BNY Mellon adds private credit manager CIFC to distribution platform

BNY Mellon Investment Management is adding CIFC Asset Management’s U.S. direct lending strategy to its global distribution platform for EMEA and Asia-Pacific clients, in an agreement that meets client demand for private credit exposure, executives told Pensions & Investments in an exclusive interview.

It’s a move that also brings to fruition BNY Mellon’s stated ambition to combine in-house products with offerings from select third-party money managers, said Cathinka Wahlstrom, chief commercial officer at the financial services giant.

BNY Mellon laid the foundations for a firmwide distribution platform last year. BNY Mellon Corp. — which will celebrate its 240th anniversary this year — had $47.8 trillion in assets under custody and/or administration, while BNY Mellon Investment Management had $2 trillion in assets under management as of Dec. 31.

The arrangement is a “good example of partnering” where BNY Mellon sees client demand, and opportunities that complement its existing business, Wahlstrom said.

The partnership gives BNY Mellon Investment Management clients access to CIFC’s sixth U.S. direct lending strategy.

“Our clients in EMEA and APAC will gain exposure to that deep private debt market,” Wahlstrom explained. She’s heard from peers, friends and other industry players that it’s sometimes tough setting up meetings with clients as a specialist manager. “The access we have because of our platform is pretty unique,” she said.

CIFC is gaining access to BNY Mellon’s distribution platform and its global network of clients.

“We’re excited to evolve our relationship with BNY Mellon and see a huge opportunity to partner with the firm’s investment management business,” John DiRocco, chief operating officer at CIFC, said in a news release. “With its global distribution footprint, local knowledge and experience working with firms like ours, BNY Mellon is an ideal partner as we look to the next stage of our international growth.”

CIFC has been a client of BNY Mellon’s for more than a decade under an asset servicing agreement.

CIFC has more than $41 billion in assets under management across collateralized loans obligations; corporate, structured and opportunistic credit; and direct lending strategies. CIFC moved into private credit in 2021 with the acquisition of LBC Credit Partners.

BNY Mellon launched three strategic pillars internally last year, providing it with medium-term guidance.

“We have a lot of aspirations long term, but this really helps with the medium term,” Wahlstrom said. Those pillars are to be more for clients, to run the company better and to power its culture. This agreement meets the first pillar because it combines the firmwide distribution platform and in-house products with select third-party managers in investment management; the second pillar because it drives more cross-company collaboration; and the third pillar as an example of the firm’s collaborative culture. “We should use that to bring more to our clients,” Wahlstrom said.

Wahlstrom and others are “laser-focused on being more for our clients — we have this amazing client franchise, and I would say we haven’t always leveraged our client franchise to the fullest. That means bringing together this comprehensive platform so clients can do more with us,” she added.

And it also helps that private credit is in a sweet spot right now. Preqin estimates the market will grow to $3 trillion by 2028 — more than double its current size. Banks continue to pull back from lending, leaving a hole that needs to be filled by private capital.

While BNY Mellon IM is a scale player — it was the 11th largest manager as of Dec. 31, 2022, according to P&I and Thinking Ahead Institute data — executives are cognizant of the fact that the money management industry is changing.

In the same interview, Matt Oomen, global head of distribution at BNY Mellon IM, said he’s seen the money management industry move to one that’s “increasingly difficult to compete (in) especially as an active manager.” And also especially as a specialist manager, which “works until you have a performance blip — if it lasts too long, you’re dead in the water."

And while the firm has capabilities across its seven affiliates, including a fixed-income and liability-driven investment specialist in the shape of Insight Investment and active equities, income and multiasset manager Newton Investment Management, executives are also aware there may be other places to build, buy or partner.

“When we think about our model as it is today, we’re a multispecialist firm, and have for a long time talked about the fact we believe it is critically important to have specialist investment capability. And we believe distinctive investment cultures ultimately lead to better investment returns. But we also know that clients are seeking more — so we’re being honest,” Oomen said. While the firm is proud of its capabilities, “we don’t offer everything.”

And then there’s the increasing trend of institutional investors looking to do more with fewer partners. “We do want to bring more capability to our clients, but we don’t want to replicate what we do,” Oomen said.

With middle-market private credit yielding 8% to 11%, “we think that’s pretty attractive right now. CIFC’s product and capability matches what we’re seeing from the marketplace,” and the arrangement is a “complement to our own affiliated managers,” Oomen added.

BNY Mellon IM did have a European credit investment business in the shape of Alcentra, which it sold to Franklin Templeton in 2022. The London-based manager, which had $35 billion in AUM as of Sept. 30, 2022, was known for its direct lending and CLO businesses.

For U.S. direct lending, “we believe that partnering is probably a better access point for us at this moment in time rather than buying, and it’s pretty difficult to build. Our own asset managers will continue to build their teams out … (and) where we don’t have capabilities or our own asset managers have no intention to build, we will partner,” Oomen added.

The firm has a track record of fundraising for third-party managers already, including for real estate firm Amherst.