HSBC, one among the largest banks across the globe, has decided to spin off its private equity activities in the UK, Hong Kong, the US, Canada and the Middle East into independently owned operations.
According to a Financial Times report, the bank has started talks about management buy-outs at five of its private equity businesses overseeing $8.8 billion (£6 billion) of assets. Montagu, the bank’s former European buy-out arm, completed a similar spin-out seven years ago.
While there is no regulation forcing HSBC to spin off its private equity arms, the bank is expecting more pressure to do so. It also believes the five fund managers will have more flexibility as independently owned businesses. Banks across the world are looking to sell some or all of their investments in private equity funds, as tougher regulations make it more expensive for them to hold this kind of asset. Barclays Private Equity is in talks on spinning off from Barclays as part of plans to raise its next buy-out fund, while Citigroup is also planning to spin off its private equity arm, the FT report addded.
The recent move is followed by the legislation proposed by the US government aiming at reducing the risk exposure of deposit taking banks. The proposals, known as the Volcker Rule, is meant to prevent banks from managing hedge funds and private equity funds.
HSBC is a big investor in the funds managed by the five businesses, accounting for about a fifth of their assets, and it is expected to maintain this investment.
The biggest business is HSBC Specialist Investments in the UK, which manages $4 billion of assets, mostly in infrastructure and real estate funds. Its investments have included the construction of a headquarters building for the Home Office and the Prison Service on Marsham Street in Westminster, the FT report said. The four businesses based in Hong Kong, the US, Canada and the Middle East are mostly focused on buy-outs and growth capital investments in small and mid-sized companies.
HSBC is not selling its Principal Investments vehicle, which invests directly from the bank’s balance sheet in private equity and infrastructure assets.
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