Wed, 04/01/2006 - 06:27
Barbara Rupf Bee was appointed Chief Executive Officer of HSBC Republic Investments Limited (HRIL), the HSBC Group's dedicated fund of hedge fund investment adviser, in September 2005, replacing Paul Dunning.
HRIL is a member of the HSBC Group that operates within the HSBC Private Bank (the Group's international private banking business) network. HSBC Private Bank provides private banking and trustee services to high net worth individuals and their families through 70 locations in the Americas, the Asia-Pacific region, Europe and the Middle East. It had overall client AUM in excess of USD 26 billion at 30 September 2005.
Rupf Bee reports to Gabriel Perahia, Chairman, HSBC's Alternative Investment Group (AIG). Prior to her appointment as CEO, Rupf Bee was global head of sales and business development for HSBC's AIG. She has worked closely with the senior management team, which remains unchanged, since 2003.
Rupf Bee joined HRIL from Union Bancaire Privée, Zurich, where she had been in charge of the products and sales department since November 2002. Before that, she had spent nine years with the Julius Baer Group. In 1999, she was appointed CEO of creInvest AG, a fund of hedge funds initiated by Julius Baer and listed on the Swiss Exchange. Prior to 1993, she worked for Nomura Securities and JP Morgan.
HW: What is the size and scale of HRIL's business?
BRB: Within HRIL, we have total AUM of USD 5 billion, including USD 700 million of long only funds.
HRIL, which is based in London, currently advises on 13 main fund of hedge funds and a range of discretionary portfolios for ultra high net worth and institutional clients.
HW: What is your brief at HRIL?
BRB: It goes back to September 2003, when I joined HSBC AIG. At that time we had a great hedge fund business, which we acquired from Republic National Bank. It was predominantly handled in terms of advisory out of Geneva and, in terms of manufacturing and distributing fund of hedge funds and institutional mandates, out of London.
We had good traction within the private bank with high net worth investors, but external distribution was almost non-existent as was traction in the institutional market, where select mandates had been taken on by HRIL, but without a real focus on servicing the institutional space.
Together with Gabriel Perahia, Chairman of HSBC AIG, we developed a strategy to change this situation and diversify our client base. In 2003, the split between HNWI/institutional business was 95/5, today it is 30/60 with the balance coming from third-party distributors.
HW: Which of these three sectors will grow fastest?
BRB: The area of third party distribution is a key area of growth for us. We have conducted a pilot in Switzerland where a lot of smaller asset management houses and private banks are using our wide range of fund of hedge funds, especially our targeted fund of funds, within their asset allocation process. Based on the success of this pilot we will roll it out more in the UK and in other countries.
It's a great means of distribution and getting the name around, and is non-sales intensive once you've made it through the due diligence process.
HW: What are you aiming at, in terms of the business mix?
BRB: Ideally, we will end up with a business mix of around 40 per cent HNWI, 40 per cent institutions and 20 per cent third party distributors, and that is the kind of diversified mix needed for stable development of this business through difficult market periods. Achieving this is really our chief goal.
HW: What was the product line-up when you joined in 2003 and how has you approach to product development changed since then?
BRB: HRIL has a good range of globally diversified fund of hedge funds. Within this we have developed the Unifolio range of products. Unifolio is a unique set of strategy or geographically focused fund of hedge funds, rather like building blocks, where investors can use funds of funds to customize their portfolios with the kind of targets they want to achieve.
When we developed the Unifolio fund of fund portfolio we developed targeted portfolios for each market. For example, Asian clients are more risk takers than conservative investors - they love volatility, so the fund of funds products we put together for them are very different.
As investor knowledge improves, funds of hedge funds are moving to be part of investor portfolios with targeted allocations and we are positioning to meet this trend - we now view ourselves as more of a solutions provider than a product provider.
HW: Are they any exceptions to this market profile?
BRB: With large family offices, as well as some institutions and smaller banks, we are less of a solutions provider, and more a provider of custody and execution services because they have their own investment teams.
HW: Picking up on your last comment, what other services does HSBC Private Bank provide?
BRB: Many family offices and even competitors such as large fund of funds now bank with us for execution and holdings. Our back office is proficient at handling hedge fund transactions and execution is handled out of Guernsey, Geneva, Zurich, Hong Kong, Singapore and New York, offering clients a wide choice of locations.
In addition, while growing the discretionary business within the private bank, we also started developing a business called the credit business, where we use the due diligence that we do for fund of funds and portfolio management, to rate and advance credit on hedge fund portfolios. This a rather unique business conducted by a key team based in Geneva with hubs in other locations.
HW: How transparent is HRIL in communicating with its clients?
BRB: We are rather open about the information we provide to our customers over the information platform, which we built over the last 18 months. We give clients our blueprint of where we see the various strategies, information on fund managers and market information on the hedge fund industry. By being able to apply that to strategically or geographically-focused funds, the more evolved clients are able, together with their advisers, to build their portfolio either on the basis of single funds or on the basis of funds of funds.
HW: Do investor tastes differ from region to region?
BRB: Yes, what we see are the very evolved HNWIs in the Middle East and Switzerland, being very comfortable with single fund portfolios, and they are also comfortable with lock-ups. In contrast, Asian and South American HNWIs prefer to invest in funds of funds, they prefer less restrictions on moving their assets out of the funds.
We also try to list funds relevant to any region with the local fund authorities, providing maximum protection and comfort to investors, and in line with HSBC's global credo of offering local solutions to local investors.
HW: What is your flagship product?
BRB: We have had a lot of success with our flagship fund, the broad-based and well-diversified GH Fund which has grown in size to over USD 900 million AUM. We now see the further emergence of strategy and geographically focused fund of funds and, as I mentioned previously, we are anticipating this next phase of investor preferences with a range of solutions.
HW: Which are your largest markets?
BRB: Our largest markets are Switzerland and the Middle East. Asia is fast catching up, as is Italy, and we have had a real breakthrough in Germany this year, mostly among institutions.
In the UK, the market growth has been slow for HRIL so far, but we expect this to change. On the HNWI front we offer the Absolute range of closed ended funds. These are two UK-focused products, a European product (HEAL - see previous Hedgeweek article) for which we are currently raising assets together with Dresdner Bank, and a globally diversified product - HGAL. UK institutional clients are embracing hedge funds, and are still getting to grips with introducing hedge funds into the general asset allocation mix, and using them to add leverage and reduce risk.
On the continent, we conducted some very successful pilot projects focused on educating boards of trustees and investment boards and usually through knowledge comes comfort. We will apply this process to the UK market and we expect to see results from this.
HW: What are you doing in the German market?
BRB: We are currently focusing on the institutional market there. The BAFIN hedge fund regulations allow for only very liquid and very transparent products to be used on a broad basis in the German market.
However, most of our institutional clients in German require a tailored hedge fund product that captures a specific requirement they have in their overall portfolio.
So, using the HSBC Group facilities, we offer German institutional clients an offshore hedge funds portfolio service, packaging it into a total return certificate which we already distribute locally through our partner, Dusseldorf-based HSBC Trinkhaus, an HSBC Group company.
So they have the benefit of using our huge sub-set of excellent managers, and based on our portfolio they can establish a local certificate in which they have 100 per cent performance participation. This service has already raised EUR 150 million.
HW: What about the Italian market?
BRB: HRIL has been active in the Italian market for over two years. The Italian investors tend to prefer fixed income products, as in our experience, they have steered away from equities. In general I would say that Italian institutional investors are attracted to a broadly diversified portfolio of hedge funds with relatively low risk profiles.
To distribute hedge funds in Italy you have to have a 'speculative' investment company that runs the investment out of Italy, rather than being able to sell offshore products.
We don't have this structure at HSBC, what we do instead in Italy is act as an adviser to certain Italian funds. We have an agreement with a company called Fineco, based mainly in Milan and Rome, and we are an adviser to one of their fund of funds. We are also a custodian to many of the large Italian funds of funds, and we see real growth prospects in the Italian market going forward.
HW: What do you see as the key challenge for the hedge fund industry?
BRB: I really believe that for investors to feel comfortable with hedge funds there is a duty on the industry to enhance clients' knowledge and awareness of the benefits they can provide. Information and education is crucial at this juncture in the development of the hedge funds market. Clients have seen a huge product push over the last few years, they now need to feel comfortable with what they are buying.
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