HSBC 2008 Annual Report Download - page 183

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Composition of CNAV asset portfolio
2008
US$bn
ABSs ............................................................ 0.8
Certificates of deposit .................................. 13.0
CP ................................................................. 18.1
Floating rate notes ....................................... 5.2
Government agency bonds .......................... 1.9
Other assets .................................................. 4.8
Total ............................................................. 43.8
HSBC’s maximum exposure
HSBC’s maximum exposure to consolidated and
unconsolidated CNAV funds is represented by
HSBC’s investment in the units of each CNAV fund,
and by the maximum limit of the letters of limited
indemnity provided to the CNAV funds. HSBC’s
exposure at 31 December 2008 amounted to
US$0.7 billion (2007: US$1.3 billion) and
US$58 million (2007: US$41 million) for investment
in units within the CNAV funds and letters of
limited indemnity, respectively.
Enhanced Variable Net Asset Value funds
Enhanced VNAV funds price their assets on a fair
value basis and, consequently, prices may change
from one day to the next. These funds pursue an
‘enhanced’ investment strategy, as part of which
investors accept greater credit and duration risk in
the expectation of higher returns.
As part of action taken in respect of these
funds in the second half of 2007, HSBC acquired
some of the underlying assets and shares in two of its
French dynamic money market funds. HSBC’s
aggregate holding in these funds at 31 December
2008 amounted to €0.5 billion (US$0.6 billion)
(2007: €0.9 billion; US$1.4 billion). As a result of
continued redemptions by unitholders during 2008,
HSBC’s holding in the two funds increased to a level
at which it obtained the majority of the risks and
rewards of ownership, and it therefore consolidated
these funds.
HSBC’s maximum exposure
HSBC’s maximum exposure to consolidated and
unconsolidated Enhanced VNAV and consolidated
and unconsolidated VNAV funds is represented
by HSBC’s investment in the units of each fund.
HSBC’s maximum exposure at 31 December
2008 amounted to US$0.6 billion (2007:
US$5.9 billion) and US$1.6 billion (2007:
US$0.3 billion), for Enhanced VNAV and
VNAV funds, respectively.
Total assets of HSBC’s money market funds which
are on-balance sheet by balance sheet classification
At 31 December
2008 2007
US$bn US$bn
Cash ...................................... 0.3 –
Trading assets ...................... 43.3 0.7
Financial instruments
designated at fair value .... – 5.0
Other assets .......................... 2.3 –
45.9 5.7
Non-money market investment funds
HSBC, through its fund management business, has
established a large number of non-money market
funds to enable customers to invest in a range of
assets, typically equities and debt securities. At the
launch of a fund HSBC, as fund manager, usually
provides a limited amount of initial capital known as
‘seed capital’ to enable the fund to start purchasing
assets. These holdings are normally redeemed over
time. The majority of these funds are off-balance
sheet for HSBC because the Group’s limited
economic interest means it does not have the
majority of the risks and rewards of ownership. As
the non-money market funds explicitly provide
investors with tailored risk, the risk to HSBC is
restricted to HSBC’s own investments in the funds.
In aggregate, HSBC has established non-money
market funds with total assets of US$200.3 billion at
31 December 2008 (2007: US$288.8 billion).
The main sub-categories of non-money market
funds are:
• US$83.1 billion (2007: US$132.0 billion) in
specialist funds, which comprise fundamental
active specialists and active quantitative
specialists;
• US$96.2 billion (2007: US$126.4 billion) in
local investment management funds, which
invest in domestic products, primarily for retail
and private clients; and
• US$21.0 billion (2007: US$30.4 billion) in
multi-manager funds, which offer fund of funds
and manager of manager products across a
diversified portfolio of assets.