HSBC Leverages SVB Acquisition to Expand Lending Against Wealthy Clients' Private Assets

HSBC is capitalizing on opportunities to lend against wealthy clients' private assets following its acquisition of the UK unit of Silicon Valley Bank (SVB). This move leverages HSBC's balance sheet strength to finance the fast-growing market of private assets.

As the largest bank in Hong Kong and Europe, HSBC is "responding to the evolution in the asset markets," according to Jyrki Rauhio, head of credit advisory for Asia-Pacific at HSBC Global Private Banking. Rauhio noted the significant growth in private or alternative assets, highlighting that the acquisition of SVB’s UK unit, now rebranded as HSBC Innovation Banking, could open new business opportunities in private markets.

"The rise of the private markets poses a challenge and an opportunity for wealth managers and private banks worldwide to respond to it because, traditionally, private banks have been focusing on public markets and operating more like stockbrokers," Rauhio said. As wealthy individuals increasingly invest in illiquid private assets, they require financing services to unlock liquidity.

"Usually, [private] banks lend against stocks, bonds, and some mutual funds, but they do not necessarily lend against alternative funds like we do," Rauhio explained. "We can leverage our strong balance sheet and superior in-house expertise on these private funds." He added that the Innovation Banking unit provides "additional knowledge, access and opportunity," especially in the venture space. SVB, before its collapse, was a key bank for Silicon Valley start-ups since the 1980s, with access to funds in Asia and globally.

Rauhio mentioned that the universe of funds HSBC lends against is expanding, with the bank offering loans against most alternative assets and tailored financing for clients with more exotic portfolios. Additionally, the bank provides "GP financing" for private fund managers, or general partners, to help them finance their commitments to their funds and manage cash flows.

Historically, individuals have not raised funding against their alternative assets due to a lack of banking solutions, Rauhio noted. However, the landscape has changed with rising interest rates, making private asset owners less sensitive to the cost of funding against higher-yield alternative assets. "That is why funding against alternatives is still very attractive, because you are typically paying single digits and typically yielding double digits," he said.

According to McKinsey & Co., global private equity assets under management (AUM) have grown by 22 percent annually over the last five years, reaching US$8.2 trillion as of June 2023. Individual investors in Asia-Pacific are increasing their capital commitments to private equity funds, with an expected growth of 26 percent by 2025, outpacing all other markets, as estimated by Boston Consulting Group in 2021.

"Hong Kong has become an important hub in Asia and globally for private markets given the number of fund managers specialising in private assets based here," Rauhio said. The city is Asia’s largest hedge fund center and the second-largest private equity hub after mainland China. Government statistics show more than 250 open-ended fund companies and 780 limited partnership funds are registered in Hong Kong.

"Because of our large client base in places like Hong Kong, we are an attractive partner for some of the biggest funds that want to raise money from individuals and family offices," Rauhio stated. "The opportunity is not only for a wider client base that wants to invest in this asset class, but also for managers who have been running these fund management companies, who have become very wealthy individuals and have their own financial needs."

By fLEXI tEAM