Against the grain: Face to Face with John Kim

Dire economic conditions are forcing many financial conglomerates to rethink their commitment to the money management business, but John Kim is swimming against that tide. After two decades heading up investment operations for insurance giants such as Aetna Inc., CIGNA Corp. and Prudential Financial Inc., Mr. Kim took the helm at New York Life Investment Management LLC in April 2008.

Investment bankers are of two minds when contemplating growth prospects of NYLIM, which owns five other money management shops. On the one hand, parent New York Life Insurance Co. emerged from the turmoil of the past two years with its AAA rating intact and ample capital to back up plans to expand money management operations. On the other, the same conservative culture that guided New York Life through the storm has made it a cautious player on the money management mergers and acquisitions scene, bankers say.

While conceding the organizational challenges of being an insurer-owned money manager, Mr. Kim predicts the recent market collapse will play to the strengths of being affiliated with a strong, well-capitalized parent such as New York Life. “We believe we were built for times like this,” he said.

(Click below to hear Mr. Kim discuss his outlook for the money management business with P&I reporter Douglas Appell.)

Some argue that insurers and money managers don't mix well. You've spent your career at that intersection. The real (challenge) is accepting the “tax” imposed upon an entrepreneurial culture of an asset management boutique by a large insurance company, while taking full advantage of the positive attributes of being owned by a large institution. ... What we've experienced over the past nine months is a change in the tide, where being associated with a financial institution that is well capitalized, that's branded as a strong, conservative company, is going to be a huge source of strength for an asset management firm. ... The crash of 2008 has made an indelible impression in the minds of investors — that they really should rein in their risk postures and align with institutions that are thinking thoughtfully about long-term value creation as opposed to near-term alpha generation.

But the flipside of that coin is being less nimble. Absolutely. In the best of all worlds, you'd want investment professionals to be as unconstrained as possible. I fight that tape all the time. The real genius in leading asset management organizations going forward is to take advantage of all the positive attributes (of being owned by a strong, conservative financial institution), but always be cognizant of what makes money management businesses strong. (When) I joined 15 months ago, one of the first things we did was reaffirm (our) multiboutique orientation — a structural guard that allows us to have entrepreneurial organizations and cultures, yet be appropriately aligned to the larger institution.

NYLIM owns 100% of its boutiques, but in the past, you've said money managers should have equity in their firms. That was a core tenet of why Aeltus (Investment Management Inc., an Aetna money management unit that Mr. Kim headed a decade ago) was successful. You are singing off the same page of the hymnal. I've gotten a commitment from the CEO of New York Life, Ted Mathas, and the vice chair, Gary Wendlandt, who was actually in this role a few years ago; all three of us are committed to creating an equity-oriented plan for each of our boutiques. We're in the process of working on that.

Is there anything else in the works to promote an entrepreneurial culture? (NYLIM bond subsidiary MacKay Shields LLC's recent acquisition of a municipal bond team from Mariner Investment Group and its adoption of four mutual funds with a combined $750 million in assets from Epoch Investment Partners) are two examples of how a larger organization like New York Life can support the entrepreneurial growth aspirations of a MacKay Shields. We're providing the capital for them to buy assets, hire teams and the like. ... We think this is the best of both worlds: We have a very entrepreneurial culture and operating model, and we're infusing more resources to make them even stronger.

You've shifted McMorgan & Co.'s fixed-income assets to MacKay Shields, and shut down MacKay's domestic equity strategies. What's the plan? McMorgan has been a very good franchise for the Taft-Hartley segment over the years. It has suffered a fair bit of asset and client erosion, and ... the fixed-income capability of MacKay Shields was so much better than what was available within the McMorgan organization. It was a fairly easy decision for us to basically have McMorgan continue as a strong packager and distributor and relationship manager for the Taft-Hartley segment, but outsource the core of the asset management function to a best-of-breed competitor, which happens to be a sister organization ... That was a pragmatic business decision, that was a win-win for our organization and our clients.

Are you looking to be like other multiboutique firms, such as BNY Mellon, which offer a full range of investment capabilities? No. I believe at the core, especially in the mutual fund marketplace, to be successful strategically and financially you have to manage most of the (strategies) that you offer. But we also recognize, especially when dealing with non-captive, third-party distribution entities such as wire houses, that having a comprehensive, open-architecture best-of-breed product lineup is important. For the mutual fund world, we want to have the full representation of the best-in-class asset classes, including external subadvisers ... For the core asset classes, where most of the asset flows come from — large-cap equity, growth, value, core international and global products, core fixed income, including municipals — we want to manage those products ourselves. So we have a non-core, core delineation.

What trends do you see on the institutional side? When it comes to beta-alpha separation, I would posit that the (search for) cheap beta and high alpha will continue for the foreseeable future. Hedge funds will remain a durable asset class (as will private equity and real estate equity.) I think the next evolution of liability-driven investing will provide some guarantees that perhaps may be out of the money that an insurance company or some other financial institution can underwrite.

Are you in the market for big acquisitions? We're generally looking at small to midsize opportunities, with three areas of focus. We really want to grow our mutual fund franchise, to be a top 20 franchise for the MainStay Funds ... That's probably our No. 1 aspiration: to buy a midsize mutual fund complex that we can merge into the MainStay chassis. ... On the institutional side, we'd love to develop a relationship with a boutique that specializes in large-cap domestic growth, and buy an international manager, (possibly) an overseas manager that offers asset management capabilities, but also international distribution.