CEO Nicolas Moreau(who took over in 2019 after previous stints at AXA IM and DWS) and CIO Xavier Baraton(promoted into the role in 2021) have embarked on an ambitious plan to foster investment excellence.
They first revamped investment teams’ compensation structures, which were previously largely discretionary and non-formulaic, but are now more tightly linked to the performance of the funds managed, over one and three years. This has strengthened the alignment of portfolio managers’ interests with those of investors, although including longer time periods, such as five years, would bring the formula closer to industry standards.
The duo has also striven to increase active risk across the fund range, incentivizing portfolio managers to take higher-conviction, more-concentrated exposures, and revamping some strategies that were too benchmark-aware.
Finally, while HSBC GAM had until now kept a very diversified fund lineup spanning virtually all asset classes, geographies, and investment styles, it is gradually refocusing on a shorter list of key areas. One of these areas is thematic investing, led by Pierin Menzli, who joined in 2022 from Contrast Capital. The firm has so far launched a Metaverse strategy and a Global Circular Economy fund, and has plans to continue developing thematic strategies based on a sophisticated and granular taxonomy. This pivot warrants some caution, as thematic strategies can be difficult for investors to use over the long term. In parallel, the firm has continued to launch a flurry of ESG strategies, which offsets the number of product rationalizations elsewhere. HSBC GAM also retains a well-managed ETF and index fund business which, while growing incrementally, has so far failed to reach the scale of its large European competitors.
Overall, most of the initiatives taken over the past three years are encouraging, but they have yet to translate into significantly higher success ratios across the fund range. The firm retains its Average Parent Pillar rating for now.