Top asset manager sees emerging market value
The man who oversees a company managing nearly half a trillion dollars of investors’ money sees long-term growth drivers in emerging markets that could reward patient investors.
Sridhar Chandrasekharan, chief executive officer of HSBC Global Asset Management, was in Bermuda last week to speak with clients.
In an interview with The Royal Gazette, Mr Chandrasekharan spoke about the role Bermuda played in his organisation and dynamics shaping the asset management industry.
HSBC Global Asset Management operates in 30 countries and according to its website had $470 billion of assets under management, as of March 31 this year.
“Our investment has always been on the basis that future cash flows from the investment are being acquired at a reasonable price,” Mr Chandrasekharan said.
“From a fundamental standpoint, we believe there is value in the market. We believe that investors are being rewarded for the risk they are taking in, for example, emerging markets, both debt and equity.”
Emerging market stock indices have struggled this year, with investors growing nervous about global trade concerns and rising interest rates. Mr Chandrasekharan stressed the importance of a long-term outlook.
“There is a powerful demographic dynamic, as development catches up with living standards in the developed world,” he said.
“The latent potential, in terms of lifting those living standards, is a very powerful driver of expectations of future economic growth and the opportunities for future earnings growth.”
Another influence on the industry was the change in the structure of many occupational pension plans, away from the guaranteed benefits model.
“Historically, the presumption was that the only savings option available to retail investors was bank deposits,” Mr Chandrasekharan said.
“Retail investors are far more familiar with broader investments, especially in the context of retirement dynamic we’re seeing around the world, where the responsibility for financial security in retirement is shifting away from employers to the employee, as defined benefit schemes become defined contribution schemes.”
HSBC Global Asset Management (Bermuda) Ltd has about $7 billion in assets under management. It offer fixed income, equity, multi-asset, alternative investment and discretionary fund solutions to insurance companies, corporates, institutional and retail clients.
“Bermuda is an important market for us,” Mr Chandrasekharan said. “We have an important client franchise. HSBC Global Asset Management’s strategy is to be the leading asset manager for HSBC’s clients globally.
“Bermuda’s an important reinsurance hub, for captives and insurance-linked securities as well. Our focus is on how we can continue to support these clients.”
A globally diversified portfolio was increasingly the most suitable model for investors, he said, and with that in mind, clients valued HSBC’s global scale.
Technology is improving efficiency in asset management and increasing accessibility to investments, but in terms of investment decisions, Mr Chandrasekharan said humans would continue to play a critical decision-making role.
“It’s important to think of technology as making the activities more efficient and providing better decision support — but there is an important judgemental aspect to this that we should not overlook,” he said.
“The key focus is the judgment in the investment decision. The active-passive debate is about whether there is an index-based strategy that is somehow differentiated. But there is a judgemental layer in terms of making that choice and a judgmental layer in deciding on asset allocation.”
The market volatility of recent weeks is something Mr Chandrasekharan was not surprised by. One reason behind it, he said, could be evolving financial-services regulation that had significantly constrained banks’ ability to “warehouse risk”.
“When, especially in periods of stress, investors are selling assets, historically you would expect an agent in the market that would warehouse those positions,” he said.
“If that agency activity has been globally constrained, then the extent of price movement then becomes more exaggerated.
“In my view, this happens more in periods of stress than it does in periods when sentiment is positive, because then there’s a natural balance in terms of companies issuing debt and equity.”
For more information, visit: https://www.hsbc.bm/1/2/corporate/global-asset-management
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