HSBC banking on the strength of its brand name

Sri Chandrasekharan, appointed head of wholesale distribution at HSBC Global Asset Management at the beginning of 2010, likes to paint a picture of stability, reliability and continuity in his organisation. But in reality, there have been significant changes in the way the fund management arm of this major universal bank is run.

The first of these, instigated in June last year, was a major organisational shake-up for the funds house, which runs $445bn (E325bn) for internal and external clients across the globe. The integration of what many perceived to be a favoured child, the French quant shop Sinopia, brought fully into the group in 2002 and high conviction management unit Halbis, along with liquidity, multi-manager, passive and traditional long-only funds under the HSBC brand, show the bank has gone back to imposing a single identity after a brief experiment with the “village of boutiques” structure.

“Now we come across more clearly, using the strength of the HSBC brand,” says Mr Chandrasekharan, known simply as ‘Sri’ to his colleagues and 300 staff, admitting that the previous multi-brand model had led to confusion among distributors and fund buyers. “From a positioning standpoint, it is much clearer to clients that we work for HSBC.”

The continued growth of the funds franchise since the shake-up is proof that the change was a correct one to make, believes Mr Chandrasekharan, who started working for the bank in 1993 and has held senior positions in India, Indonesia, Philippines, Hong Kong and the UK, most recently as head of structured credit in the global markets division.

“Having these different brands, one of the risks was that people would perceive these things as being different, when in reality they were not. Rebranding has dispelled that perception. We have strong integration, which has now become even stronger.”

The move is partially building on the bank’s experience during the crisis, when it did not suffer the extensive problems of some competitors, and saw many customers switching to what they perceived as its relative safety. “It is widely acknowledged that as a group, we came through the crisis with our reputation enhanced,” says Mr Chandrasekharan. “The new brand confirms that we are part of HSBC and carry the values and strong risk management culture of the HSBC group.”

Since the financial crisis began in 2008, those distributors which HSBC deals with have been placing an increased importance on the brand of their selected funds, believes Mr Chandrasekharan. “There are a number of factors now being taken into consideration, rather than just the rear view mirror question of ‘what was your performance in the last quartile?’,” he says. “While we welcome performance considerations, there is so much more to this than the management of money. There are key issues around risk management and service levels.”

As well as the way units are presented to the outside world, there has been a definite coming together in the way customers’ money is managed by the various strands of the HSBC empire, with a single global CIO forum now chaired by the fund house’s chief investment officer, rather than sometimes conflicting steers given by the various boutiques’ investment heads.

Of the strategies being discontinued as part of the periodic HSBC product clearouts, in which Mr Chandrasekharan’s distribution arm plays a major part, it is the systematic strategies favoured by Sinopia which have born the brunt of the cull. “We are creating new funds around the emerging markets theme. The funds we are clearing out are more a legacy of the quant strategies, which are being rationalised,” he says, with the more exotic, volatility-driven funds failing to make the cut.

Rather than a story of system-led strategies, based on scientific theory, discredited by events following the crisis, Mr Chandrasekharan sees a re-deployment of the firm’s expertise, with the skills of the quantitative management team now switched to running HSBC’s fast increasing range of exchange traded funds (ETFs). HSBC only entered this area in mid 2009, but has already launched its 16th ETF and manages $7.5bn in this segment.

“Asset allocators are keen on this approach, plus within our own wealth management client base, there are self-directed clients who like to invest in ETFs,” he says. “Both passive and active segments of the market have grown. The client segments we service invest in multiple product classes, so we have not really seen encroachment of ETFs into the active world.”

The use of ETFs is central to HSBC’s focus on asset allocation in its dialogue with key clients. Much of the distribution effort has indeed centred on marketing HSBC’s World Selection product, which has amassed $7bn over the last three years, and is part of the group’s gradual change to a lifestyle, outcome-driven approach, encompassing a wide variety of assets, including external mutual funds.

“As an asset management firm, we will continue to make available individual asset classes, but we are talking about a variety of investment choices,” says Mr Chandrasekharan. “We have recently seen a preference for more complete, balanced products.”

His team has also been capitalising on the trend of economic power and wealth shifting from developing to emerging markets, with internal figures showing distributors’ allocations to emerging Europe and Asia rising from below 10 per cent in 2004 to more than 20 per cent today. Client assets invested in emerging markets, including Hong Kong and Singapore, breached $100bn at the end of last year.

But Mr Chandrasekharan warns against a narrow, equity-specific focus in growth economies, where GDP and stock prices not always strictly correlated. “When people refer to emerging markets, they usually have equity in mind,” he says. “But emerging market debt is another important asset class. Emerging market currencies are undervalued plus rate hikes in these markets are increasing investor interest in sovereign debt, where some of the questions about stock market valuation become less applicable.”

Choosing key distribution markets

Fund sales operations in Europe and Asia are both using significant resources from the HSBC distribution machine. While there are strong UK sales through independent adviser channels, the own-branded funds are increasingly become the dominant vehicle pumped through the multi-tied branch network, which also sell funds of a handful of external providers. “Clients of the group have already made a brand choice, so other things being equal, they prefer to opt for the HSBC product,” says Mr Chandrasekharan. “But we have to protect the brand to earn and retain business in this competitive market.”

In France, another market highlighted for expansion by Mr Chandrasekharan, the vast majority of sales are also through HSBC’s private and retail bank. Asian distribution concentrates on Hong Kong, Taiwan, Singapore, India and the Jintrust joint venture in China.

With much of the success of the HSBC group based on cross-selling, at least 50 per cent of Mr Chandrasekharan’s staff are dedicated to servicing clients within the HSBC group. If anything, this proportion is likely to grow, as relationships with external distributors are re-assessed after the crisis.

“We need to make sure we are dealing only with reputable third party distributors,” he ventures, with the inevitable conclusion that only the largest wholesalers can provide the required product knowledge and service to the end customer. “We don’t start by saying that we will only deal with a certain number of clients, but it happens anyway.”

Sri Chandrasekharan, HSBC