[LONDON] HSBC Holdings’ asset management (AM) arm is launching a private equity strategy targeting wealthy clients, the latest move by a major investment firm to boost its alternatives offerings for individuals.
The fund will give investors exposure to secondary and co-investments from a range of general partners, HSBC AM said on Wednesday (Sep 3). The minimum investment can be as little as US$25,000 and varies by jurisdiction. It’s aimed at investors in the UK, Europe, Asia, and the Middle East.
The vehicle has been funded with capital from HSBC’s insurance arm and invests in 10,000 underlying companies, with a total net asset value (NAV) of more than US$477 million. The firm seeks to raise about US$500 million from individual investors over the next 12 months, William Benjamin, HSBC AM’s head of alternative solutions, said.
The move broadens the private markets offerings of HSBC AM, which is already a major allocator to the asset class. The unit of Europe’s largest financial institution managed total assets of US$808 billion at the end of June.
Wealthy individuals only have a tiny fraction of their money in alternative assets, representing a vast growth opportunity. Wall Street giants, including Goldman Sachs, Morgan Stanley and BlackRock, have all launched PE strategies aimed at wealthy individuals over the past 12 months.
Selling to retail investors offers asset managers the potential to earn higher fees than they would from pension funds and insurers who have a larger negotiating power. This comes as institutional customers have hit the limit of how much they are allowed to invest in private assets. Others have baulked amid a sluggish market for asset sales and scarce cash distributions that they can reinvest.
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Alternative asset managers have started to see some success with Europe’s wealthy, driven by launches of so-called evergreen funds that allow clients to periodically withdraw or contribute new capital – breaking from traditional closed-end structures that typically lock up money for seven to 12 years.
HSBC AM is scrutinising buyout firms’ transaction teams and processes, no matter how often it’s worked with the general partner before, according to Benjamin. When it comes to valuing the investments, Benjamin said his team takes into account all NAVs from the underlying managers but then also calculates its own NAV.
“We look all the way through to the underlying companies and assess whether the manager’s NAV is still appropriate, because that data can often be lagged,” he said. “So we ask: do we need to make any market adjustments? Have there been significant changes in certain sectors?”
The analysis is done via independent valuation agents and then reviewed by HSBC AM’s valuation committee, which signs off on the final NAV.
“It’s not just about taking manager NAVs at face value,” Benjamin said. “It’s important that the valuation is as accurate and robust as it can be.” BLOOMBERG
