When Steven Pisarkiewicz moved from AllianceBernstein to take the helm at BNY Asset Management two years ago, his mandate was to build a more sophisticated investment platform that could take the New York-based money manager to the next level. In that time, the firm's assets under management have increased more than 50%. And in recent months, BNY Asset Management pulled the trigger on a pair of acquisitions to round out its alternative investments platform, buying London-based debt manager Alcentra Group as well as Urdang Capital Management, a Plymouth Meeting, Pa., REIT manager.
The overall growth has allowed BNY Asset Management to keep its top investment people, and add new talent as well, said Mr. Pisarkiewicz. Include the newly enhanced alternatives platform — which also includes hedge fund manager Ivy Asset Management — and Mr. Pisarkiewicz, an industrial engineer and a classical guitarist, has BNY Asset Management built for business outside the box.
Describe the process behind expanding your alternatives platform. We started by identifying the asset classes that we want to bring to our existing clients and prospective clients. Then we wanted to look past the auction block. I think that our best opportunities have been with those companies that were not really for sale, such as Alcentra and Urdang. But we went in, spoke with these firms, and showed them what we could bring to the table. We showed them how we can help to build their business without disrupting the way they have historically operated.
How do you identify the asset classes that you have acquired? No magic to it, but we start with the bank's client base. That's really our differentiating feature. The bank touches so many institutional and private clients … that we can ask them and ourselves "What do they want that we don't have?" Clearly there has been demand for alternatives and alpha. We wanted to be there for our clients, which is why we bought Ivy in 2000. More recently we looked at the fixed-income world and structured credit, which led us ultimately to Alcentra. Then we looked at institutional real estate; that led us to Urdang.
Do these acquisitions fill your gaps or are you still looking to expand? At the moment, it fits what we want to do and it satisfies our strategic initiatives. That said, we are keen to find line or geographic extensions of those three capabilities. For example, if we can find a small fund-of-funds operator who can bring Ivy into a marketplace such as Europe or Asia, one that Ivy is currently not that strong in, if that can get us from point A to point B faster, then we would certainly consider bolt-on acquisitions for these three units.
These firms fill your gaps, but what do you do for them? We want them to continue doing what they have done historically. We want them to work with the consultants that they have formed significant relationships with. In the case of Alcentra, which sells CLOs (collateralized loan obligations) through the investment banks, we want those relationships to continue as well. We add value because we can open many new doors for these firms. For example, we can introduce Alcentra's hedge fund total return products to investors that they have never been exposed to. We have someone, a product specialist, who can represent Alcentra's funds and seek out opportunities through the bank's distribution capability, within asset management and within the bank itself.
How do you measure the success of an acquisition? Whenever we do a deal we have a five-year forecast that presents very attractive IRRs (internal rates of return) on your investment. If you can meet or beat your numbers, then you can say that a deal has been financially successful. But perhaps a more important measure of success is our ability to retain both the clients and the investment professionals acquired in the deal. With Ivy, we re-signed all of the key investment professionals for another five years after the earnout period ended, at a time when alternatives professionals were moving around and commanding great interest. Supply is limited and demand is great.
Why have you had success in this area, while others have struggled to integrate their acquisitions? I think it's a reflection of how we manage our firms. Take Ivy, again as an example. We keep our distance and allow them to continue to practice their craft in accordance with all of their historic processes. We also make sure that we give them the appropriate resources to grow. There have been a number of deals out there that haven't worked, especially involving banks and insurance companies. We think we know how to do this. And not only is Ivy a reflection of that, but the ability to attract the quality of firms like Alcentra and Urdang is a reflection of that as well.
When you look at the traditional side of the business where do you see the best opportunities? Almost anything global — global equity, global fixed income, global REITs.
Why is that? The competition in the U.S.-only domain has gotten to the point where it's very keen. It's challenging to try and add significant alpha in the domestic space. So what you have to do is look outside to those areas where research coverage is less intensive and where we can find greater opportunities for price discovery and value-add. First and foremost, these opportunities present themselves most in Asia and Europe.
So how do you capitalize on this? We will take advantage of the bank's relationships. With off-shore institutions, we probably have a stronger brand as a banking company with institutional investors. When you think about how we have helped Ivy and Alcentra expand in markets such as Japan, these investors already have a relationship with the Bank of New York and that connection adds a lot to their level of comfort with one of our asset management businesses.
What is the single factor that you use for determining the firm's progress in all of these areas? In a single word, it's growth — both in terms of assets and revenues. Growth does two things: it reflects good things about your organization and it also brings certain benefits to your organization. If your assets are growing, it generally means that your clients are happy because you've delivered in three areas: performance, execution of investment process and client service.
Growth also means that prospects are turning into clients. All of this affords us to reinvest in the business, bring on more talent, invest in more analytical tools, and improve client service. It also affords us to attract and retain people. The assets here go up and down in the elevator. And in order to stay competitive and retain your people, you have to grow the business.