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Matt Goodburn assesses HSBC’s switch of UK fund management

HSBC Investments has decided to shift the management of its core UK equity retail funds across to its multi-manager team.

Over 2bn of assets will move from the UK growth and income, income and monthly income funds to be placed under the control of HSBC’s multi-manager team and the external fund manager line-up is expected to be announced before the end of the year.

The bank says the decision was taken after an extensive review of client needs and product strategy which was conducted with the funds’ current manager, in-house subsidiary Halbis Partners.

HSBC head of wholesale Andy Clark says the decision was taken as part of the group’s global strategy of providing investment solutions without being wholly dependent on its in-house investment resources. Halbis will continue to run the firm’s high-alpha products.

Clark cites the success of appointing US firm Davis Advisors to run the group’s American growth fund in April 2005 as an important precedent for the move.

He says: “We discussed with Halbis what they wanted to do as their biggest successes have come in high alpha.”

Clark stresses that the funds under Halbis have performed credibly but that in today’s retail market environment, funds need to outperform consistently.

He says: “These funds have not let anyone down but today they need to be the best of the best. We have an educational job to do. People have seen the words multi-manager and assume we are giving the business to fund of funds.

“We are not looking for a brand. We have a track record with what we did with Davis Advisors in the US. Those who have come across them will understand our strategy and find that what we have done very exciting.”

Clark says the strategy is already widely adopted by institutional investors who need to adapt quickly to changing economic conditions and the group can apply the same principles to the retail market.

He says: “In the US, because we are managing these funds we can change things quickly. Some managers do better in certain economic cycles so it is hard to say to investors, don’t buy me now, buy me in three years time. It is exciting that we can appoint relatively unknown managers to the UK market.”

Hargreaves Lansdown senior analyst Ben Yearsley says the move could turn out to be a positive step and believes the move away from Halbis makes sense.

He says: “Halbis manage funds which are high-alpha business so, on that basis, they should not really be managing core business, so what is the problem? I am not bothered because HSBC has done it in the US and that is a good fund.”

Bestinvest communications director Justin Modray is concerned that a company as big as HSBC cannot find appropriate managers for its core business and is not entirely comfortable with the multi-manager idea.

He says : “If they think this is the way to get the best performance, then the concept is reasonable but what troubles me is that a lot of multi-manager funds have not been that strong.”

Modray believes the possibility of switching managers in and out of funds quickly may be problematic.

He says: “Most managers will have contracts in place so it could take three or six months for new managers to be bought in.”

Witan Investment Services went through a similar process to HSBC when it outsourced geographical mandates on the Witan Investment Trust. Managing director James Budden says the company wanted to give its investors the best possible talent through “a best of breed” approach.

Budden says Witan’s approach was not to approach the big fund companies because of a risk of the firm being taken over or management changes which can lead to a change of investment philosophy.

He says: “We mitigated manager risk going for people who had a long track record of success and with a long-term investment philosophy and we ended up with four managers from the US.”

Budden says that when choosing managers, the criteria was to look for individualists not momentum fund managers and he believes HSBC will look for similar individuals.

Budden says: “All our chosen managers had individual styles but were mainly stockpickers. They were not momentum managers and tend to avoid stockpicking by sectors.”

He admits this approach has led to some short-term underperformance.

“When the market is being driven by a weight of momentum, our managers will tend to lose a bit of ground but since the May wobble we have done a lot better,” he says.

He believes it will be easier for bigger groups such as HSBC and Abbey to select best of breed boutique managers due to the amount of resources required to find managers in different countries.

Budden says the criteria used for switching managers will change depending on the current investment climate. He says: “The process of selecting a group of managers is done at one time so will take on the characteristics of that time.”

Seven Investment Management director Justin Urquhart Stewart believes the ideal would be to use a blend of fund of funds and multi-manager. He says: “HSBC have to broaden out the investment structure to include not just the asset classes but the investment style, to include things such as exchange traded funds. This is a step in the right direction but I believe that all the banks need to be more innovative.”


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