HSBC sells PE unit to management

The UK bank will retain a near-20 per cent stake in Montagu Private Equity, which will remain the bank’s primary vehicle for European private equity investment.

HSBC Private Equity has become the latest captive to separate from its banking parent, following a management buyout of the business led by current chief executive Chris Masterson.


Masterson and management have taken an 80 per cent stake in the business, which will be renamed Montagu Private Equity, with the bank retaining a near 20 per cent stake. Financial terms for the deal have not been disclosed.


According to Masterson, the decision to spin out was sparked last May when HSBC announced plans to invest $750m over the following five years in a new $1.2bn fund being raised by AEA Investors, a firm launched in 1969 with money from the Mellon, Rockefeller and Harriman families that has attracted capital from additional high net-worth individuals and targets investment opportunities in the US and Europe.


“We realised that being a wholly-owned private equity player in the buyout business, where you’re buying controlling stakes, can be quite complicated if you’re a bank like HSBC, which operates a major investment banking business that sometimes advises people who are seeking to acquire businesses the private equity arm is trying to buy,” Masterson said. “These conflicts are all manageable, but it’s still not wholly satisfactory.”


Montagu currently manages a E2bn fund that closed in October, half raised from HSBC and half from third party limited partners, which is ten per cent invested. The firm also has another E1bn under management on behalf of HSBC in a legacy portfolio.


HSBC has agreed to commit 50 per cent of the capital Montagu will raise for future funds. Montagu has already launched a new fund, the Montagu Capital Fund, which Masterson said is targeted at the UK micro-mid cap market, the below-£50m enterprise value businesses that are off the radar for the firm’s main fund. Montagu Capital held a first close last night after receiving a £25m commitment from HSBC. The fund is targeted at £125m.


Montagu has no immediate plans to raise a new major buyout fund. “We aim to be in business for the long-term,” Masterson said. “The buyout fund we just raised is only one year into its investment life of five years. It’s four years before we run out of cash, so we won’t be fundraising for another two and half to three years.”


“When you look back, there have been a lot of spinouts in Europe,” Masterson said. “Cinven was wholly owned by the Coal Board in the UK before its privatisation. CVC Capital Partners was a wholly owned subsidiary of CVC. Doughty Hanson was part of Standard Chartered Bank five years ago. So it has accelerated, but it’s not new as a phenomenon, and it's just following the natural model the US is the main example of.”


HSBC Private Equity Limited was previously named Montagu Private Equity Limited between May 1994 and February 1996. The Montagu name derives from the eponymous stockbroker founded in London in 1853 by Samuel Montagu. Midland Bank acquired a one third share in the Montagu Trust in 1967 and 100 per cent ownership in 1973. Midland Bank was subsequently acquired by HSBC Holdings in 1992.