HSBC Global Asset Management sees benefit of universal model

Since the global financial crisis, many fund managers tried to distance themselves from parent banks requiring public support and widely regarded as causing the crunch.

Rudolf Apenbrink, chief ­executive officer for Europe, Middle East and Africa, at $444bn manager HSBC Global Asset Management (GAM), is in a somewhat uncommon position.

He says: “It is always important [the asset management industry] shows we add value.”

But, the London-headquartered banking group that ultimately employs him needed no state aid during the crisis, and so HSBC ­Holdings’ reputation is arguably not tarnished.

“HSBC had a relatively ‘good crisis’, and people are looking to invest now with a strong partner. From a global and European point of view, we think that is a big advantage for us.”

HSBC’s heritage, the Hong Kong and Shanghai Banking Corporation, suggests another advantage – a presence in more than 80 countries, including 35 for fund management. HSBC GAM employs 2,100 ­worldwide.

“We believe strongly in the long-term outperformance of emerging markets (EMs),” he says.

Global Emerging Market debt funds are run from New York, while GEM equities from London. Both take input from teams based in EMs.

Apenbrink’s unit has global, regional and country-specific EM portfolios, in equities and debt (hard and local currency).

“Growth rates in EMs are typically three times those of developed markets, but especially in the retail world, many investors still do not fully appreciate what is happening there.”

Apenbrink cautions, though, EMs display 24.11%, ten-year annualised volatility to mid-2011, versus 16.67% for MSCI World Developed.

He attributes the higher volatility partly to thinner markets – “so it can be useful to invest bit by bit, adding gradually to your position.” He counsels an EM investment horizon beyond five years, maybe ten or 20.

The EM investor base is growing and, just as importantly, broadening, he adds. “In the institutional world now it is not that exotic to have GEM equity funds. Investors who started investing in hard currency EM bonds now are interested in getting exposure to local currencies.”

Some of the $139bn in Apenbrink’s EMs unit sits in its $20bn Luxembourg Global Investment Funds Sicav.

One recent EM fund focuses on local currency Asia bonds. It is also considering where, beyond the UK, to register three forthcoming HSBC World Index portfolios, graded by risk tolerance and offering multi-asset, often passive exposure to global equity and bond markets, and alternative investments ex-hedge funds.

Next generations

Another, launched in May this year, is its HSBC GIF CIVETS fund. It targets long-term growth in “next generation” EMs such as Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa among others.

Apenbrink notes his unit is also the sole foreign manager that India’s government chose to run some bond allocations of public pensions, and it runs the world’s largest offshore India equities fund. It also runs fixed income mandates in EMs.

“If you try to achieve a positive real yield EM debt strategies can be less risky than investing in other classes. Investing in German Bunds right now, for example, will make beating inflation difficult.

“I think government bonds were already expensive last year, so people invested more and more money into spread products.”

Apenbrink’s division built one bond-and-equity programme for a large German investor wanting EM exposure, “but volatility comparable to European equities”.
Allocators can expect to meet their target manager three or four times a year, plus teleconferences and product specialists.

HSBC Global Asset Management distributes funds in Europe to institutional and wholesale clients, and via third-party distribution such as banks and insurance companies.

Apenbrink notes some lingering lack of appetite for high-risk products among Europeans, given bad experiences in the past, and “having a second crisis within a short period of time is not helpful”.

As well as EM products, his unit offers balanced and pure mandates in bonds and European equities, and he notes strong demand from European clients for multi-asset products.

Apenbrink welcomes asset ­managers’ general move to greater transparency, and regulators’ ­encouragement, but says investment managers may still offer some advantages that structured products lack.

“With structured notes (typically from insurers), it can be difficult to judge about fees in them, and in the derivatives used.”

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