HSBC Private Bank Luxembourg

Peter Yeates, Managing Director of HSBC Private Bank in Luxembourg, says, “For us one of the key differentiators is the way we motivate our teams and enable them to deliver the best combination of value and service—whether it be for a corporate, a high-net-worth individual or a family-office type of client. This is reinforced by the tag line for our private banking group: assume nothing. Without any preconceptions, we first understand the needs of our clients, their time horizon, risk tolerance, liquidity requirements, tax situation and personal goals, etc, and only then propose the best-suited solutions that we can find in the market.”

"Our aim is to be a trusted friend and advisor more than just a professional wealth manager." —Peter Yeates

“In line with our open architecture approach,” he further adds, “we have both in-house and external discretionary management solutions. Our in-house ‘Actively Managed Portfolios’ take an active investment approach, using carefully selected external and internal managers within a range of seven building blocks and different currencies. The asset allocation and fund manager selection is looked after by a global team of investment professionals in various geographical areas, who meet regularly to discuss the allocations.”

For a more strategic approach HSBC offers—together with SEI, a key partner of the group—a range of investment mandates suitable for different risk profiles. These are made up of 18 building blocks spread across a number of different asset classes. In addition to diversification by geography, currency exposure and category, a key differentiator is due-diligence in manager selection. For example, less than one percent of the 15,000 investment managers meet the bank’s selection criteria. Of those that do, approximately 15% are replaced every year. This rigorous manager oversight goes a long way to enhancing portfolio quality.

“Based on the client's risk profile and investment horizon, asset allocation varies across the building blocks,” adds Yeates. “If a client, however, wants to pursue a more active investment strategy or concentrate on one or more specific building blocks, such as UK equities, euro core fixed income, US large caps or something else, we will try and understand the reasoning and then give our advice and act appropriately. But this advice would fall outside our core discretionary management mandates. .”

For clients wishing to include alternative investments in their portfolios, the bank offers a selection of in-house funds of hedge funds. HSBC currently manages more than USD 42bn of client assets in this asset class, with relatively low volatility and a strong track record of performance. The group’s investment arm in France—Louvre Gestion—has also performed well over time on long-only funds, and clients of the Luxembourg office have ready access to this expertise through the Louvre Gestion product range. HSBC’s in-house emerging market funds on India, Russia and China are also top performers and good examples of the Group’s strength in emerging markets. The Luxembourg office also offers traditional fund of funds discretionary management, focusing mainly on long-only funds that are managed by the local asset management team. This local capability adds to the Luxembourg subsidiary’s location-based services.

“One jurisdictional advantage of Luxembourg is that we have an EU passport—which allows us to sell our services within the European community,” says Yeates. “Luxembourg is also ideally suited as the EU headquarters for an international Family Office structure as it offers a wide range of flexible solutions designed to maximise the families’ wealth preservation for future generations”.

Looking beyond location factors, there are synergies within the group that the bank’s more regional competitors can only dream of. For instance, HSBC is one of the world's largest branch networks with around 125 million customers—a tremendous source of contacts and private banking business. This reflects the group’s current global internal campaign: ‘Think Joined Up’. The bank’s other advantage, compared to a small wealth-management boutique, is that as the world is changing and becoming a more controlled environment, private bankers need to integrate enormous amounts of technology in comparison to what was needed a couple of decades ago. This is not only to meet the regulatory requirements, but for investment management as well.

“For instance,” explains Yeates, “if you are able to process a stock order on a straight-through basis you can dramatically reduce cost. If the system can find the best-priced broker from the moment the relationship manager puts the deal into the system, without any additional human intervention, you can save more than 95% of the subsequent transaction costs. But to achieve such effectiveness, you not only need a sophisticated system with the necessary checks and balances, but also economies of scale. A major factor which enhances our position is that we have access to all the resources and expertise of the HSBC group.”

This ‘global reach’ enables the relationship managers and client-service specialists in Luxembourg to tap the wider HSBC network to access the appropriate solution that a client might need. So in this way the bank provides global access to all the wealth-management solutions from a single point of contact. For example, a division of HSBC private bank is 'Global Wealth Services'. Within this division there are about 800 professionals. They provide international wealth-management solutions such as fiduciary and estate-planning services for establishing foundations, private investment companies and trust administration in a number of jurisdictions.

Says Yeates: “From here we can provide all the necessary services to get our clients into the jurisdiction best suited to their needs—be it a Luxembourg corporate structure, a trust structure in Bermuda, Cayman Islands or elsewhere.”

HSBC is also one of the biggest providers of trustee services. Indeed, the bank offers a range of geographical solutions and enables its clients to choose the jurisdictions they want. “Clients can decide whether they want to be managed as a global relationship or not,” adds Yeates. “But until they provide the necessary approvals their confidentiality is fully respected between jurisdictions—in line with regulations. We nevertheless know that many clients do prefer to have a central relationship manager who can coordinate all their accounts with the HSBC Group, and we are very happy to provide this service on request.”

HSBC Private Bank also offers a variety of specialised and niche services. For instance, those based around corporate finance, such as arranging acquisition capital, private placements and the introduction of direct investment opportunities to private equity investors; it advises on various multi-jurisdictional issues, especially geared towards clients with assets and financial interests in multiple countries; and offers, among others, services based around immigrant investor programmes for clients wishing to establish a permanent residence in a number of countries worldwide—with Canada as a good example.

Although clients from Latin America, Middle East and Europe are the historical markets for the Luxembourg office, additional regions with a strong growth potential are the emerging markets of Eastern Europe and the non-domiciled UK community. Looking ahead, the opportunity for the bank, therefore, is to leverage its inherent strengths and to maintain, within that framework, the reliability and close customer contact that made it a sought-after wealth manager in the first place.