HSBC To Expand Hedge Fund Operations

by Mary Swire, Investors Offshore, Hong Kong

11 June 2002

Frenchman Alain Dromer, who joined HSBC last year to run HSBC's global fund management operation, aims to expand the bank's fund management operations, and in particular to start a new company focusing on alternative investments, especially hedge funds.

Giving an interview to the Financial Times, Mr Dromer said the company wants to triple assets under management, currently at $201bn, over the next five years.

There is a 'bandwaggon' feeling to this announcement, given the enormous expansion in the hedge fund sector during the last two years. Still, it's true that there is plenty of consolidation to take place in the hedge fund market. There have been some high-profile acquisitions, such as last week's deal in which Man Group announced that it would acquire Switzerland's RMF for $833m in cash and shares, saying it would become the biggest hedge fund manager in the world with almost $20bn in managed assets, but there have been numerous start-ups some of which may present opportunities to HSBC.

However Mr Dromer denied that the bank would necessarily use its buying power to make purchases: "An acquisition could be a solution but the fit, culturally and technically, must be good; and there are not many players out there," saying that it was more likely that HSBC would hire in extra talent. But this may not be easy, given that talented, experienced hedge fund managers are in heavy demand during the current boom.

HSBC probably has little choice but to expand in hedge funds if it wants to stay relevant to its richer customers, given that country after country is dismantling barriers to retail hedge fund investment, with one of the latest being Hong Kong, the bank's original home.

Mr Dromer calls Hong Kong and greater China HSBC's number one market, and wants to trade there using the bank's original name, Hongkong & Shanghai Banking Corporation. He points out that HSBC already has a link with China Southern Fund Management and says HSBC is ready to take advantage of new laws, to be introduced this year, that would allow foreign fund managers to take a 33% stake in mainland investment houses.

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