HSBC Holdings Plc (HSBA), the administrator of $150 billion in assets for hedge funds, is terminating agreements with some smaller Asian clients to focus on more profitable ones, said three people with knowledge of the matter.
One of the termination notices, reviewed by Bloomberg News, outlined when the bank will stop providing its services. The letter didn’t give a reason for HSBC’s decision.
HSBC recently reviewed its fund-administration clients, something it does from time to time to gauge whether the relationships are mutually beneficial and whether to maintain them, said another person. The people asked not to be identified because the information is private. Tim Nicholls, a Hong Kong- based spokesman for HSBC, declined to comment on individual client relationships.
“From an admin point of view, serving a client that has $20 million in assets would be just as much as serving a client with $200 million — you still have to do the same asset valuations,” said Allard de Jong, the group director at Portcullis Fund Administration (S) Pte in Singapore and a former head of Alternative Fund Services at HSBC there.
Banks are cutting costs to offset stricter capital and regulatory requirements. Asian hedge funds are struggling to raise money and deliver investment gains. Investors have withdrawn more than $440 million this year from funds in the region, while at least 70 of them have closed in 2012, according to Eurekahedge Pte, a Singapore-based data provider.
Large Funds
HSBC is cutting some small clients who are too costly to maintain, said one of the people.
Most of the funds in the region that have been served the notices by HSBC are managing $50 million or less, said two other people. Some of the funds have more than $100 million of assets, the people said.
Investors globally directed almost 80 percent of new capital to hedge funds overseeing more than $5 billion in the 15 months to March, according to Chicago-based Hedge Fund Research Inc. More than 60 percent of the about 1,300 Asian hedge funds tracked by Eurekahedge oversaw $50 million or less.
Fund administration includes accounting, valuation, statutory compliance and fund transfers. The business falls under HSBC’s global banking and markets division.
Earning Fees
Apex Fund Services, a fund administrator, has been in talks with about a dozen hedge funds which have received such notices from HSBC, said Anthony D’Silva, a managing director in charge of business development in the Asia-Pacific region. The company, which was started in Bermuda in 2003, is in the process of signing up a few of them, he added.
Administrators usually charge fees that are basis points of hedge funds’ assets under management, according to D’Silva. Small funds are subject to minimum charges and fees vary among administrators, he added.
“If a client is small, your basis points don’t really kick in,” said Portcullis’ de Jong.
HSBC Securities Services was the 10th-largest administrator of single-manager hedge funds, with $107.2 billion of assets, according to a global survey published by London-based trade journal HFMWeek between May and June. It slipped from ninth position six months earlier.
It was the ninth-biggest administrator of funds of hedge funds, with $42.7 billion of assets, down from eighth place six months earlier, according to a separate HFMWeek survey.
Dublin Move
HSBC earlier this year moved a fund-administration unit to Dublin from New York to control costs, a person with knowledge of the situation said in February. Europe’s largest bank plans to eliminate 30,000 jobs and trim as much as $3.5 billion of expenses over the next two years as it tackles wage inflation in Asia and prepares for stricter capital rules, the bank said in May 2011.
The Eurekahedge Asian Hedge Fund Index returned 4 percent this year and its global industry gauge advanced 4.2 percent, according to preliminary monthly figures for September.
Some prime brokers review their client base as often as twice a year, said another person familiar with the workings of both industries. Prime brokerage provides services including clearing trades, lending cash and securities to hedge funds.
Bloomberg
