HSBC outlines investment goals
Hits and misses: HSBC Investments CEO Blair Pickerell reflects on three years at the helm and why Asian investment behaviour hasnÆt changed.
It has been three years since Blair Pickerell joined HSBC Investments as CEO for Asia Pacific, after a brief stint on his own and a long history of building the regional mutual funds business for JF Asset Management.
He feels the business has achieved a lot, capped in the first half of 2006 by five fund launches in different markets that have raised at least $250 million each. ôFive quarter-billion-dollar funds in a row, in five markets, has been good, but it also makes me nervous,ö he says.
His main concern, particularly amid the bull market, is that the regionÆs investors, particularly but not exclusively on the retail side, are still chasing hot stories instead of thinking about a long-term investment portfolio. So despite the big numbers, customers may not be receiving appropriate service, which can come back to hurt the industry when times arenÆt so good.
Nonetheless, he must feel vindicated as CEO of a firm that, when he joined, was Hong KongÆs biggest asset manager but had little presence elsewhere. In part thatÆs because he has overhauled a banking culture with a lot of hires from his old employer or other fund houses with a more aggressive attitude.
This is especially evident in Taiwan, where he inherited a recent acquisition of a large but very domestic-oriented asset manager, but is now raising huge new assets under his former colleague at JF, Christina Sung û and where almost all of the original management has also been overhauled.
Pickerell has also overseen the success of a joint venture in India and created a new one in China, headed by Steven Lee, which is too young to proclaim a success but which has finally launched its first product. This ælifecycleÆ fund is a 10-year balanced product that gradually changes its emphasis from overweight equities to overweight bonds, a first in China.
The fund also offered investors the option to avoid the usual distributorÆs front-end load, which HSBC paid, in return for accepting a high exit fee that diminishes over time. Redemptions are a plague in the Chinese funds world and Pickerell says heÆs happy that about half of the new fundÆs investors chose the back-load option, suggesting redemptions will be fewer than average.
HSBC Investments had hired Ayaz Ebrahim as CIO just before Pickerell arrived, and one of the American CEOÆs goals has been to establish the firm not just as a Hong Kong player but as a specialist in Asian and emerging-market equities. Pickerell says the firmÆs Asian equity assets under management have grown over 500% in the interim, and that HSBC Investments today manages the worldÆs biggest China and India equity funds.
Lastly, under first another ex-JF executive, Sandra Lee, and now former Citigroup Asset ManagementÆs Bonnie Lam, HSBC has stepped up its retail funds profile. Their success is evident, Pickerell says, because in 2005 HSBC Investments received around 50% of net sales from Hong Kong in Asian equity funds, and this year claims about the same market share for emerging-market funds. (Lee departed the firm earlier this year for SG Asset Management.)
ItÆs not all smooth sailing, however. Broadly, Pickerell is worried that the regionÆs clients havenÆt understood the basic rules of investment. ôI still see that age-old Asian tendency to buy the hot fund,ö he says. ôIf you add up the assets from the whole region, itÆs imbalanced û peopleÆs money is going to hot products and sexy single-country themes. ThatÆs OK if itÆs 10-20% of your portfolio. But US equities, which is almost half the worldÆs market capitalisation, accounts for only 1% of sales from Asia. The amounts going into Europe are also small. The industry hasnÆt proven that itÆs good at getting people to invest long term.ö
He says heÆs especially discouraged by the lack of long-term, diversified portfolio strategies in Taiwan, partly for personal reasons û he set up JFÆs funds business there in the early 1980s, the first foreign house in Taiwan û and partly because thatÆs a market where pioneers like JF went in talking about prudent, long-term investments. But the industry quickly succumbed to the temptation of the quick sale.
Pickerell concedes that several attempts to instil education have flopped, although HSBC is now trying this again in China, which is at the infant stage for its investing habits. ôThe average American understands the concept that a diversified portfolio of stocks and bonds, held for the longer term, is the best investment available for retirement, and that this will outperform a bank deposit and inflation,ö he says. ôItÆs hard to grow up in the middle class without this concept being planted in you û itÆs found in your schooling, in the newspaper, on æWall Street WeekÆ [a popular TV show on finance], on the market information from conservative fund managers. Then put 401(k) in place and you have to invest long term.ö
Not only has this infrastructure not developed in Asia, but experience in various domestic markets has undermined these lessons: the indices in Japan and Taiwan today are still below 1989 levels.
At the firm level, HSBC still has a ways to go. Its JV in India is now established and competitive, but the China venture remains raw. Its first launch was good but pales in comparison to the Rmb19 billion launch recently completed by Guangfa Fund Management. It will require a track record, performance, branding and perhaps a bit of luck before the JV doesnÆt need lots of hand-holding.
The firm sees a lot of opportunity in Taiwan now that deregulation means a single entity can market and sell onshore and offshore funds. It also wants to increase its business in Japan supplying Asian and emerging-market equity products. HSBC is still positioning itself as an Asian specialist, albeit a very large one, and choosing its markets carefully. It isnÆt trying to provide all sorts of funds to any client.
The coming six months may not be as dramatic as the first half of the year; Pickerell says it is highly unlikely HSBC could repeat another five mega-launches. But the firm can now enjoy the revenues from managing those assets; more importantly, the environment should continue to support growth.
Pickerell believes that in spite of the frantic search for new hires, the arrival of more international funds, the high rents and other hallmarks of a bull market, we are not in an irrational dotcom-like environment. ôItÆs just a good ole bull market,ö he says.
Asia remains the worldÆs growth opportunity; the institutional environment is mushrooming; central banksÆ reserves are growing; more retail and high-net-worth individuals are being allowed to invest internationally. Pickerell says he canÆt identify which bits of the asset management world will flourish over the next five years, but he believes that the industry as a whole will be a lot bigger then. ôSo this justifies increasing headcount,ö he says.
He feels the business has achieved a lot, capped in the first half of 2006 by five fund launches in different markets that have raised at least $250 million each. ôFive quarter-billion-dollar funds in a row, in five markets, has been good, but it also makes me nervous,ö he says.
His main concern, particularly amid the bull market, is that the regionÆs investors, particularly but not exclusively on the retail side, are still chasing hot stories instead of thinking about a long-term investment portfolio. So despite the big numbers, customers may not be receiving appropriate service, which can come back to hurt the industry when times arenÆt so good.
Nonetheless, he must feel vindicated as CEO of a firm that, when he joined, was Hong KongÆs biggest asset manager but had little presence elsewhere. In part thatÆs because he has overhauled a banking culture with a lot of hires from his old employer or other fund houses with a more aggressive attitude.
This is especially evident in Taiwan, where he inherited a recent acquisition of a large but very domestic-oriented asset manager, but is now raising huge new assets under his former colleague at JF, Christina Sung û and where almost all of the original management has also been overhauled.
Pickerell has also overseen the success of a joint venture in India and created a new one in China, headed by Steven Lee, which is too young to proclaim a success but which has finally launched its first product. This ælifecycleÆ fund is a 10-year balanced product that gradually changes its emphasis from overweight equities to overweight bonds, a first in China.
The fund also offered investors the option to avoid the usual distributorÆs front-end load, which HSBC paid, in return for accepting a high exit fee that diminishes over time. Redemptions are a plague in the Chinese funds world and Pickerell says heÆs happy that about half of the new fundÆs investors chose the back-load option, suggesting redemptions will be fewer than average.
HSBC Investments had hired Ayaz Ebrahim as CIO just before Pickerell arrived, and one of the American CEOÆs goals has been to establish the firm not just as a Hong Kong player but as a specialist in Asian and emerging-market equities. Pickerell says the firmÆs Asian equity assets under management have grown over 500% in the interim, and that HSBC Investments today manages the worldÆs biggest China and India equity funds.
Lastly, under first another ex-JF executive, Sandra Lee, and now former Citigroup Asset ManagementÆs Bonnie Lam, HSBC has stepped up its retail funds profile. Their success is evident, Pickerell says, because in 2005 HSBC Investments received around 50% of net sales from Hong Kong in Asian equity funds, and this year claims about the same market share for emerging-market funds. (Lee departed the firm earlier this year for SG Asset Management.)
ItÆs not all smooth sailing, however. Broadly, Pickerell is worried that the regionÆs clients havenÆt understood the basic rules of investment. ôI still see that age-old Asian tendency to buy the hot fund,ö he says. ôIf you add up the assets from the whole region, itÆs imbalanced û peopleÆs money is going to hot products and sexy single-country themes. ThatÆs OK if itÆs 10-20% of your portfolio. But US equities, which is almost half the worldÆs market capitalisation, accounts for only 1% of sales from Asia. The amounts going into Europe are also small. The industry hasnÆt proven that itÆs good at getting people to invest long term.ö
He says heÆs especially discouraged by the lack of long-term, diversified portfolio strategies in Taiwan, partly for personal reasons û he set up JFÆs funds business there in the early 1980s, the first foreign house in Taiwan û and partly because thatÆs a market where pioneers like JF went in talking about prudent, long-term investments. But the industry quickly succumbed to the temptation of the quick sale.
Pickerell concedes that several attempts to instil education have flopped, although HSBC is now trying this again in China, which is at the infant stage for its investing habits. ôThe average American understands the concept that a diversified portfolio of stocks and bonds, held for the longer term, is the best investment available for retirement, and that this will outperform a bank deposit and inflation,ö he says. ôItÆs hard to grow up in the middle class without this concept being planted in you û itÆs found in your schooling, in the newspaper, on æWall Street WeekÆ [a popular TV show on finance], on the market information from conservative fund managers. Then put 401(k) in place and you have to invest long term.ö
Not only has this infrastructure not developed in Asia, but experience in various domestic markets has undermined these lessons: the indices in Japan and Taiwan today are still below 1989 levels.
At the firm level, HSBC still has a ways to go. Its JV in India is now established and competitive, but the China venture remains raw. Its first launch was good but pales in comparison to the Rmb19 billion launch recently completed by Guangfa Fund Management. It will require a track record, performance, branding and perhaps a bit of luck before the JV doesnÆt need lots of hand-holding.
The firm sees a lot of opportunity in Taiwan now that deregulation means a single entity can market and sell onshore and offshore funds. It also wants to increase its business in Japan supplying Asian and emerging-market equity products. HSBC is still positioning itself as an Asian specialist, albeit a very large one, and choosing its markets carefully. It isnÆt trying to provide all sorts of funds to any client.
The coming six months may not be as dramatic as the first half of the year; Pickerell says it is highly unlikely HSBC could repeat another five mega-launches. But the firm can now enjoy the revenues from managing those assets; more importantly, the environment should continue to support growth.
Pickerell believes that in spite of the frantic search for new hires, the arrival of more international funds, the high rents and other hallmarks of a bull market, we are not in an irrational dotcom-like environment. ôItÆs just a good ole bull market,ö he says.
Asia remains the worldÆs growth opportunity; the institutional environment is mushrooming; central banksÆ reserves are growing; more retail and high-net-worth individuals are being allowed to invest internationally. Pickerell says he canÆt identify which bits of the asset management world will flourish over the next five years, but he believes that the industry as a whole will be a lot bigger then. ôSo this justifies increasing headcount,ö he says.
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