HSBC’s prime brokerage platform will target China’s burgeoning hedge fund market as part of its growth plan in Asia, where it aims to leverage its leading position in the custody and administration arenas.
China is “a massive target and it’s one [market] where we’ve been very successful in the early stages of our business”, says Matt Kiraly, HSBC’s head of prime services sales for Asia-Pacific.
“If you look at the prime brokerages [in Asia], you have US prime brokers, European prime brokers, [but] there are no Asian prime brokers. This is HSBC's backyard and our seat to fill.”
HSBC launched its prime brokerage offering in Europe in early 2011, with the Asia platform in mid-year and its first hedge fund client having gone live last July.
“The business is spread across Europe and Asia and we are quickly moving into the US,” says Melvyn Ford, HSBC’s head of prime services for Asia, who declined to give a time-frame for a US launch.
HSBC prime brokerage is leveraging its global custodian and hedge fund administration businesses to build market share. In Asia, it has a leading position in the hedge fund admin sector, with a 20% share of the market as of December last year, according to data provider Eurekahedge.
HSBC’s longstanding sub-custody business in Asia is a major player in the market with nearly all the trillion-dollar global custodians on its client list. Over the past few years it has branched into the global custody business, where it has an emphasis on emerging markets.
A number of the bank’s fund administration clients “have been very happy to come onboard and become our prime brokerage clients”, says Ford, who recently took on the role of head of prime services, having previously led HSBC’s global relationship management function for hedge funds in Asia.
Says Kiraly: “What we want is to have is a client who is both a prime client and a fund administration client, which further solidifies their relationship with the firm.”
The bank’s prime brokerage platform will also leverage HSBC’s equities finance business, where it is a large stock lender and supplier of synthetics. “Ultimately we want to be able to service funds globally trading Asia [stocks], no matter where they are located,” says Kiraly.
HSBC is betting that its strengths in hedge fund-related services will give it a respectable share in a highly competitive market dominated by a duopoly of Goldman Sachs and Morgan Stanley. In Asia, the top five prime brokers held a collective 83% of the market in 2011, compared with 76.36% in 2007, with their gains coming at the expense of players outside of the top 10, according to Eurekahedge.
“We’re a large organisation with many different business lines. And our skill here is to tap into those business lines in an appropriate way,” says Ford.
“We’ve very happy to be an additional prime broker to one of the [leading prime brokerage] firms,” he adds. “A single prime broker these days is very unusual unless the fund is very small, and we’re not in that space.”