State Street Pulse Survey - State Street Corporation...Several types of firms may carve up the...

1Information Classification: General

Information Classification: General

December 2019

State Street

Pulse Survey


Executive Summary

The survey results are based on 102 responses from asset managers and asset owners. The firms represented are primarily large (more than $100 billion under

management) and based in the United States. All respondents serve in investment management, investment operations or executive functions. We conducted this

research in partnership with Oxford Economics.

• Approximately one-third (32 percent) of respondents have a bearish global markets outlook for 2020

• Nearly half (47 percent) say semi-transparent ETFs will play a significant role in their firm’s future portfolio strategy

• Social media/web scraping was cited as the No. 1 alternative data source for providing a competitive edge

Trading

• More than a quarter (27 percent) plan to increase the amount of outsourced trading

• 62 percent say distributed ledger technology (DLT) will be integrated into their trading process in the next year. Half say the same for artificial intelligence (AI).

Financing

• Half of respondents say their firm is investigating cleared repo, securities lending and new trading solutions

• Only 44 percent say they are prepared for the new collateral requirements under the uncleared margin rules

• 65 percent say DLT will improve financing solutions in the future. 59 percent say the same for AI.

Digital Assets

• Only 6 percent say they have no digital assets-related investments and no plans to invest, 38 percent say they will increase their allocation and 45 percent say

their allocation will stay the same

• 45 percent say the tokenization of traditional assets will be a massive disruption to the market within the next five years, yet 55 percent say tokenized assets’

inherent risks are too great for widespread institutional adoption


Only 56 percent of institutions describe their 2020 outlook as bullish …Which best describes your outlook for global markets in 2020?

Global

markets in

2020

n = 102

Very bearish

6%

Somewhat bearish

26%

Neutral (flat market)

12%

Somewhat bullish

38%

Very bullish

18%


$1B to $99.99B n = 30; $100B to $499.99B n = 59; $500B or more n = 13

… but the largest institutions seem more sanguine than smaller onesWhich best describes your outlook for global markets in 2020?

10%

47%

13%

20%

10%

3%

19%

12%

49%

17%

8%

15%

8%

31%

38%

Very bearish Somewhat bearish Neutral (flat market) Somewhat bullish Very bullish

$1B to $99.99B $100B to $499.99B $500B or more


n = 102

Many foresee a bigger role for non/semi-transparent ETFs …To what extent do you agree with the following statements?

Semi-transparent ETFs

are set to play a

significant role in my

firm’s future portfolio

strategy

20%

disagree

Semi-transparent ETFs

will help to stem the

flow of assets from

active investments to

passive

Semi-

transparent ETFs will

largely replace

traditional open-end

mutual funds in the

marketplace, because

they offer similar

advantages with

greater tax efficiency

and lower cost

14%

disagree20%

disagree

47%

agree

46%

agree

45%

agree


… and large institutions express the most enthusiasmTo what extent do you agree with the following statements?

77%

85%

85%

44%

49%

46%

33%

23%

33%

Non/semi-transparent ETFs will largely replace traditional open-endmutual funds in the marketplace, because they offer similar

advantages with greater tax efficiency and lower cost

Non/semi-transparent ETFs will help to stem the flow of assets fromactive investments to passive

Non/semi-transparent ETFs are set to play a significant role in myfirm's future portfolio strategy




More than 60 percent outsource some or all of their trading …Which statement best describes how your institution handles trading?

24%Not applicable

21%We outsource all of our

trading to an external partner

14%We handle all of our

trading in-house

41%We outsource some of

our trading to an

external partner

n = 102



… with the largest institutions more likely to handle all trading in-houseWhich statement best describes how your institution handles trading?

30%

40%

30%

12%

53%

15%

20%

54%

15%

31%

We handle all of our trading in-house We outsource some of our trading to anexternal partner

We outsource all of our trading to anexternal partner

Not applicable



More than a quarter plan to outsource more trading activity …Do you have any plans to change your approach to trading?

n = 102

Not applicable We do not anticipate any

changes in the amount of

trading activity we outsource

We plan to

outsource less

trading activity

We plan to

outsource more

trading activity

25% 33%

15% 27%


21%

41%14%

25%

We outsource all of our trading to an external partner

We outsource some of our trading to an external partner

We handle all of our trading in-house

Not applicable

… especially those that already outsource some of itWhich statement best describes how your institution handles trading? / Do you have any plans to change your

approach to trading?

n = 102

5%

90%

5%

More outsourcing

No change

Less outsourcing

55%

17%

29%

More outsourcing

No change

Less outsourcing

29%

57%

14%

More outsourcing

No change

Less outsourcing


62%Distributed ledger technology/blockchain

50%Artificial intelligence/machine learning

31%Robotic process automation (RPA)

24%Natural language processing

Blockchain and AI take priority in trading technology upgrades …Which technologies will your firm integrate into your trading process over the next year?

n = 102


… and are considered likely to improve future financing solutions …To what extent do you agree with the following statements regarding your financing needs?

n = 102

65% 59% 50% 44%

Distributed ledger

technology will improve

financing solutions in the

future

Artificial intelligence will

improve financing

solutions in the future

My firm is investigating

cleared repo, securities

lending and new trading

solutions to improve

access to financing and/or

enable better investment

outcomes

My firm is prepared for

upcoming new collateral

requirements under the

Uncleared Margin Rules


… especially among the largest institutionsTo what extent do you agree with the following statements regarding your financing needs?

62%

85%

85%

92%

56%

46%

64%

61%

33%

23%

37%

60%

My firm is investigating cleared repo, securities lending and newtrading solutions to improve access to financing and/or enable

better investment outcomes

My firm is prepared for upcoming new collateral requirements underthe uncleared marging rules

Artificial intelligence will improve financing solutions in the future

Distributed ledger technology will improve financing solutions inthe future




Social media or web scraping seen as the most useful alternative dataOf the following alternative data sets, which do you think is most likely to give your organization a

competitive edge?

n = 102

Social media/web scraping

Credit/debit transaction data

ESG metrics

Geo-location/satellite data

Supply chain/transportation/logistics data

We don't find alternative data useful

30%

22%

20%

16%

10%

2%


6%We don’t have

any allocation and

we have no plans

to invest

45%Our allocation

will stay the

same

38%We will increase

our allocation

11%We will

decrease our

allocation

94 percent already hold digital assets or related products…How will your allocation to digital assets, crypto-funds, or related products (e.g., bitcoin futures) change

in 2020?

n = 102



… and more than two-thirds of the largest firms plan to boost allocationsHow will your allocation to digital assets, crypto-funds, or related products (e.g., bitcoin futures) change

in 2020?

33%

37%

20%

10%

34%

53%

8%5%

69%

31%

We will increase our allocation Our allocation will stay the same We will decrease our allocation We don't have any allocation and we haveno plans to invest



Many expect tokenization to improve risk management, efficiency and moreWhat are the primary benefits of tokenizing traditional financial assets?

n = 102

I don’t see any

benefits from

tokenization

Tokenization

increases

liquidity

Tokenization will

democratize

investing for

retail investors

Tokenization

improves

transparency

Tokenization

increases

efficiency

Tokenization

will enhance

security

Tokenization

improves risk

management

4%

54%

55%55%

62%

36% 36%


Several types of firms may carve up the digital-asset custody market …Which type of company do you expect will dominate custody of digital assets in the future?

n = 102

FinTechs/digital-first

startups

Broker/dealers

Asset exchanges

Asset owners

(self-custody)

Established,

traditional custody

providers

Asset managers

25%

24%

21%

5%

12%

13%



… but large institutions predict FinTechs will claim the biggest shareWhich type of company do you expect will dominate custody of digital assets in the future?

13%

50%

17%

27%

13%

7%

24%

17%

25%

12%

5%

62%

8%

23%

8%

Fintechs/digital-first startups Broker/dealers Asset exchanges Asset managers Established, traditionalcustody providers

Asset owners (self-custody)



Institutional investors have mixed opinions about digital assetsTo what extent do you agree with the following statements?

n = 102

Tokenized assets have

great potential, but their

inherent risks are too

great for widespread

institutional adoption

Institutions and

regulators will become

more comfortable with

tokenized traditional

assets (and other forms

of tokens) in the

year ahead

A bitcoin ETF (or other

cryptocurrency ETF) will

receive regulatory

approval and launch

in 2020

Lack of regulatory

clarity/guidance around

digital assets is the

greatest barrier to

implementation/adoption

The tokenization of

traditional assets will be

a massive disruption to

the market within the

next five years

55% 54% 45% 45% 45%


Survey demographics


Investment management Investment operations

and/or technology

Executive management with oversight

of multiple functions

29%

34% 37%

Survey demographicsWhat is your functional role?

n = 102


Survey demographicsIn what country are you based?

n = 102

Canada

10%

United States

85%

Mexico

5%


Asset manager

17%

Insurance company

17%

Hedge fund

15%

Pension/retirement fund

13%

Private equity manager

12%

Sovereign wealth fund or

central bank

10%

Endowment, charity or

foundation

11%

Real assets manager

7%

Survey demographicsWhat type of financial institution do you work for?

n = 102


n = 102

Survey demographicsWhat are your institution’s total assets under management today?

4%

11%

15%

58%

13%

$1B to $9.99B $10B to $49.99B $50B to $99.99B $100B to $499.99B $500B or more

Mean AUM = $252B


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DPDI NA 2019-11

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