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Multiplying the multi-boutique

As a giant among asset managers describing itself as “multi-boutique”, one might expect BNY Mellon Asset Management (BNYMAM) to be scouring this consolidating industry, chequebook in hand. The recent announcement that it will buy Insight Investment Management from Lloyds Banking Group for £235m (€273m) shows that it is indeed in the market.

“There is no doubt that there are more businesses which appear to be available for discussion on ownership now, but that doesn’t make the decision about which businesses to have that discussion with any easier,” says Alan Mearns, CEO of the firm’s global distribution arm, BNY Mellon Asset Management International. “We are looking for distressed businesses - we’re looking to pay the right price for quality businesses.”

And the emphasis is on the right culture - businesses that have a desire to take advantage of the multi-boutique structure, that are “happy to outsource anything that’s not central to investment management so that they can focus on growing that competency”.

Although Mearns maintains that BNYMAM is “not looking to add every single capability”, multi-boutiques always have to strike a balance between partnering with the best shops, managing aggregated risk and coming to market with a coherent offering.

“We are trying to understand the needs of different clients in their particular markets in a more holistic sense, and bring them the best possible product set from across the organisation,” says Mearns.

“It’s less about the individual building blocks of the boutique and more about the glue that holds them together. Our Investment Strategy Office is available to discuss with clients possibilities for using different combinations of the asset management businesses to create efficiencies in their own portfolios,” he says.

As such, the firm is looking to close some tactical and strategic gaps in its product range and clientbase - specifically, to augment the Asian presence it has with Hong Kong-based Hamon, already well-advanced with a joint venture, currently finalising, with Shanghai’s Western Securities (the JV will be called BNY Mellon Western Fund Management).

Mearns likens the deal to the acquisition of ARX Capital in 2008. “We not only acquired an internationally-recognised capability to manage Brazilian equities and fixed income, which is attractive to investors across the world, but also a business with a great reputation for managing local investment for clients in Brazil itself. That’s one of the objectives we set out for an acquisition - to build a capability in a particular region.”

But even a glance at the list of boutiques shows that this process is not about balancing one against another. Were that the objective, there probably would not be three fund of hedge fund groups.

There are sometimes interesting synergies created when competencies share some space, says Mearns. But no acquisition would be likely to significantly change the firm’s approach to top-down, aggregate-level risk management “unless it was very, very large and model-changing in its scale and approach”.

Something like Barclays Global Investors (BGI), perhaps? In June, BNY Mellon tried, and ultimately failed, to wrestle that ball from the hands of BlackRock just yards from the try-line. It would have been “very, very large” and “model-changing”, for sure, but also just as good a fit with BNYMAM as it appears to be with BlackRock. On exchange-traded funds (ETFs) alone, BNYMAM would have been acquiring new capacity (a collaboration with New York-based ETF provider Wisdom Tree Investments is focused on non-ETF fundamental indexation).

“There are other areas where we’d like to have a more significant presence,” says Mearns. “The real focus would be on building significant capability in passive management, and in liability-driven investment.”

The Insight Investment deal, due to close in Q4, would certainly tick the latter box: since launching in 2002, the firm has grown its AUM to £80bn with sales focused on fixed income and LDI solutions for a mainly UK institutional client base. It is now the third-largest manager of UK pension fund assets.

On the passive side, having missed out on BGI, the options remaining are seeking another acquisition candidate or building on the capacity of Standish Mellon, WestLB, BNY Mellon Beta Management and, especially, the quants-focused Mellon Capital Management. These are competencies that are, after all, eminently scaleable.

“Mellon Capital was an own-build project for BNY Mellon, and with $140bn (€98.8bn) assets under management they are by no means a small shop,” says Mearns. “But in the area of passive management real scale is key. We do want to establish ourselves as a major global player, so we will be looking to invest further in building this capability.”

In the meantime, the existing variety of the offering is paying dividends as portfolios and asset allocation come under review from all sides. “Money markets have been front-of-mind as people have been looking for safe havens, so our CIS group has seen significant inflows,” notes Mearns (at $400bn, it manages almost half BNYMAM’s assets). “Credit is definitely at the forefront of investors’ minds, so Standish is getting a lot of interest, but we are also seeing a lot of interest in co-ordinated, global absolute return strategies.

“We are getting interest from clients in global equity - the capabilities from Newton and Walter Scott. The significant volatility in currency markets that we’ve experienced over the last 18 months means that Pareto is another boutique in demand; and Urdang is starting to discuss both REIT and physical real estate with clients around the world again.”

 

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