3>partnership with Galaxy for example, you have a partnership with Bridgewater,

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<v Speaker 3>and actually you just launched this all weather ETF last week,

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<v Speaker 3>which was really interesting to see. So private credit is

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<v Speaker 3>one thing, but when it comes to crypto and when

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<v Speaker 3>it comes to sort of risk parity strategies, theoretically State

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<v Speaker 3>Street could have done that in house. So talk us

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<v Speaker 3>through what the benefit of pursuing these really high profile

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<v Speaker 3>partnerships is.

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<v Speaker 2>Oh absolutely to us.

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<v Speaker 4>You know, brand matters because branded recognition is earned, is

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<v Speaker 4>not given, and the branded recognition really means that you

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<v Speaker 4>are an expert at something. And if we look at

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<v Speaker 4>our brand, Ssgas brand is a market leader in ETFs.

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<v Speaker 4>You know, we created the market with spy. We opened

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<v Speaker 4>the ETF market to the masses. This is what we

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<v Speaker 4>are good at understanding the entire ecosystem. But when we

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<v Speaker 4>want to build other strategies and bring them to clients,

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<v Speaker 4>we always look at who is the best.

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<v Speaker 2>In class and those strategies.

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<v Speaker 4>Could we have done digital assets, absolutely, but we are

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<v Speaker 4>not a cryptonative. That's why we partnered with a crypto native.

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<v Speaker 4>Could we have done risk aparity, absolutely, we would have

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<v Speaker 4>done it, but we partnered with those who started that

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<v Speaker 4>business that strategy with decades of experience the goods of

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<v Speaker 4>risk parity risk parity strategies. So for us, bringing together

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<v Speaker 4>what we do best with what other firms do best

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<v Speaker 4>allows us to bring these best in class solution to clients.

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<v Speaker 3>We have thirty seconds if that. When it comes to partnerships,

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<v Speaker 3>are you pursuing any others? Should we be keeping an

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<v Speaker 3>eye out?

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<v Speaker 2>You should?

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<v Speaker 4>You should be keeping an eye out of our new

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<v Speaker 4>partnerships and more with existing partnerships, because the partnership is

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<v Speaker 4>not transactional. It's what we can do together the entire

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<v Speaker 4>universal possibilities.

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<v Speaker 2>All right.

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<v Speaker 1>So it's just the beginning of these partnerships. And and

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<v Speaker 1>I really appreciate your joining us on a paglia from

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<v Speaker 1>Stagy Global Advisors