Why is HSBC launching a metaverse fund for wealthy clients?

Earlier this month HSBC announced plans to launch a metaverse fund for its wealthy clients, joining the growing number of players in the asset management space looking to capitalise on the opportunities virtual worlds could offer.

HSBC [HSBA.L] is betting on the metaverse as a long-term investment theme and taking it to its investors. The metaverse promises to transform the ways in which we live and work though it may take a decade before its potential has been fully realised.

The bank’s asset management division has announced a metaverse portfolio for its ultra-high and high net worth professional investors and clients in Hong Kong and Singapore. The holdings in the fund haven’t been disclosed.

News of the fund on 6 April didn’t do much for the HSBC share price, but this isn’t a surprise given that it won’t unlock any value or have a direct impact for shareholders. Still, the stock was up 20.6% year-to-date at the close on Tuesday 19 April at 525.6p.

Identifying market opportunities

While the constituents of the fund haven’t been announced yet, a paper published in March gives some insight into the type of companies that may be included in the portfolio.

The paper identified four key areas of interest: digital content; the hardware and software used to deliver immersive experiences; infrastructure and connectivity; and visualisation and digital twin technology. Consumer brands, including McDonalds [MCD] and Starbucks [SBUX], that want to incorporate the metaverse into their marketing strategies form part of the digital theme, read the paper.

“Our Metaverse High Conviction Investment theme exploits all these opportunities and looks for a blend of investment solutions [and] stocks which are mega [and] large caps and haver the ability and wherewithal [to] develop their metaverse ecosystems through continuous capex and innovation,” said its authors.

“But we also focus on small [and] mid-cap opportunities which are much more ‘pure play’ but may be riskier investments.”

HSBC is actively hiring to accelerate its metaverse ambitions. In a recent job post for a marketing manager, the banker was looking for candidates with experience in non-fungible tokens (NFTs) and Web3 and could catch market opportunities early. “The goal is to make HSBC the most sought-after financial service brand inside and outside the metaverse,” it stated.

A serious investment theme

The public was introduced to the concept of the metaverse towards the end of last year. It had a mixed reaction of enthusiasm and scepticism.

Google Trends data shows that interest in the metaverse has cooled over the past couple of months, after peaking on the back of Mark Zuckerberg’s presentation on it in October.

A cynic might suggest that HSBC’s new fund is a way to grab the attention of wealthy clients and investors, who have the disposable income to make a punt on the metaverse. Lina Lim, head of discretionary and funds for investments and wealth solutions for the Asia-Pacific region, has denied this is the case.

“I was a fund manager and I believe strongly in picking good quality stocks. I don’t believe in picking a theme for a fashionable reason. [The] next iteration of [the] internet is a long-term structural theme that should have a place in every portfolio,” Lim told Euromoney.

HSBC is not alone in asset management circles in leaping into the metaverse. JPMorgan [JPM] published a paper earlier this year arguing that the metaverse presents a market opportunity of $1trn in annual revenue that will infiltrate every sector in the years to come. UBS [UBS] has also hyped up its potential, especially on advertising, although concedes there are likely to be regulatory concerns.

On 12 April Fidelity International announced plans to launch a thematic metaverse ETF, which will be available on or around 21 April. It promises to “invest in the evolution and future of the internet by providing access to companies that develop, manufacture, distribute, or sell products or services related to establishing and enabling the metaverse.”