Banking on Asia: Fund distributor with HSBC
HSBC Global Asset Management head of internationals Mark Newsam explains why he identifies Asia as potentially the strongest future growth opportunity for the group’s offshore business.
How big is HSBC Global Asset Management within the inter-national space?
HSBC Global Asset Management is the investment management business of the HSBC Group, which has an international network of offices in some 30 countries and manages almost $450bn of client assets.
As part of this, our offshore life company business outside the UK – in Asia, the Middle East and continental Europe – is around £1.17bn assets under distribution. We distribute our funds through international life companies and platforms that, in turn, sell to their predominantly expat financial advisers and brokers.
How is your relationship with UK international life companies and platform clients evolving?
Since I started looking after client relationships again late last year, more of our attention has been directed towards Asia.
“It is in Asia where we see the strongest potential future growth for our offshore business.”
It is in Asia where we see the strongest potential future growth for our offshore business.
Though the region is likely to see diminished economic growth this year, overall GDP growth is forecasted to be 5.5% in 2015, according to the IMF. This rate is well above forecasted growth in the US and EU.
While we continue to pursue opportunities in the Middle East and continental Europe, a key focus is in Asia, in particular our clients in Hong Kong and Singapore.
How do you select which types of clients to do business with?
The majority of our time is spent serving our existing clients. The nature of our business means we only take on clients who already have relationships with other parts of the HSBC Group, such as our global banking and markets and commercial banking businesses. Working in this way allows us to maintain high standards of client due diligence, since we know our new clients already have a good track record with HSBC.
Much of our business comes from large international life companies that have a sizable client base in the regions where we focus our attention.
Examples would include Zurich International, Old Mutual International, Generali International, Friends Provident International and SEB International, to name a few.
How would you categorise the scale of importance of the different regions to your business model?
Given our background and the potential for further growth, Asia remains the main focus for our offshore life business, followed by the Middle East and then Europe.
In which European markets are you currently seeing the most growth?
Our offshore business comes from countries where we find large numbers of British expats, such as France, Spain, Switzerland and Italy.
How are regulatory changes in the Middle East affecting the way you do business there?
One significant change concerns the United Arab Emirates, where the Securities and Commodities Authority (SCA) has issued new rules on how investment funds should be structured, marketed and sold. Providers need to ensure their funds comply with the new regime.
We view the ongoing changes as positive for the market as a whole. The wealth management and mut-ual fund industry in the UAE is a high-growth area and its success can only be sustained if it operates within a robust regulatory framework and oversight.
The SCA is now working hard to build such an environment.
What challenges do you face in doing business in Asia?
Hong Kong is also seeing a number of important reforms that will affect fund providers.
For example, regulators in Hong Kong and mainland China are undertaking a mutual recognition of funds programme, which would allow retail funds from Hong Kong and mainland China to be sold to investors in both jurisdictions.
The Hong Kong authorities are also considering a new legal, regulatory and tax framework for Hong Kong-domiciled open-ended fund companies.
Some of the recent changes in regulation meant a slowdown in fund flows as a number of providers had to withdraw some products. We are in a more fortunate position compared with some of our competitors. HSBC’s well established presence in Asia and its knowledge and expertise of the region are greatly valued by its clients.
Name a key operational issue you dealt with recently?
One operational question, which is a point of principle, revolves around maintaining high standards of governance in the way we sell our funds. It is the use of soft commission for offshore brokers, which we do not pay.
Many offshore brokers look at the fund group to pay them commission for selling their funds. This is in addition to any rebate the fund management company passes to a platform or life company.
We believe that paying soft commission is not aligned with our core principle of putting the client first, as it does not provide them with better overall value.
Our stance on soft commission means some advisers prefer to go to fund providers that pay it. However, many financial regulators agree with us that, in time, the markets will change the way they operate.
How are you generating new marketing opportunities?
We are focusing on a number of key life companies in the way we market our products. This is the case in Asia, too, where HSBC Global Asset Management is strengthening its support for expat clients in Asia. For example, this year we are taking part in two major investor forums, in Hong Kong and Singapore. We will have speakers and stands at both events.
We are also supporting the International Adviser Fund Links Forum, which is taking place on 17 September in London. It is a great flagship event for the international life company industry and we are looking forward to catching up with many of our existing and prospective clients.
From a product perspective, we maintain our focus on our core HSBC Global Investment Funds emerging market equities and debt that have attracted strong inflows already.
We are also building on good inflows into our SICAV World Selection risk-weighted multi-asset portfolios, which are now available externally.
In terms of new developments, Asian fixed income is an area where we will provide our clients with a good solid offering. In addition, we are looking to offer a range of new low volatility products.
Which funds are proving most popular and what is your prediction for next year?
Some of the more popular funds within our range for offshore clients include the HSBC GIF Chinese and Indian equity funds, which provide single country exposure to the two biggest emerging markets in the region.
We have also seen a shift towards our offshore SICAV World Selection portfolios, a multi-asset strategy consisting of five risk-weighted funds.
Through the HSBC World Selection, our clients can gain access to equity and bond markets, as well as alternative markets when our asset allocation views allow, with the additional benefits of both strategic and tactical asset allocation.
The funds invest in a mix of different asset classes aiming to provide improved risk-adjusted long-term returns, when compared with a single asset class investment.
The shift towards the HSBC World Selection portfolios has been evident particularly among our European and Middle Eastern clients.
Demand for our emerging market debt (EMD) strategies also remains high, with attractive EMD valuations as the outlook for emerging market economies generally improves.
One of our most popular strategies here is the Global Emerging Market Total Return Debt Fund, which is the purest expression of the investment team’s views across the full range of available EMD asset classes.
The fund invests in both hard currency emerging market debt – both government and corporate – and local currency emerging market debt. It aims to deliver the average performance of the key hard and local currency EMD benchmarks, but with only 50-75% of their volatility.
We believe these trends will continue, perhaps complemented by niche thematic plays. Looking further ahead to any possible challenges, increases in market volatility may lead investors to focus more on income and low-volatility strategies.
How are international fund flows likely to go during the rest of 2015?
We expect fund flows will increase as emerging markets regain strength relative to their developed peers.
Even now, emerging market growth is relatively strong despite the recent slowdown. I believe that, in this environment, advisers will remain interested in emerging market strategies as a core satellite approach.
Biography
Mark Newsam first joined HSBC in 1994, running the institutional marketing services team before moving to the retail side of the business as an IFA broker consultant. He left HSBC after six years, qualifying as a financial adviser with Lloyds Bank, running a sales support team at DWS Investments and working for an IFA. He rejoined HSBC in 2009.
