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Bank hanging hopes on boutique business

HSBC is undergoing a shake-up which will see it get rid of underperforming funds and focus on areas where it can make serious money.

Following in the footsteps of other big players, HSBC is splitting its asset management business into core and specialist arms.

The specialist investment business, HSBC Alpha Business, will cater for professional investors while the core asset management division, HSBC Investments, will focus on mainstream investment business including the group’s multi-manager offering.

HSBC will also be developing Synopia, its quantitative and structured investment manager, and property company HSBC Specialist Investments.

The group’s announcement preceded news that Deutsche Asset Management is preparing to shed as many as 1,000 jobs from its 5,000-strong workforce, mirroring the upheaval seen at parent Deutsche Bank.

HSBC chief executive Alain Dromer has promised that the strategy will meet client needs more comprehensively by making the most appropriate products available to clients, no matter where they have been manufactured.

Chelsea Financial Services managing director Darius McDermott says: “Our industry never ceases to amaze me – giants like HSBC trying to be boutiques and boutiques trying hand over fist to be the big hitters.” McDermott thinks that more big bancassurers could be set to follow companies which separate out their asset management arms into distinct operations, including HBOS with Insight Investment, Standard Life with Standard Life Investments and Scottish Widows with Scottish Widows Investment Partnership.

He says: “The proof will be in the pudding. We will have to see whether these companies can deliver. In order for us to have their funds on our buy list, they need to be in the top five because we are looking for excellence.”It is thought that the only way HSBC will make progress will be to ensure it is represented in the top five funds in each sector as this will be the only way it will be picked consistently for funds of funds.

But Hargreaves Lansdown investment manager Ben Yearsley is more positive. He says the restructuring can only be a good thing and welcomes the move by the global giant to operate as more of a boutique.

Yearsley says: “They are effectively creating a boutique for equity fund managers. They are a global mammoth and I think its fair to say that asset management was lost within that. They are trying to create a boutique by taking out the passive element.”It is understood that there may be limited equity participation in the HSBC boutique. IFAs say they would view this as a positive thing as it would encourage fund managers to outperform the market.

Yearsley says: “You have to be non-cynical and say it can do it. If the group did not want to let this operation go its own way and operate independently, then it would not have gone ahead with the restructuring.” Simpsons of Brighton IFA adviser Neil Thomas is more sceptical. He thinks the company will continue to operate with the corporate culture of a bank and will fail to take on the aggressive performance-driven style of fund houses such as New Star.

Thomas says: “The question is who will these changes be successful for? I just do not think this will change the culture of a global banking group. I do not personally feel it will alter much. The specialists in investment are the ones that live or die by their performance.”

Thomas believes HSBC is spread too thinly and the boutiques will continue to beat it on performance although he concedes that clients will continue to buy HSBC funds because they trust the brand.

He says: “It will continue to be a financial service leviathan and unfortunately people will continue to invest in the company they have banked with for years.” HSBC’s move to broaden its range of Freestyle funds looks set to go down well. IFAs think the most successful will be the HSBC Asia Freestyle fund, which people are already getting fairly excited about.

The group is also rumoured to be launching UK and European Freestyle funds which are predicted to perform well.

Fund manager BobMorris has been a hit with a number of IFAs and the move to bring his Hamif UK equity opportunities fund onshore will be watched with interest. This fund has outperformed the market by 7per cent since Morris took it over eight months ago. Although HSBC’s move to restructure its asset management business has been broadly welcomed by investment IFAs, it seems odd that the plan to build a successful boutique operation could not have been done through Framlington.

HSBC owns around half the company following the integration of Framlington parent Credit Commerciale France into HSBC in 2000. But both sides seem unwilling to push Framlington forward as a global player and strengthen its proposition with the areas where HSBC already has a hold including Asia and emerging markets.

But Framlington looks set to remain a specialist and the banking group will plough ahead with changes which it hopes will nudge its funds on to every IFA’s buy list.

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