HSBC PE Asia spins out to management
HSBC has followed through on its plan, first discussed internally in June this year, to spin out its private equity divisions, at least in Asia, with the sale by HSBC Holdings of 80.1% of HSBC Private Equity (Asia) Ltd. to Foci Holdings, an SPV backed by the management team of HSBC Private Equity, for around $18.8 million.
The transaction apparently includes the HSBC Asian Ventures unit and is conditional on approval from existing LPs in the HSBC PE Asia funds. However, according to AVCJ industry feedback, up to 40% of the unit’s capital may come from HSBC. Its latest fund, HSBC Private Equity Fund 6 closed at $1.47 billion.
In June, HSBC announced it was “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.” The moves paralleled similar developments at Barclays Capital and Royal Bank of Scotland in the UK.
The plans for the spinout originated in the context of the US “Volcker Plan” to impose regulatory curbs on bank investments in alternative asset classes, but according to the market, HSBC’s own priorities and experience with spinouts had already disposed the group towards such a move. In 2003, HSBC supported a similarly amicable MBO of its European private equity arm, which became Montagu Private Equity. The transaction was structured similarly to the current Asian deal, with the parent bank retaining a 20% stake in the independent business. Then as now, HSBC also let its team go for a relatively modest sum, aiming instead to benefit from its share in their newly-energized investment push. HSBC retains its minority stake in Montagu to this day.
Per the terms of the deal, HSBC will keep a 19.9% interest in HSBC PE Asia, which currently manages around $3.5 billion in assets. George Raffini will keep his role as MD and head of the firm. He joined the firm in 1989, when HSBC first began investing in Asian private equity, and is one of the few PE veterans of the pre-Asian financial crisis period to still head a major Asian fund. Raffini received the 2009 Lifetime Achievement Award in the Asian Private Equity & Venture Capital Awards.
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