HSBC PE to spin out
HSBC has announced that it is having internal discussions about the prospective spinning out of its private equity units, including HSBC Private Equity Asia and HSBC Asian Ventures, through a series of MBOs, following growing regulatory and financial industry pressure for major banks to shed such capabilities.
HSBC’s official announcement stated: “that it is in discussions with the management teams of its private equity fund management businesses in Hong Kong, UK, USA, Canada and the Middle East which are expected to lead to five separate management buy-outs.” HSBC will reportedly retain around a 20% stake in each entity. The private equity businesses manage a total of $8.8 billion worldwide.
US regulatory proposals now being debated by the House of Representatives and the Senate – influenced by the so-called “Volcker Plan” launched by former former Federal Reserve Chairman Paul Volcker to restrict banks from trading off their own balance sheets – are expected to compel a spinout of private equity divisions from commercial banks. HSBC and other institutions are acting pre-emptively ahead of the final legislation. The UK’s Barclays Capital and Royal Bank of Scotland have already begun similar moves. However, HSBC will apparently retain its Principal Investments division to invest off the bank’s balance sheet.
Pre-existing priorities may have as much to do with the move as the new regulations, however. The news follows a well-worn pattern expected by industry observers for some time – though major US investment banks were more in their sights as the venues for the next generation of spinouts. Anticipating the impact of the new rules, AVCJ sources emphasized the alignment pressures for bank-connected private equity teams to go independent. HSBC already saw its European buyout unit spin out in 2003 as Montagu Private Equity – also retaining a 20% stake in that business.
As a residual anchor investor in the spun-out vehicles, HSBC stands to benefit from their success, and is, as is customary, unlikely to burden the GPs with a heavy price for their autonomy. AVCJ sources emphasized the relatively nominal figure that fund partners would be expected to pay to their former parent in the course of the MBOs.
AVCJ local sources were already commenting on the likely positive outcome for the existing HSBC Private Equity teams, particularly the well-regarded Hong Kong private equity unit under MD George Raffini, as well as the probable low price they would be likely to pay to HSBC for their autonomy. Sources also agreed that the newly independent and revitalized teams might achieve even better performance in future, with strong results for anchor stakeholder HSBC. HSBC has been investing in Asia Pacific private equity since its first Pacific Rim Investments fund, launched in 1989.
Sources at HSBC Private Equity declined to comment to AVCJ.
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