Private credit might be less attractive than it was last year as investors rush into the market, but there are sweet spots to be found.
HSBCÆs Asia Pacific CEO, Blair Pickerell, says that while the fund is still awaiting approval from the China Securities Regulatory Commission and other regulators, he expects it to be launched by the end of March. "Operationally, itÆs ready to go," he says.
Until regulatory approval is secured, Pickerell says he is unwilling to provide additional details about the fund, but admits he thinks it will be "innovative, and something a little bit different. There are 52 fund managers in China now, each launching about two new funds a year û meaning we have a situation where lots of fund managers are begging just a few distributors to sell their funds. What that means is that investor education isn't happening the way it should û and that's where we can become the true friend of the consumer by giving them the relevant products to suit their specific needs."
Plans for the new fund launch, the first of two expected this year, come less than a week after HSBC Jintrust finally tied up arrangements for the joint venture, with the company officially being launched in Shanghai on Monday.
The tie-up enables both HSBC and BoComm to approach the Chinese funds industry with a new start.
HSBC Investments was caught by surprise when HSBC Bank paid $2.75 billion for a 20% in BoComm, the only private lender with a big national branch network. The hitch: HSBC Investments had recently forged a funds JV with a provincial investment trust company based in remote Shanxi. For better or worse, HSBC Investments missed the boat when the government then decided to allow commercial banks to own stakes in fund businesses.
The second half of 2005 saw the market dominated by massive fund launches by BoComm, ICBC and China Construction Bank. But when BoComm formed a mutual funds JV, it was with Schroder Investment Management, not HSBC. (ICBC partnered with Credit Suisse Asset Management and CCB with Principal.)
The BoComm/Schroders fund was the first out the door for the banking trio, and promptly raised Rmb4.9 billion ($610 million), at a time when the A-share market was sinking to historic lows and other fund houses' IPOs were launching with 10% of that asset size. All three banks were under huge pressure from regulators to succeed and resorted to all sorts of questionable practices to drum up sales.
Although ICBC and CCB followed with other blockbuster deals, the BoComm/Schroders fund suffered steep redemptions almost from day one, and within three months saw half the assets flee û a huge embarrassment for both the bank and for Schroders; its JV is said to be working on a money market fund to launch this spring.
HSBC Jintrust may turn out to have a luckier debut, however: its IPO will take place two or three months into a nascent bull run in A shares, as opposed to the bottom of a spiraling bear market.
BoComm does not have the heft of an ICBC or a CCB, which have tens of thousands of branches û but Pickerell is confident that BoComm's 3,000-strong branch network will give HSBC Jintrust a powerful channel.
Pickerell says HSBC does not expect to make a quick profit out of its mainland venture: "I simply don't know when, it's a tough industry and a lot of investor education is needed. But I can't see it being profitable for the foreseeable future," he says.
"There are a number of firms who are making money, but you'll tend to find these were the ones who got in early and launched closed-end funds. We're not doing the same thing, and as [former HSBC Group chairman] Sir John Bond has said, this is a long-term game and in that timescale we have big plans for China."
Shanghai-based HSBC Jintrust is 51% owned by Jintrust, with HSBCI holding the balance. It has a capitalisation of RMB200 million, and currently boasts a 60-strong workforce, including chief executive Steve Lee and chairman Yang Xiaoyong.
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