he Bank of New York
(BNY) is taking over the HSBC Funds
. The move was announced today and comes after expectations that Wilmington Trust
would be taking over as advisor to the funds. The change is one of a few driven by a truly independent board, say those involved.
The eight funds hold roughly $200 million in assets and include 4 money market funds, an international equity fund, a growth and income fund, a fixed income fund and a New York tax free money market fund.
The bank already offers 16 funds with more than $9 billion in assets in its BNY Hamilton Funds family. BNY plans to merge the HSBC Funds into similar funds in the BNY stable, explained Kevin Bannone
executive vice president and chief investment officer. He added that BNY is also planning to add the New York tax free money market fund to its family as it does not already offer a like fund.
The decision to go with BNY came just two weeks after the signed letter of agreement between Wilmington and HSBC Funds' board came undone, said Steve Howard
, HSBC Funds' fund counsel at Paul, Weiss, Rifkind, Wharton and Garrison
in New York City. He explained that the deal with Wilmington unraveled when the Delaware-based bank was unable to provide comparable performance for four of the eight funds for proxy statements to be filed with the SEC.
Wilmington was also unwilling to cap fees on the funds for the three year period that the board was seeking. Instead, it told the board it was only willing to cap the fees for one year, said Howard. At that point he explained that "too many issues were coming up" to salvage the deal.
When the deal came undone, the fund's board found itself working late in the game with a buzzer about to sound. HSBC had already informed the board that it would cease advising the funds on September 28, even if a new advisor had yet to be lined up. Without an advisor the funds would have had to be liquidated.
"Liquidating funds would be a taxable event for the shareholders," explained Howard. The board avoided that event by finding BNY from among a field of 25 contenders and negotiating a deal in less than two weeks.
BNY was selected by the board, which was assisted by its own counsel Tom Schmuhl
of Philadelphia-based, Duane Morris & Hechsher
. The decision was based upon BNY's strong track record of investment performance and its location in New York City. Many of the fund's shareholders are also New York City residents as the funds were acquired by HSBC from Marine Midland Bank.
Ironically, even with the recent events in New York City the transfer with BNY may be smoother than it would have been with Wilmington. Bisys is the transfer agent and fund administrator for both BNY and HSBC Funds while Wilmington uses PFPC. BNY will take over the funds at the end of September, shareholders will be sent proxies in October and a vote is expected in November. Under that scheduled the deal should be sealed by the end of December.
That the funds cut their ties with HSBC is in itself a sign of what an independent board can do for shareholders. HSBC had originally approached the board to renew its advisory agreement. As part of that agreement it sought to merge the funds with the HSBC Investors funds it had acquired in the Republic Bank deal. The board found the terms of the renewal unacceptable, though, and started the hunt for an alternative advisor.
Ultimately, the path taken was the right one for fund group and the right one for the industry, contends Howard. "An era of independence is in the making right now and this should be a signal to those in the industry that they should not expect boards to roll over," he elaborated. He added that the advisors should give the data that will allow shareholders use proxies to make the assessment that the advisor is the right one.
Ironically, the deal will mean the disbanding of what may be the industry's most independent board. When the merger takes place, the HSBC funds will then no longer exist Howard confirmed.
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