State Street at RBC Conference: Strategic Growth and Challenges

On Wednesday, 05 March 2025, State Street Corporation (NYSE: STT) presented at the RBC Capital Markets Global Financial Institutions Conference 2025. The company highlighted its strategic initiatives and financial performance, noting both achievements and challenges. State Street’s focus on expanding its ETF offerings and strategic partnerships was underscored, while attention was drawn to the competitive pricing environment and operational leverage goals.

Key Takeaways

• State Street aims to be a leading provider of innovative investment solutions, focusing on ETFs and global markets.
• SSGA’s organic growth rate reached 3.5% in 2024, with fee revenues expected to rise by 3% to 5% in 2025.
• Strategic partnerships with firms like Apollo and Bridgewater are expanding capabilities in private credit and liquid alternatives.
• A record JPY 50 billion in net flows was achieved in the Spider low-cost portfolio.
• The company anticipates positive fee and total operating leverage in 2025, despite a sequential revenue decline from Q4 to Q1.

Financial Results

• Revenue Growth:

- SSGA revenues have significantly increased over the past two years, contributing more to State Street’s overall revenues.

- The company reported a 3.5% organic growth rate in 2024.

• Fee Operating Leverage:

- Achieved approximately 500 basis points of fee operating leverage year-over-year.

• ETF Revenue Allocation:

- Allocated 1% of ETF revenues to selectively reduce client fees, resulting in substantial net flows into the Spider portfolio.

• 2025 Guidance:

- Fee revenues projected to rise by 3% to 5%, with expenses expected to grow by 2% to 3%.

- Preferred dividend costs are expected to adjust in Q2 and stabilize thereafter.

Operational Updates

• ETF Focus:

- 75% of new assets are directed into ETFs, emphasizing competitive pricing strategies.

• Geographic Expansion:

- Growth in non-U.S. client assets, including a new office in Riyadh, contributing to a 10-point increase in non-U.S. asset composition.

• Partnerships and Products:

- Collaborations with Apollo, Bridgewater, and Galaxy enhance offerings in private credit, liquid alts, and digital assets.

- Over 90 new products launched in 2024, surpassing the previous three years combined.

Future Outlook

• Growth Areas:

- Focus on ETFs, wealth management channels, and fixed income, with expectations for mid to high single-digit organic growth.

• Diversification and Partnerships:

- Continued investment in fintech and strategic partnerships to broaden distribution and asset class diversification.

• Wealth Management:

- Leveraging institutional capabilities to expand services for wealth clients.

Q&A Highlights

• One State Street Approach:

- Emphasis on integrated client services for asset owners like sovereign wealth funds and insurance companies.

• Interest Rate Sensitivity:

- Greater sensitivity to non-U.S. rates, with an ideal environment of higher short-term rates and elevated deposit levels.

• Sustainability of AUM Growth:

- Confidence in growth through client coverage, new product launches, and key segment expansion.

Readers are encouraged to refer to the full transcript for more detailed insights into State Street’s strategic plans and financial performance.

Full transcript - RBC Capital Markets Global Financial Institutions Conference 2025:

Unidentified speaker, Moderator: Fireside chat with State Street Corporation. As most folks know, State Street has about $353,000,000,000 in total assets. The assets under custody for the company are close to $47,000,000,000,000 Assets under management are $4,700,000,000,000 dollars Its market cap and we’ve priced this before this week’s pricing action is approximately $28,600,000,000 With us today, we have Mark Keating, who’s the Interim CFO for State Street. He’s to my immediate right. Mark’s been with the company since 1990 and has held a number of different positions within State Street.

To his right is Yi Shin. She’s the President and CEO of State Street Global Advisors, and she joined State Street back at the end of twenty twenty two and has been very critical and important in reorganizing the State Street Global Advisors. Before we get started, I do want to just read a disclosure statement for State Street, which is their legal disclaimer, which says just to remind the audience that today’s discussion may contain some forward looking statements and that State Street’s actual results may differ materially from those statements due to a variety of important factors, including the risk factors in State Street’s Form 10 K and other SEC filings. State Street’s forward looking statements speak only as of today and may not be updated even if the views change. With that, Yiyi Sheng, take it away.

Yiyi Sheng, President and CEO, State Street Global Advisors: Thank you very much. We really appreciate your having us. Before I get into the presentation, maybe a little bit of background on me. I’m the CEO of State Street Global Advisors, and I joined the firm just over two years ago having come from New York Life Investments, where my team and I grew the business fourfold through a combination of strong organic growth and acquisitions outside The U. S.

And in alternatives. And I’m really excited to be here today to talk about SSGA, the tremendous growth and progress we’ve seen over the course of the last two years, really executing on our very clear strategy, which is to become the world’s leading partner and provider of innovative investment exposures and tailored solutions for our clients. So before I get into that, perhaps I can turn to Slide two, and I can give you a high level sense of SSGA in total. So today, we’re the fourth largest global asset manager in the world. We cater to a broad range of institutional as well as wealth intermediary clients.

Importantly, we’re the third largest index manager in the world. We’re growing very quickly with our SPYTER ETF business that’s ranked number three. And we also are gaining a lot of market share in The U. S. Defined contribution space where we’ve moved from number seven to number four over the last five years.

So not only do we deliver a capital light, high margin, fee based revenue stream for State Street, we also generate a lot of revenue synergies across the company. So for example, at SSGA, we’re an alpha client of State Street’s. We’re also one of the largest investment servicing clients of the firm. And then we partner pretty closely with the Markets division where we manage their cash collateral and we also contribute about 1,400,000,000,000 of our assets to their securities financing agency’s second lending activities. One of the first priorities I had coming in as CEO was to embark on a very focused growth agenda.

And my talented team has been really engaged with that and executing on that plan for the better half of the last two years. And as you can see on Slide three, we have some very tangible proof points of the early success we’re seeing in our executing our strategy. So whether it’s our revenues over the last two years, the revenue contribution SSGA is making to State Street’s overall revenues or our assets under management, they have grown meaningfully over the last two years. Now of course, the market has been supportive, but importantly, we’ve been investing in our business starting in 2023, and that has contributed a great deal to the very steep organic growth trajectory you see at the bottom right hand part of this slide where we closed out 2024 with an organic growth rate of 3.5%. It’s the second consecutive year that we’ve delivered north of 3%.

And this is at the same time on a year over year basis, we’ve generated about 500 basis points of fee operating leverage. So what’s enabling this? It’s really three key main drivers. The first is that we are being much more competitive in how we’re going about business and the way we’re pricing our index and our ETF range. And particularly with our ETFs, we have devoted in each of the last two years one percent of our ETF revenues to selectively, strategically reduce the fees that our clients and investors are paying, such that in 2024, we raised a near record I mean, a record of nearly JPY 50,000,000,000 in net flows into our Spider low cost portfolio range, which is really meant for buy and hold investors.

And it also means today that we have the absolute lowest cost ETF exposure to the S and P five hundred at two basis points. So the second key driver is that we’re moving with deliberate intent and much greater speed. You’ll see that we’ve ramped up our innovation engine. We launched more products in 2024 than we have in the last three years combined. We also brought together what we had were two groups that were really calling on clients.

We had a group that sold ETFs solely to wealth intermediaries and then we had another team, which really represented everything else we do to the institutional markets. Today, we have a single global client coverage team. And as you can imagine, the amount of cross selling synergies we see are immense. And then we’ve also been able to attract some really talented senior individuals into our organization such that today, more than half of my direct immediate leadership team is comprised of people that are either new to the firm or new to their roles. And then the third key driver is that we’re investing meaningfully into where we see growth in the marketplace and where we have significant size and the ability to take advantage of real tailwinds.

And coupled with that, we have been busy entering into strategic partnerships to help us deliver innovative products in the marketplace quicker or to extend our distribution reach on a much bigger way. So if you look at Slide four, you’ll see where we think there is growth and where we have an outsized opportunity to win. It’s with ETFs. It’s in markets outside The U. S.

It’s across wealth management channels and it’s in fixed income as an asset class where we’ve seen this move from active to passive that we’ve been witnessing in equities for a very long time. Each of these markets are large and growing quickly on the right hand side, but we too are large and growing quickly in large part because this is where we are focusing our investments and devoting our resources. And it’s not just at the asset level that you see this very strong growth. If you double click down to the next slide where we provide you a view into our net new assets over the last two years. Byproduct, lot of inflows going into ETFs, 75% of our flows.

This is really demonstrating that ETFs have quickly gotten adoption not only in The U. S. But around the world. By region, we’re really well positioned to take advantage of continued growth outside The U. S.

As you can see here, we still are dominated by The U. S, but the amount of assets that we’re gathering from non U. S. Clients is actually 10 points higher than the composition of our assets today. And we’re really well positioned because we have 28 offices around the world.

We manage money in 11 of those, including our most recent addition in Riyadh last year. By distribution channel, very well balanced. Wealth represents a majority. But again, this is significant because our institutional to wealth breakdown of our assets is closer to seventythirty. So you can see the benefit of our focusing on this high growth segment.

And then by asset class, we’re pretty well diversified and you might say fixed income looks relatively small. But at the same time, if you look under the coverage, you’ll see that our index fixed income book is really growing rapidly. It reflects the fact that we are the second largest fixed income index manager in The U. S. And importantly, I talked about our organic growth across the business being 3% plus over the last two years.

Each of these segments that we’re focused on, whether it’s non U. S. Markets or fixed income, they’ve delivered mid single digits organic growth. Wealth and in ETFs, it’s high single digits. So very exciting, I think, from an organic growth perspective, but we’re also leaning in on partnerships.

If you look at this next Slide six, if there is one key aspect I would love for you to take away today is just how attractive we are as a partner. We actively try not to compete with our clients. We’re not looking to get into the wealth management space. And while we’re really big and we have the benefits of size and scale, we don’t do everything. So by way of example, our active strategies only represent 6% of our overall revenues.

What this does is allow us to partner with other best in class asset managers, whether it’s Apollo for private credit or Bridgewater for liquid alts or Galaxy for the digital asset ecosystem. We bring tremendous expertise in ETFs and we’re able to launch really interesting innovative exposures for clients. And this is all the while we’re being supported by the number one ETF servicing platform in the world at State Street. We’re also investing in maturing fintech firms where their business model is very much aligned and augments ours. I mentioned our growing market share and defined contribution.

It’s probably no surprise and we issued a press release today talking about additional clients coming into our income wise guaranteed retirement income target date fund solution. And there, Mike Crutti plays a real important role. This is a firm that makes it really easy for participants to decide how much to allocate to in plan annuities. Now we also invest in wealth management firms, very substantial ones as well as what we consider next generation wealth platforms. It allows us to extend our reach to new investors, a broader set of investors.

At the same time, it gives us a meaningful presence with our products and our model portfolios on those platforms. So PensionBee is a U. K. Based firm for individuals that may have changed jobs a couple of times either in The U. K.

Have stranded assets, pension assets or in The U. S. Same thing, four zero one assets makes it easy to combine those into portfolios that are comprised of our ETFs. And VESNET, I think many of you know, went private at the end of last year. We’re one of four asset management investors on that platform, also one of four preferred providers on this largest turnkey asset management platform focused on wealth advisors and independent broker dealers.

In Australia, Ray’s really targets any size investor and makes it easy for them to get access to investment products like ours. And then interesting, this last one, Fedoram is a wealth manager. And what we’re finding through our size and scale is another use case where we can deliver ETFs as a service. And so they wanted to launch their own branded ETFs. We enabled them to do that incredibly fast by sub advising those ETFs and then lending the expertise in the capital markets provision that we do for ourselves.

We think all of these help us accelerate our growth initiatives, and you should see more of this from us in the future. So in conclusion on Slide seven, what you have in SSGA is a world class powerful global asset management franchise that is deliberately aligned to the growing segments of our industry, whether that’s index, ETFs, fixed income, even money markets today, outside The U. S. And in wealth. We’re really well positioned to deliver a wide range of investment exposures and tailored solutions to our clients.

Number two, we’re really delivering results and it’s the clear execution of our strategy to be the leading partner and provider of innovative exposures and tailored solutions. And we’re doing that in a way that is contributing multiple economic streams to State Street. And then lastly, everything that we’re doing today is about growth, Whether it is competing more aggressively, innovating, leaning into growth segments of the market, partnering with other firms, we’re very focused on delivering for some of the largest institutions around the world that we’re fortunate enough to consider our clients. At the same time, we are building on our legacy established more than thirty years ago of democratizing investing and access to everyday investors. So with that concludes sort of my formal remarks about SSGA, but Mark and I are more than happy to take any questions you might have.

Unidentified speaker, Moderator: Great. Well done. Thank you very much. Maybe, Yixin, to start with you, a broad question. When you think about the actions that you’ve taken since you’ve joined State Street in 2022, your presentation hinted at the one State Street approach.

Can you talk a little more about what you’re doing at SSGA to deliver the synergies or interconnectedness with other State Street areas?

Yiyi Sheng, President and CEO, State Street Global Advisors: Sure. That’s a great question. So I talked about in my presentation the benefits of SSGA being inside of State Street. What I didn’t really talk about was the client opportunity. And so many of the clients that we consider ours are in the asset owner arena, whether that’s sovereign wealth funds or pension plans or insurance companies.

This is the very same segment that Investment Services and the Global Markets division caters to. And I would say historically, we each focus on what we deliver to those clients and what has really changed and it reflects some of the changes in new leaders and different positions is that we’re starting to really think about this value proposition and from the perspective of our clients. We have a wide range of things that we offer. And so thinking about that in a bundled way, understanding what’s really important to them, how can we shape that sort of complete offering. And we’re early days, but I would say we’re all incredibly excited and enthused about what the opportunity is as we move forward with that.

Unidentified speaker, Moderator: And and is it hard and not that there were silos, but is it hard to incentivize people to do this coordinate or how challenging is it to get that coordination up and running?

Yiyi Sheng, President and CEO, State Street Global Advisors: Well, I think so much of it as I alluded to is really sort of the tone of the top. Yes. Right? It starts there. And at the end of the day, you know, we do have some level of education that we have to provide so that everybody across the organization is just as fast talking about what they do as well as other parts of the firm and really being smart about what kinds of questions to be asking clients so they understand what is the next opportunity.

I think incentivization is part of it, but as you know, it’s not all of it, right? It’s really this sort of commitment to doing this. And then as we see good results, which we are, I think that just begets more.

Unidentified speaker, Moderator: Yes, absolutely. Maybe another follow-up question to your comments. You talked about the partnerships and Ron has talked about these as well. And so when you look at it within the wealth space, what are some of the opportunities again for SSGA and State Street in the wealth specific space?

Yiyi Sheng, President and CEO, State Street Global Advisors: I think it makes a lot of sense for State Street really to increasingly focus their wealth services effort in that segment because as we all know, it’s growing rapidly. It’s In The U. S. Alone, I think it’s about $35,000,000,000,000 So it’s the largest customer segment in the world. And there’s so much that we do in the institutional side of the business, whether it’s servicing, reporting, custody, you name it, the whole chain.

I think so much of that can be leveraged. And within CRD today, they have a very decent sized book that’s focused on delivering CRD for wealth. And then you heard me talk about where a good 30% of our assets we manage for wealth advisors, RIAs, broker dealers around the world. And so we have tremendous relationships with all of those, you know, and potential clients. And so it’s a effort that is really exciting for everybody across State Street because there’s a role for all of us to play in bringing all the pieces that we have just together to focus on this segment.

Unidentified speaker, Moderator: Very good. Mark, a broader question on State Street overall. What are your thoughts on the current operating environment? I know it’s only a couple of months into the quarter, but compared to the macro assumptions you guys laid out for us on the earnings call in January.

Mark Keating, Interim CFO, State Street Corporation: Yes. Thanks, Gerard. I mean, it’s certainly been a dynamic and interesting start to the year, first couple of months and then obviously even the last few days. So but on balance and appreciating there’s significant variability in some of this, I’d say as we close the books on February, which I have to just remind ourselves, it was only on Friday that we actually closed the month of February. Our overall macro assumptions underlying our outlook were broadly in line.

Okay? So I mean, again, there’s some pluses and minuses and some puts and takes there, which I can go through. So if we recall, we went into the year expecting global equity markets to be up about five percent point to point, which implies about 8% on average on the full year. And when we closed the books on Friday, that was the general zip code that we were operating in. Now from a puts and takes point of view, The U.

S. Markets actually had performed worse than what we had expected going into the year and the non U. S. Markets were actually been performing stronger than what we expected. But on a net net basis, it’s been pretty neutral to our base case.

And of course, we’re all seeing a considerable amount of volatility driven by geopolitical headlines over the last few days, shifting economic data and sentiment. So we’ll have to continue to monitor markets and see how the averages develop from here as we go forward. Turning to interest rates, it’s much the same story. The outlook for policy rates continues to move around as well. But again, broadly in line at the February to what we expected.

The only caveat there would be the Bank of England actually accelerated its rate cutting. And as we talked about back in January, that in of itself is a slight headwind to us for 2025. We had expected using the forward curves at the end of the year to see roughly two rate cuts at the Fed, five at the ECB and three at the Bank of England. I mentioned the acceleration at the Bank of England. The shape of the curve is roughly the same.

There’s some variability at the Fed and the ECB, but none of that really changes the outlook as we see it overall. We’ve also seen notably lower long end rates. I think on a quarter to date basis, it’s down roughly 30 to 40 basis points. So we’re cognizant that the rate environment is going to continue to move and forward curves are going to move around as we get through the year. But stepping back from all of that, the operating environment continues to evolve, but I’d say that the first two months of the year are broadly in line with what we expected.

We’ll have to see how the rest of March plays out. And as we go through the year, we’ll continue to evolve, assess our overall macro assumptions and adjust as necessary.

Unidentified speaker, Moderator: Yes. Following up on this operating environment, the larger banks that have investment banking and markets trading activity would tell you volatility is good for markets for the trading, not so good for investment banking and it’s kind of been slow. In your world of custody and asset management, does volatility help or hurt when you guys think back of the years of running State Street?

Mark Keating, Interim CFO, State Street Corporation: I mean, there is a, what I would call a bit of a natural hedge in our business. Obviously, if markets go down, it’s not great for our asset servicing business. It’s not great for our asset management business. But our, as you alluded to, our FX trading business, our securities finance business can do, again depending on the circumstances, can do quite well. And in previous times of stress and strain, we have definitely seen that.

Unidentified speaker, Moderator: Okay, good. With that as a backdrop in the operating environment, Mark, any updates to the 2025 guidance and thoughts about the first quarter?

Mark Keating, Interim CFO, State Street Corporation: Yes. Thanks again, Gerard. Yes, well, listen, while it’s still early, based on what we’ve seen over the first two months of the year, we feel good about the outlook we provided back in January. I’d remind you, as we provided that, that was on a excluding notable items basis. Right.

So we’re continuing to target both positive fee operating leverage for the year and positive total operating leverage for the year. I would remind people as I did back in January that to provide positive total operating leverage is going to require that NII does not become a material headwind for us this year. So that is dependent upon global monetary policy, on deposit levels and mix, which as we’ve talked about before can be difficult to predict. Sure. Just as a reminder, we expect for 2025 fee revenues to be up roughly 3% to 5%.

We expect NII to be roughly flat year over year in a range of plus or minus low single digits. We remain committed to good expense discipline and we’re targeting contained expense growth rate of roughly 2% to 3% for the year. So while we’re continuing to monitor the economic environment or the macro environment I mentioned before, our 2025 outlook is intact. And just in turning maybe to Q1, and give you a little bit of color on that. Again, on an ex notables basis, although we still have one month to go, we do have a sense for how the quarter is beginning to shape up.

And I would say that overall, we expect total revenues to be up nicely versus the quarter a year ago. We expect to deliver positive fee operating leverage and positive total operating leverage. I would remind you given our strong Q4 where we did have some seasonal NII, higher NII due to seasonal deposit balances and also some fee revenue elevation in areas like software, which can be lumpy. We do expect right now to see a sequential decline in total revenue from Q4 to Q1, but that was all accounted for in our full year guide. Right.

I’d also remind folks that Q1, we always see a seasonal usual compensation number hit. Our Q1 number is also all included and accounted for in our full year guide. I would then maybe make one comment on kind of a housekeeping cleanup, which is folks would note that we issued some a modest amount of prefs in Q1. And while there’s no incremental cost in Q1, we do expect that our pref dividend cost will step up in Q2 to roughly $63,000,000 and then should moderate back down to roughly $58,000,000 on a quarterly basis run rate kind of after that. So again, to summarize, while it’s early in the year, we have a month to go in the first quarter.

But based on what we’ve seen in the first two months of the year, our full year outlook is unchanged.

Unidentified speaker, Moderator: Coming back to the net interest income, can you remind us of two things? One, which yield curve or what’s more important, the U. S. Federal Reserve monetary policy versus the Bank of England or Europe when it comes to your business? And then second, if you had your druthers, what’s the ideal interest rate environment to drive that NIN interest income higher?

Mark Keating, Interim CFO, State Street Corporation: Yes. So I would say we’re more sensitive to non U. S. Rates than we go to U. S.

Rates to kind of answer that. And then yes, the ideal scenario for us is a longer higher long end rates,

Unidentified speaker, Moderator: lower

Mark Keating, Interim CFO, State Street Corporation: I mean, sorry, higher for longer short term rates, elevated deposit levels, especially non interest bearing deposits as we’ve talked about in the past and then really being able to leverage our balance sheet to help our clients grow. That’s the ideal environment.

Unidentified speaker, Moderator: Great. Yuxing, coming back to SSGA, you mentioned about the organic growth that you folks have seen for the last couple of years about little of 3%, well above the 2% kind of guidance that we heard back in 2024. What gives you confidence that you’re going to be able to sustain that kind of growth in AUM going forward?

Yiyi Sheng, President and CEO, State Street Global Advisors: Yes. I think it’s really it comes down to some of the things that I talked about, having brought our client coverage teams together, the number of new products that we launched, which was well in excess of 90 last year. And the growth in the segments that I really spoke to, we see ETFs and these digital platforms continuing to grow, this ETFs as a service. Now all of this is, of course, as Mark just talked about, if the markets remain reasonably constructive. That said, I think one of the most important things we can do in our business is really continue to diversify it, right, because different asset classes will perform differently in different environments and being mindful of that.

And so some of our growth areas actually are diversifiers also for us, whether it’s fixed income or non U. S. Markets. Those really make a difference, wealth versus institutional. And what we’re seeing so far this year is, obviously, I think there’s a sense of uncertainty clearly in the market.

And a lot of movement, gold has performed particularly well, so we’re seeing flows go into that asset class, into the short end of the treasury market, into our money market areas. And fixed income still seems to have some interest. And I think the view is for us, as long as we’ve got the full suite of capabilities in regards to the economic environment, there’s reason to be engaging with SSGA.

Unidentified speaker, Moderator: You mentioned 90 new products last year, did you say? How long does it take for them to for you guys to figure out that, wow, we’ve got some real winners and it’s kind of under does it take a couple of years? And then how important of having new products every year to contribute to this growth?

Yiyi Sheng, President and CEO, State Street Global Advisors: It really depends on the underlying strategy. So if we’re talking about an active strategy, you’re going to need to have a longer time horizon so that investors feel comfortable about that track record. So that could be as long as three years’ time. Now there’s clearly investors out there that are willing to buy newer products before that track record. But at the same time, it’s very important, I think, in terms of developing sort of first mover advantage.

Newer ideas, they get they tend to get the lion’s share. And I think it really does vary in terms of what is considered like the right time frame to consider success. But in general, if an ETF can get north of $1,000,000,000 we would say that’s pretty successful.

Unidentified speaker, Moderator: Yes. And is there any geographies that you target with newer products versus established markets like The United States?

Yiyi Sheng, President and CEO, State Street Global Advisors: We are looking across the board. I mean, there are clearly some strategies that have demand around the world. And so we’ll have to think about what are the right wrappers for The U. S. Market versus the non U.

S. Market. But we’re also complementing that with what do we see investors interested in in our different regions that we do business. And so that also drives the agenda.

Unidentified speaker, Moderator: Well, we’ve hit the red zone, which means we’re out of time. So I want to thank both of you for joining us. It’s been very insightful. And please join me in a round of applause thanking the people from the stage.

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