The Asia expansion story may have been dealt a few blows by COVID-19 and rising protectionism, but the rise of a large, affluent middle class in the region continues to prompt firms to look for market share. The HSBC deal - which awaits regulatory clearance - fits into this narrative.
HSBC’s recent purchase of an India-focused asset management business signifies how the country’s economy is an increasing draw for firms at a time when rival emerging giant China is falling under an economic cloud.
While the bank’s UK headquarters was hunkering down to mark Christmas – albeit in restricted fashion because of Omicron – its HSBC Asset Management (India) Private Ltd business announced on 23 December that it had agreed to acquire L&T Investment Management for $425 million. LTIM is a wholly-owned subsidiary of LTFH and the investment manager of the L&T Mutual Fund.
London/Hong Kong-listed HSBC said that the proposed acquisition, subject to regulatory approval, will be “another milestone” in its drive to be a “leading wealth manager in Asia.”
The LTIM business, which is the 12th largest mutual fund management firm in India, has around $10.8 billion of assets under management, comprising 2.4 million active portfolios. In the year ended March 2021, the group reported $25 million of pre-tax profit and $46.9 million of income. LTIM offers a distribution platform, encompassing banks, regional distributors, 50,000+ independent financial advisors, established digital platforms and a footprint across 65 locations throughout India.
When the deal is completed and when regulators sign off on the agreement, HSBC said that it intends to merge the operations of LTIM with that of its existing asset management business in India, which had AuM of $1.6 billion as of September 2021.
“This acquisition reflects the importance of India to our growth strategy and brings us one step closer to becoming a leading asset manager in Asia-Pacific. Buying LTIM will enable us to scale up our business in the country and significantly enhance our capabilities and expertise, particularly in equities,” Nicolas Moreau, chief executive of HSBC Asset Management, said. “The Indian asset management industry’s AuM has quadrupled over the past decade and is poised for further strong growth. Becoming a top 10 player in this competitive sector will be within our reach once we integrate the two businesses.”
Noel Quinn, HSBC’s group CEO, said: “Combining LTIM with our existing Indian asset management business gives us the scale, reach and capabilities to capture some of the 15 to 20 per cent annual asset management market growth expected in India over the next five years. It also boosts our ability to serve India’s growing wealth needs, along with those of the 18 million non-resident Indians around the world."
Quinn noted that combined with HSBC’s announcement to acquire AXA Singapore, the move showed the group’s Asia ambitions in the wealth space. (In August, HSBC Insurance (Asia-Pacific) Holdings, an indirect wholly-owned subsidiary of HSBC, agreed to acquire all the issued share capital of AXA Insurance Pte Limited (AXA Singapore) for $575 million.
HSBC will pay for the proposed acquisition from existing resources, saying that the transaction would have a minimal impact on its Common Equity Tier 1 ratio. The bank said that it expects the acquisition to be immediately accretive to the earnings when the transaction is completed, achieving a return on investment of greater than 10 per cent in the medium term.
In February 2020, HSBC melded its retail banking and wealth management, asset management, insurance and private banking businesses to create Wealth and Personal Banking.
The India move is part of the group’s ambition is to be Asia’s leading wealth manager by 2025, it said. Asia generates around half of HSBC’s S$1.6 trillion global wealth balances and nearly 65 per cent of the Group’s wealth revenues. The strategy fits with the firms’ continued belief that the centre of economic gravity is shifting to Asia.
Among recent India-focused stories, this news service reported in early December that Edelweiss, the Indian financial services group, increased its stake to 44.16 per cent in its associate company, Edelweiss Wealth Management. A newswire report in early November 2021 said that the bank is considering whether to re-enter onshore private banking in India. The bank quit the Indian private banking business in 2015 as part of a group strategy that saw it – like its peers – rationalise its network of booking centres.