HSBC announced it is in talks with China Investment Corporation to set up a fund for the Chinese sovereign wealth fund which will invest in companies in the United Kingdom that have links with China.
The fund will be managed by Charterhouse Capital Partners which is also acting as the go-between between CIC and HSBC.
The fund will be choosing companies to invest into with merits of being high quality and is on track of growing bigger.
The fund will be worth $1 billion, Financial Times reported, citing people familiar with the ongoing discussion. The fund will be formally announced in 2019 as the parties are still currently engaged in negotiating how much capital each will bring in to the partnership, FT stated in its report.
The plan is for the fund to be designed akin to successful partnerships that have already closed by CIC worldwide.
China's sovereign wealth fund had entered into a similar collaboration with big financial firms such as Goldman Sachs and Ireland Strategic Investment Fund.
The proposed fund with HSBC is small when compared to the finances that CIC has under its belt. The sovereign fund is currently managing $940 billion. The partnership with HSBC, however, is of big importance for John Flint, the bank's new chief executive.
Flint is competing against Goldman Sachs, and JPMorgan and Morgan Stanley for China's approval for them to expand their banking operations in the Asian country, the second-largest economy worldwide. These banks, now alongside with HSBC, would like to position itself in the lead as the Asian superpower starts to open its financial system to foreign investments, FT noted.
HSBC, through a London-based bank and a British company, was founded in Hong Kong in 1865, giving it the ultimate advantage against its competitors.
FT believed that CIC took the opportunity to work with HSBC as the partnership will equally grant leverage for China's sovereign wealth fund to invest in Britain which is expected to implement tougher foreign investment policy as it plans to leave the European Union.
Soon, the United Kingdom will be conducting its trade deals independently of the EU as Brexit is anticipated to be in effect in March of 2019.
Brexit is causing fears across financial institutions worldwide. The Guardian reported that most big firms are now moving to shift operations in other EU states until Brexit is finalized. Banks and financial institutions are keen to start out any of their contingency plans to promptly address the impact of Brexit in their businesses.
Specifically, big banks like Citigroup, HSBC, Goldman Sachs, and JPMorgan are hiring new staff or moving existing staff from the United Kingdom into another market, like Paris, Luxembourg, Milan, and Dublin.
In July, China expressed its willingness to discuss a post-Brexit free trade deal with the UK during talks with British Foreign Minister Jeremy Hunt. The two countries assured that relations will not change between them as Brexit kicks in.
