HSBC plots $1.5bn investment arm spin-out

HSBC is again making moves to reduce its balance sheet’s private equity exposure.

The bank has hired UK-based Campbell Lutyens to advise on the potential sale of its ‘direct principal investments’ arm, according to three sources familiar with the matter.

It was unclear at press time whether current management might be involved, or what assets would be included in a potential sale or spin-out transaction; however, the sources said a deal was expected to value the group at around $1.5 billion.

HSBC declined to comment. Campbell Lutyens could not be reached for comment.

The bank’s principal investment arm “has a global footprint encompassing multiple businesses and geographies”, according to HSBC’s website, which notes it’s usually the lead or a co-investor alongside clients and partners in Asia, Africa, Europe, the Middle East and Latin America. It typically invests $25 million-$75 million in LBOs, expansion and growth capital, restructurings, structured equity and pre-IPO capital.

The group “was formed in October 2006 as a way of bringing together all of HSBC’s core principal investing activities”, according to a profile on tech database Crunchbase.

Should a deal come to fruition, it would be the latest in a string of private equity-related groups to be divested by HSBC over the past four years.

In June 2010, HSBC said it was considering selling five of its private equity fund management businesses to their respective management teams as part of a global initiative “to meet the requirements of a changing regulatory environment”. At the time, HSBC’s private equity businesses were worth a combined $8.8 billion and included HSBC Private Equity Asia (HPEA); infrastructure group HSBC Specialists Investments; HSBC Capital in the US; HSBC Capital Canada; and HSBC Private Equity Middle East.

Hong Kong-based HPEA later spun out to become Headland Capital Partners. In 2011, HSBC Capital’s Americas private equity team formed Graycliff Partners, a mid-market private equity, mezzanine and real estate firm, while HSBC Capital Canada became Fulcrum Capital Partners and HSBC Specialist Investments is now known as InfraRed.

In 2012, HSBC also sold its remaining 19.9 percent stake in UK-based Montagu Private Equity nine years after the mid-market buyout group spun out from the bank.