HSBC's wealth management business sees an opportunity to cross-sell and promote fixed-income products to Hong Kong and regional customers.

Bruno Lee, who runs wealth management for Asia-Pacific, says mass-affluent investors are entirely skewed towards equities. This is true for brokerage customers as well as for investors in mutual funds. "Surely at least 10% of a client's assets should be in fixed income," Lee muses.

Until recently Lee was just in charge of wealth management in Hong Kong, but the bank intends to use its Hong Kong experience as a base to roll out a regional service, with a standardised process and product line, subject to local regulation. This is a project that Lee is now driving.

Although the bank is keen to promote bond products, Lee says manufacturers are not supportive of the way HSBC wants to go about it.

For manufacturers, it's easy to cross-sell an existing product listed in Europe. Although fund managers might describe a typical investment-grade bond product as vanilla, to HSBC, it's not. Such a fund will include securities with different credit ratings, different currencies and different interest-rate risks.

What HSBC believes is required are funds that provide stable coupon payments. It wants to build a series of building blocks of funds that are made of securities with the same credit rating, currency and so on -- in effect a fund with bond-like character, but diversified.

Lee says the fact that more customers buy individual bonds from HSBC rather than bond funds shows something is wrong with how bond funds are packaged. "This is contrary to our assumption about retail distribution," he says.

HSBC proposed manufacturers create a series of closed-end funds, so the coupon won't be diluted, and that provides a monthly or quarterly dividend, with less FX, credit or duration uncertainty. Such products can provide better yields than deposits, and can help to balance investors' portfolios away from equities.

But HSBC found no takers among manufacturers. Fund houses often complain about distributors' short-term focus on commissions at the expense of building long-term, diversified portfolios. But when HSBC approached the industry with an idea that was in customers' interest, no one wanted to take it on. Fund managers just wanted to pump out another China equity product.

In the end, HSBC did launch its bond funds, with HSBC Global Asset Management. It raised $60 million in Hong Kong earlier this year. Lee hopes to further develop the suite of bond funds to include higher-risk areas such as high yield, and eventually roll these out across the region, regulation permitting.

"This is exportable," he says. "We can create a product shelf of clear-cut bond funds that are true to their label. We can package this across the region. It's an opportunity for the mass-market customer to benefit. But it seems mutual fund companies just want to go for blockbuster funds in equities or commodities."