State Street says it expects the new common contractual fund (CCF) it has launched with funding from Deutsche Asset Management to grow to £500m(E736m) in around six months.
Willie Slattery, managing director of State Street International Ireland, says that the CCF has now been approved by the Irish Financial Services Regulatory Authority. It is to be funded by the Deutsche Asset Management clients and there will be initially £128m in it from in excess of 50 clients initially.
“The expectation is that it will move to a figure of £500m in reasonably short order, over the subsequent six months. The clients are small- or medium-sized institutions. These are already clients who are invested in the US equity market.” He declined to say which other clients are interested.
“Because it’s pension-fund related, not only will it set precedents for asset managers investing their pension fund clients efficiently, but it also is the first proof of the pudding of the CCF working for the pension fund market.
“And I think we’re probably in terms of having a live vehicle three to six months ahead of the competition.
“It’s a new structure. Because of this structure we are able to pay the dividends gross and we need to put in place the operating platform to support that. It’s not just a question of pulling a switch. You have to have quite complex record keeping and reporting obligations. It is in the evolution of our service as a custodian to Deutsche.
“We obviously will be talking to our existing clients and to prospective clients. Because we believe we have been innovative in the market place and been the leader in pushing this product and making available to our client base.”
The Deutsche Global Spectrum Common Contractual Fund would be the first pooled fund to use tax breaks to enable pooled funds to buy US equities without incurring US withholding tax.
It said there is a lot of demand from advisers to cut the cost for small- and-medium sized UK pension funds that want US equities but have been penalised by withholding tax.
“Until now many small and me-dium-sized institutional invest-ors who have wanted to take advantage of the liquidity and growth opportunities in the US market have suffered withholding tax charges,” said DeAM’s UK chief executive Paul Berriman.