Andy Clark

20 December 2010 8:00 am | By Gregor Watt

Andy Clark is determined that HSBC will be ready for the new world of distribution. He says: “There are tough market conditions and there is tough regulation coming down the track but it is our job to make that a positive not a negative.”

He has been wholesale managing director in the UK and Mena for HSBC’s global asset management division since 2005 and says despite difficult economic conditions, the last two years have been positive, with market share for global asset management up by 30 per cent.

Clark says the HSBC asset management business has suffered from a lack of profile and reputation in the past but has working hard to change that. “I think for too long global asset management has not been known for anything at all but the job of the last two or three years has been to focus on getting people to trust us as an asset management business and now I think we are moving on to what we stand for.”

He wants the business to be known for a three-pronged strategy made up of passive funds, multi-asset funds and actively managed emerging market equity funds. “They are the three areas where we can be the best and we can compete very strongly and we are going to play to our strengths.”

Clark considers the move away from commission will drive advisers towards passive investments as they try to reduce costs for clients. “The core satellite approach, with passive in the middle and sex and violence around the outside is very much a model I am seeing a lot more of.”

He says the combination of low-cost passive funds and proper diversification is a winner for HSBC but the move to passive is not going to be seamless for fund firms. He says HSBC’s recent decision to reduce the annual charge on its passive funds has led to price competition.

“There must be a price differential between passive and active and we have made that price differential by reducing our costs to 25 basis points. Us and Vanguard are at what I call the correct end of the market price-wise and, at some point, others might think about what they might do.”

He is enthusiastic about the investment opportunities in emerging markets. Earlier this month, HSBC saw its total of global assets under management invested in emerging markets pass $100bn. In terms of retail sales, emerging markets make up 25 per cent of fund inflows.

He says the effects of the financial crisis have made people change their investment outlook significantly. “It is this realisation that developed countries are not the only place to invest, in fact, in some cases, they are not the safest place to invest, which has opened their eyes to looking at emerging markets a lot harder.”

But he adds that he is frustrated by the low exposure to emerging markets from retail investors. “This is my biggest bugbear at the moment. All the figures show that 2 to 4 per cent of a client’s portfolio is in emerging markets. I am not the adviser but I believe this should be into double figures.

“Gravity is changing towards emerging markets. The emerging market story is well told but it should be a bigger part of a client’s portfolio. This is a trend that is going to go on for generations. This is not about a one-year sales pitch. No one is thinking it is a straight line. It can be quite volatile but we are not talking about a two or three-year outlook, we are talking about people investing for the longer term and spreading the risk.”

He says HSBC’s global presence will ensure the business is well placed to benefit from this long-term change in investor outlook. “We are one of the few asset management groups that are in these locations. We are in 54 emerging markets. We are not just talking about an office with one fellow and a computer, we are talking about a network and from that network we get an awful lot of market intelligence, which clearly we can use to our advantage.”

Clark says there are no plans to change the current range of passive and multi-asset funds but HSBC will be launching further choice for emerging markets investors. “Product innovation will be coming from the emerging markets’ side. We have got thousands of ideas and four or five fantastic ideas which we will launch next year.”

As well as having a significant effect on the range of funds offered by HSBC’s asset management business specifically, Clark says the RDR also has the potential to change the face of the industry for the better but he warns that businesses will have to change their attitudes to charges.

“The RDR debate is both a risk and an opportunity. The risk is the process gets derailed by fudging the big issue, which I think is charging. The opportunity is to make sure this industry in transparent. The advice industry and the fund management industry have a chance to be transparent.”

Clark says he would expect to see fund firms reduce annual charges as commission is eliminated. “If you are paying a half per cent per annum commission, surely your cost has to come down to 100bps, rather than 150bps, for example.

“Transparency is the biggest opportunity for the industry and for HSBC Global Asset Management and it is an area where we plan to be at the forefront.”

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