HSBC Securities Services has expanded its funds services operation in Australia announcing that for the first time it will offer alternative fund services including fund accounting, investor servicing and financial reporting to hedge funds, fund of hedge fund managers, absolute return funds and private equity partners directly from Sydney.
Having acquired Westpac’s sub-custody business in Australia and New Zealand in 2006 there has been considerable speculation about when, not if, HSBC would broaden its service offering to include hedge funds.
Colin Lunn, Head of Business Development, Asia-Pacific Fund Services for HSBC Securities Services says that coming to Australia was something that the group had been planning for some time. “It is the second largest market in the region in terms of managed assets and managed funds terms of behind Japan. It is a market where we service a fairly healthy book of business out of from Hong Kong already, that has Australian based managers, and they have been crying out for us to come down here and do things in their time zone.”
Lunn believes that there is a significant market opportunity to bring HSBC’s international best practice to the Australian market. “We feel that the market in the alternative sector is under serviced, and poorly serviced, and there is a bit of a hole there that we can plug based on the fact that in the region we are largest provider - the third largest globally - in the alternative sector in terms of fund services.” Lunn also recognises a trend of institutional and superannuation funds beginning to diversify asset holdings from local equity and global equity into more alternative strategies to help reduce risk across their portfolios as providing an opportunity for HSBC. “Now Australian super funds currently have a low percentage allocated to hedge funds, but if you look at the American endowment funds where allocations to hedge funds are of 20% in some cases that is obviously a huge pool of asset potential that we do see.”
According to Lunn, one of HSBC’s advantages is that it works off a single global operating platform. “Investors find comfort that an entity like HSBC wherever possible does try to adopt best practice by using all the skills that we have and lessons we learn from other jurisdictions and tries to apply that across our business. On top of that we can bring in robust technology in terms of accounting for performance fees which to some markets can be quite new. And obviously you have the HSBC balance sheet and strength behind that as well.”
While technology is a core component of the businesses Lunn is adamant that the key to success is front line service. “Despite everything else it is still a people business. People in our business want to speak to people. That is absolutely clear. With hedge funds there is so much money going in they still want to have that human touch to the business as well.”
One implication of HSBC’s expansion into the Australian market is that it will make it easier for international hedge fund managers to come to Australia. Lunn says “It is going to provide much wider options to the local market in terms of investment strategies and potential for diversification. Australia itself is very mature market and there is already a lot of very good managers running very good funds but I think it does increase the spectrum tremendously which I think is great because it gives people a lot more choices going forward.”