Mellon HBV Alternative Strategies, Mellon Financial Corp.'s hedge fund management unit, will be sold to Mellon HBV Chief Executive Officer Mickey Harley, Mellon Financial announced today. Terms were not disclosed. Mellon HBV will be renamed Fursa Alternative Strategies, according to a Mellon Financial news release. The deal is expected to close before the end of the year, said Joe Ailinger, a Mellon Financial spokesman. He did not provide Mellon HBV's assets under management by press time, but Mellon Financial reported total hedge fund assets of $994 million as of Dec. 31, 2005, according to Pensions & Investments. The announcement comes one day after the Bank of New York announced it was acquiring Mellon.
"As Mellon has grown its alternative assets, it has focused on more liquid strategies, ranging from market neutral to currency to macro hedge strategies. On the other hand, Fursa intends to explore increasing its emphasis on principal (investing the assets of the firm's owners and executives) and activist approaches. Mellon and Fursa have mutually agreed that this separation is in the best interests of both parties, as well as for investors in HBV's funds," Phillip Maisano, head of alternative investments for Mellon Asset Management, said in the statement.
Separately, many institutional investors are monitoring Mellon Financial units as a result of the planned acquisition.
Elleen Okada, director, global equities and operations at the $156.1 billion California State Teachers' Retirement System, Sacramento, said Mellon is on watch, as with any firm involved in a potential merger, "to make sure that there aren't any material deviations in managing the portfolio." Mellon Capital ran $877 million in active domestic enhanced index equities for the system as of Sept. 30.
Staff at the Massachusetts Pension Reserves Investment Management Board, Boston, will closely monitor the progress of the merger "to determine what, if any, recommendations will need to be made" to the board, Executive Director Michael Travaglini said at today's board meeting. Mr. Travaglini noted that Bank of New York and Mellon Financial and their subsidiaries manage a combined $2.5 billion for the $45.5 billion system, and Mellon serves as the plan's custodian.
The Pennsylvania Treasury Department, Harrisburg, which uses Mellon as the custodian and securities lending agent for $105 billion in state pension and insurance assets, "does not see any changes" in its relationship with the firm, said spokeswoman Karen Walsh. State officials have been assured by Mellon representatives that there will be no changes in key personnel, she said.
Iowa Public Employees' Retirement System, Des Moines, hasn't placed Mellon Capital Management, which runs almost 30% of the system's $21 billion in assets, on special monitoring, Donna Mueller, the system's CEO, said in a statement. Mellon manages three index funds for the system, with $2.5 billion in the Lehman Aggregate, $2 billion in the S&P 500 and $1.7 billion in the Dow Jones Wilshire 4500. "It is premature to speculate whether Mellon would be placed on a watch list," she said. "We will monitor performance in the usual manner."
Bank of New York, the system's master custodian, also hasn't been placed on special monitoring.
Terry Moloznik, executive director, investments, for the $12.3 billion National Electrical Benefit Fund, Washington, said: "We're very happy with Mellon as our custodian. I don't see any reason we would change that unless they overhauled systems or increased fees."