HSBC's Asian private-equity team completes buyout

The management team of HSBC’s Asian private-equity arm has completed an amicable buyout of the business in a deal driven by regulatory uncertainty governing bank ownership of such entities.

Collectively, 17 former HSBC Private Equity (Asia) staff bought the business and started work yesterday under a new name – Headland Capital Partners – and in a building across town in Hong Kong’s central business district. An 18th person is understood to be joining the team early next year.

There are seven managing partners or senior partners in the new firm, with the rest working as partners. Together they own 80.1% of the business, while HSBC retains a 19.9% stake. Financial details of the transaction were not disclosed.

George Raffini, managing partner of Headland Capital Partners, says: “It is a uniquely flat and broad distribution of ownership across the team that is acquiring the business. But there is nonetheless differentiated economics across the team.”

He stresses that, as a pre-condition of the buyout, the firm’s existing investors were present in deal deliberations, adding: “We had tremendously high acceptances.”

The move by HSBC to detach its private-equity business in Asia is no surprise. The US Dodd-Frank financial overhaul bill was signed in July and includes the so-called Volcker Rule, which curtails proprietary trading, private equity and other investments that banks make with their own capital.

Raffini confirms that internal negotiations over a buyout had been going on for some time. “We had a very long runway, this regulatory uncertainty did not develop overnight,” he says. “At the same time, my colleagues and I had a very substantial desire to buy the business.

“Both we and HSBC thought the business being owned by the team would put it on a much stronger footing to achieve strong investment performance. We manage lots of third-party money through the funds we advise, and HSBC is a substantial investor in the funds. There was an alignment of interests.”

Headland is now advising two private equity and two venture capital funds with total committed capital of $2.4 billion. It typically operates over a four-year investment horizon and, having raised money during 2008 and 2009, further fundraising is anticipated in 2012/13.

Raffini reveals that Headland’s private equity funds focus primarily on China, Korea and Southeast Asia, while the venture capital funds focus on China, Taiwan and India.

In terms of sectors, consumer, industrial and goods and services are important to each fund, while the venture capital business is more growth orientated and invests in small-cap firms in tech-related and consumer growth sectors.

Within China, the funds have invested in a media-related advertising business, a consumer apparel company, a large supermarket chain and a forestry plantation type business. In Korea, the firm has more of an industrial orientation and focuses on the heavy engineering skills of domestic corporates.

Raffini confirms that 2008 was a bleak period for the private equity industry in general, but that HSBC’s Asian business bounced back strongly during 2009 and 2010.

“There has been substantial demand for growth capital in many markets, so it is encouraging that we are operating against a much stronger economic backdrop than you see in other regions,” he says.

“What has also helped performance [to bounce back] has been the IPO markets opening up again in Asia, particularly in Hong Kong, China and parts of Southeast Asia. That has been an important element in terms of the pick-up in performance.”