HSBC Group sells off Asia private equity arm

HSBC Group sells off Asia private equity arm

Mumbai: The management team at HSBC Private Equity (Asia) Ltd, the private equity arm of HSBC Group Holdings PLC, has bought out the PE business from the bank and has renamed it Headland Capital Partners Ltd.

HSBC Private Equity, now Headlands, has $2.4 billion under management. According to the terms of the buyout, Headland’s management team now owns 80.1% of the company, while HSBC retains a 19.9% stake. The price paid by the management was not disclosed.

In a statement released on Wednesday, George Raffini, managing partner of Headland Capital Partners, said, “We have been advising Asian private equity and venture capital funds for more than 20 years and, following the buyout, Headland’s team looks forward to continuing our close partnership with portfolio companies and delivering attractive returns to our funds’ investors." He added, “Initially, 16 colleagues are joining me as owners of our business."

In India the PE firm has invested in companies such as Trivitron Healthcare Pvt. Ltd, NewGen Software Technologies Ltd, FINO Ltd and Avitel Post Studios Ltd.

Headland currently advises both private equity and venture funds. The private equity funds focus on mid-market expansion capital and buyout transactions in Asia, while the venture funds typically target early to mid-stage investments in technology-focused and high-growth businesses in Asia. The geographic focus of the funds is Greater China, South Korea, Southeast Asia and India.

“In case of a management buyout, the price paid by the management is typically a percentage of the underlying assets under management," said Vikram Utamsingh, executive director and head private equity group at audit and consulting firm, KPMG India Pvt Ltd.

The exit from the PE business by banks comes at a time when banks around the world are looking to sell their non-core businesses as they face regulatory challenges.

A recently passed US financial services legislation restricts banks from engaging in proprietary trading and restricts their investments in hedge funds and private equity. HSBC is not the only bank exiting its PE business.

Citigroup Inc has agreed to sell its PE unit to StepStone Group LLC and Lexington Partners, said a 7 July Reuters report.

StepStone will provide management and advisory services for the unit’s $4 billion fund of funds, feeder and co-investment funds while Lexington will buy a portion of the bank’s proprietary capital investments in the various funds and provide oversight for the co-investment portion of the unit

In India, Axis Bank Ltd, the country’s third largest private bank by assets has announced its plan to exit the PE business and is currently in the process to sell it.

“Traditionally VC and PE have been non institutional businesses. This trend of banks moving out of PE business is likely to increase," said Darius Pandole, partner at PE fund New Silk Route Advisors Pvt Ltd.

Once the PE firm is independent, it allows greater flexibility in running the business as there is no conflict of interest, he added.

According to KPMG’s Utamsingh, even limited partners— typically endowment funds, pension funds and family offices that invest in PE—prefer independent fund managers over institution or corporate- backed PE firms.

“So fund-raising will also become easier for independent funds," he said.