HSBC 2009 Annual Report Download - page 190

HSBC HOLDINGS PLC
Report of the Directors: Impact of Market Turmoil (continued)
SPEs > CNAV funds / Enhanced VNAV funds / Non-money market investment funds / Securitisations / Other
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income from the funds and the expense payable to
third-party holders of units in the funds are presented
within ‘Net interest income on trading activities’.
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 any letters of limited
indemnity provided to the CNAV funds. HSBC’s
exposure to investment in units within the CNAV
funds at 31 December 2009 amounted to
US$1.0 billion (2008: US$0.7 billion). There was no
exposure to letters of limited indemnity (2008:
US$58 million).
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.
During 2008, HSBC consolidated two of its
French dynamic money market funds as a result of
continued redemptions by unitholders. HSBC’s
aggregate holdings in these funds at 31 December
2009 amounted to €0.5 billion (US$0.6 billion
(2008: €0.5 billion (US$0.6 billion)).
HSBC’s maximum exposure
HSBC’s maximum exposure to consolidated and
unconsolidated Enhanced VNAV and consolidated
and unconsolidated VNAV funds is represented
by its investment in the units of each fund. HSBC’s
maximum exposure at 31 December 2009 amounted
to US$0.6 billion (2008: US$0.6 billion) and
US$0.2 billion (2008: US$1.6 billion), for Enhanced
VNAV and VNAV funds, respectively.
Total assets of HSBC’s money market funds which
are on-balance sheet by balance sheet classification
At 31 December
2009 2008
US$bn US$bn
Cash ..................................... – 0.3
Trading assets ...................... 42.8 43.3
Other assets .......................... 0.3 2.3
43.1 45.9
Non-money market investment funds
Through its fund management business, HSBC 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 its own investments in the funds.
In aggregate, HSBC has established non-money
market funds with total assets of US$255.4 billion at
31 December 2009 (2008: US$200.3 billion).
The main sub-categories of non-money market
funds are:
• US$115.6 billion (2008: US$83.1 billion) in
specialist funds, comprising fundamental active
specialists and active quantitative specialists;
• US$121.7 billion (2008: US$96.2 billion) in
local investment management funds which
invest in domestic products, primarily for retail
and private clients; and
• US$18.1 billion (2008: US$21.0 billion) in
multi-manager funds which offer fund of funds
and manager of manager products across a
diversified portfolio of assets.
Total assets of HSBC’s on-balance sheet non-money
market funds by balance sheet classification
At 31 December
2009 2008
US$bn US$bn
Cash ........................................... 0.2 0.4
Trading assets ........................... 0.2 0.2
Financial instruments
designated at fair value ......... 5.3 2.3
Financial investments ............... – 0.8
5.7 3.7
HSBC’s maximum exposure
HSBC’s maximum exposure to consolidated
and unconsolidated non-money market funds is
represented by its investment in the units of each
respective fund. HSBC’s exposure at 31 December
2009 amounted to US$6.8 billion (2008:
US$4.4 billion).