HSBC expanding hedge fund business to draw investment into Asia

[LONDON] HSBC Holdings is building its business of financing hedge funds and family offices, as Europe's largest lender looks to boost growth at its Asian wealth division.

The London-based bank sees the prime broking unit as a way to grow links between its Western clients and Asia as some competitors retreat from the capital-intensive operations, according to people familiar with the situation.

The expansion would focus on catering to Western clients that are increasingly looking for investment opportunities in the East, the people said, declining to be identified as the details are private.

HSBC's build out will involve hiring more prime broking staff as well as investing in technology to enable the bank to compete with more established rivals, one of the people said. It will also open an arranged financing service in New York within months, according to one person.

The unit will cater to US-based clients but with a focus on helping them access emerging market investments, in particular in Asia.

The bank's ambitions to become a bigger player in the wealth management industry is one of the main rationales for growing in prime broking, the people said.

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HSBC has identified managing an increased share of the swelling fortunes of Asia's wealthy as one of its strategic priorities. The enlarged prime broking operation will provide a better service to the bank's own wealth management arm, as well as serving wealthy clients with their own family offices.

A spokesman for HSBC declined to comment.

The move comes after Archegos Capital Management LP's collapse upended Wall Street's prime broking landscape. The family office's failure led to more than US$10 billion of losses for some of the biggest players in the prime finance business, most notably Credit Suisse Group and Nomura Holdings.

Prime broking units are generally housed in the equities divisions of large investment banks. They lend cash and securities to the funds and execute their trades, and the relationships can be vital for investment banks.

Last year, HSBC broke out its revenues from its securities financing division for the first time. In the nine months to the end of September, the bank reported adjusted revenues from the business of US$660 million, a 19 per cent year-on-year decline, which the company said was due to the "exceptionally strong" performance of the unit in 2020.

HSBC's plans cut against a broader streamlining of its global banking and markets arm, whose risk-weighted assets have been steadily reduced and shifted from the US to the UK and Hong Kong as part of an ongoing restructuring.

London, Hong Kong and New York act as the main hubs for HSBC's prime finance operation, and Paris to a lesser extent.

On its website, the bank said that its unit was supported by "one of the strongest balance sheets in the industry," leaving it well positioned "to provide stable funding through market cycles and regulatory changes."

The lender is due to report fourth-quarter results on Feb 22. The ongoing restructuring at Europe's largest lender is likely to dominate as the firm continues its pivot to Asia and wealth management. BLOOMBERG