Become a Creator today!Start creating today - Share your story with the world!
Start for free
00:00:00
00:00:01
MarkeTalks: A Prime Finance – Capital Intelligence Podcast Series – The Hedge Fund Allocator's View
25 Plays8 months ago
The Alternatives Investment business at HSBC started in 1989, initially as an advisory business, before launching their flagship fund of hedge funds in 1996. Today, they are one of the largest Hedge Fund investors globally, managing $23.2bn AUM across commingled, discretionary and advisory mandates for high net worth and institutional clients.
Listen as Terry Minkey, Global Head of Prime Finance Origination, APAC & Head of Capital Intelligence and William Benjamin, Head of Indirect Alternatives, Asset Management, discuss HSBC’s investment strategy in hedge funds with and how allocations have changed over time and the benefit of having hedge funds in one’s alternative investment portfolio.
Hosted on Acast. See acast.com/privacy for more information.
Recommended
Transcript
Introduction to HSBC Global Viewpoint
00:00:00
Speaker
Welcome to HSBC Global Viewpoint, the podcast series that brings together business leaders and industry experts to explore the latest global insights, trends, and opportunities.
00:00:12
Speaker
Make sure you're subscribed to stay up to date with new episodes.
00:00:15
Speaker
Thanks for listening.
00:00:15
Speaker
And now onto today's show.
00:00:21
Speaker
For professional clients only.
00:00:24
Speaker
Any views expressed were held at the time of preparation and are subject to change without notice.
00:00:30
Speaker
There is no guarantee that HSBC asset management will successfully pick out performing managers.
00:00:36
Speaker
Past performance does not predict future returns.
00:00:39
Speaker
Diversification does not ensure a profit or protect against loss.
Interview with William Benjamin
00:00:44
Speaker
Hi, my name is Terry Minke, Head of Sales Origination for Prime Finance in APAC.
00:00:50
Speaker
I'm also the Head of Capital Intelligence.
00:00:52
Speaker
Today, we're joined by William Benjamin, Global Head of Indirect Investments at HSBC Asset Management.
00:00:58
Speaker
William leads all the investment teams focused on alternative strategies deployed via third-party managers across liquid strategies, hedge funds, private debt, and private equity.
Hedge Fund Investment Strategy Overview
00:01:10
Speaker
Today, he joins me to discuss HSBC's investment strategy into hedge funds, how allocations have changed over time, and also the benefits of having hedge funds in one's alternative's investment portfolio.
00:01:21
Speaker
Will, hello, welcome.
00:01:23
Speaker
It is a pleasure speaking with you today.
00:01:24
Speaker
Hi, Terry.
00:01:26
Speaker
Thanks for having me.
00:01:27
Speaker
Will, to kick things off, for our listeners who do not know HSBC Asset Management that well, can you please tell us a little bit about HSBC's hedge fund allocation strategy?
00:01:38
Speaker
Sure.
00:01:39
Speaker
The Alternatives Investment Business at HSBC started in 1989, initially as an advisory business.
00:01:46
Speaker
We launched our flagship fund of hedge funds, HSBCGH Fund, in 1996.
00:01:51
Speaker
This fund has annualized 7.2% since inception, with an annualized volatility of 5.4%.
00:01:57
Speaker
That's as of the end of January this year, 2024.
00:02:02
Speaker
Today, we manage just over 23 billion in AUM across commingled discretionary and advisory mandates for high net worth and institutional clients, which puts us in the top six largest hedge fund investors globally.
HSBCGH Fund Objectives and Performance
00:02:17
Speaker
We have 30 investment professionals located across the US, Europe and Asia.
00:02:22
Speaker
Our analysts are based where their hedge funds are based and our portfolio management teams also have a global footprint.
00:02:29
Speaker
The HSBCGH fund aims to achieve a cash plus 5% annualized return by strategically tapping into diversified sources of alpha across a range of hedge fund strategies.
00:02:41
Speaker
The fund is intentionally designed to give a near zero beta with traditional markets, thereby minimizing its exposure to market fluctuations.
00:02:49
Speaker
Its volatility profile aligns closely with that of a fixed income investment.
00:02:55
Speaker
Alternative investments have always been viewed as complementary to our internal capabilities as a way to get the exposure and diversification into areas where we do not have the capability internally.
00:03:06
Speaker
This is why, for now, it will continue to remain an external programme.
Evolution of HSBC's Allocation Model
00:03:11
Speaker
Thanks for that, Will.
00:03:12
Speaker
And how has your allocation model changed, if at all, in the past few years?
00:03:18
Speaker
It has evolved with the industry, although the fundamentals of our construction process remain similar.
00:03:23
Speaker
We are focused on diversification and try to invest in the best strategies and funds across all strategies rather than focusing on a single strategy.
00:03:32
Speaker
This allows us and our clients to weather macro and market cycles.
00:03:35
Speaker
As we develop our business further, we've been doing more in onshore China and India.
00:03:40
Speaker
In China, we've been leveraging our research platform with a selection of a number of leading hedge funds that have quoted to market in China.
00:03:47
Speaker
In India, our due diligence teams have sourced a number of domestic hedge fund solutions.
Impact of High Rate Environment on Hedge Funds
00:03:52
Speaker
With the higher rate environment that we are now in, how have investor expectations shifted?
00:03:57
Speaker
As an investor, we expect higher returns from hedge funds as rates have risen.
00:04:01
Speaker
Some strategies obviously perform better in a higher rate environment, e.g.
00:04:04
Speaker
higher cash rates provide a performance tailwind for hedge fund performance for managed futures and equity market mutual strategies in particular.
00:04:12
Speaker
In higher rate environments, we also note that equity and credit long short strategies have more opportunities on both sides of the book, given higher levels of dispersion in markets.
00:04:21
Speaker
There has been a lot of media attention on the competition stemming from multi-manager, multi-strategy hedge funds in the past few years.
Multi-Manager Hedge Funds: Challenges and Benefits
00:04:29
Speaker
Do you still find this model attractive and why?
00:04:32
Speaker
Yes, we do.
00:04:34
Speaker
But like every strategy, there are winners and losers.
00:04:36
Speaker
Some managers implement the model well and others less well.
00:04:39
Speaker
We're focused on identifying those who we think will be the best throughout cycles and allocate to this select group of names.
00:04:46
Speaker
From the manager's perspective, it's a complex strategy to implement and requires substantial resources to do it well, with not many groups resourced to be successful.
00:04:55
Speaker
In the light of the private equity and credit boom over the past few years, how do you see hedge funds fitting into the multi-asset portfolio?
00:05:03
Speaker
And why are hedge funds still an attractive investment option for investors?
00:05:08
Speaker
Private equity and private credit are fundamentally long asset classes in equities and credit seeking to enhance returns.
00:05:15
Speaker
Within the hedge fund space, you can short these asset classes and allocate to a number of opportunities and exposures which you can't do in these private strategies.
00:05:23
Speaker
These strategies aren't just seeking to enhance return, but also lower risk across portfolios.
00:05:29
Speaker
We believe 2024 presents itself as a conducive environment for investors to allocate to hedge funds.
00:05:35
Speaker
Investors in traditional markets are facing ongoing volatility underpinned by positive correlations between equity and fixed income markets.
00:05:44
Speaker
Hedge funds typically have been able to extract returns from other sources, geopolitical and asset class uncertainty, corporate activity, asset class trends and arbitrage opportunities.
Role of Hedge Funds in Multi-Asset Portfolios
00:05:55
Speaker
They are also more liquid than typical private market funds.
00:05:59
Speaker
For the first time in 13 years, the higher cost of borrowing has resulted in future uncertainty, creating corporate winners and losers.
00:06:07
Speaker
Hedge fund strategies such as equity and credit long short may look to capitalize on the wider market environment and generate alpha on both sides of the book.
00:06:16
Speaker
Macro multi strategy hedge funds may be able to capitalize from geopolitical risks, whilst trend following funds may benefit from these higher cash rates.
00:06:25
Speaker
They complement each other well as the return profile is different and offer that diversification benefit.
Evaluating Hedge Funds Effectively
00:06:31
Speaker
Now, we all know that the evaluation of a hedge fund is absolutely critical.
00:06:36
Speaker
What are the key things that you look out for?
00:06:38
Speaker
And equally, what would you recommend a manager not to do?
00:06:42
Speaker
It will depend on the underlying strategy.
00:06:44
Speaker
At a high level, you want funds who will be consistent, who can apply their investment process, navigate different markets with strong risk principles.
00:06:53
Speaker
Longshore equities offer the benefit of uncorrelated returns.
00:06:57
Speaker
We look for the manager's ability to generate alpha.
00:07:00
Speaker
For relative value funds, who generally tend to be more levered, you're looking for managers with strong risk management principles.
00:07:07
Speaker
For event-driven funds, you're looking for experienced teams who understand the local regulatory environment and are able to delineate the correct risk return trade-off and exit strategy for an investment.
00:07:19
Speaker
For macro funds, you're also looking for strong risk management and also teams with expertise in structuring trades who can take advantage of the volatility and uncertainty across asset classes.
HSBC's Investment Vehicle Selection Approach
00:07:30
Speaker
We have a number of managers on our platform with products that have been hard closed for many years.
00:07:35
Speaker
We are open to all investment vehicles and select the most efficient one based on the situation.
00:07:40
Speaker
We invest across commingled, funds of one and managed accounts.
00:07:43
Speaker
Will, thank you very much for these insights and for joining me today.
00:07:47
Speaker
We do hope that listeners enjoyed learning more about strategies for investing into hedge funds.
00:07:53
Speaker
Thank you.