New York Life Investment Management's equity investors group will become an independent boutique named Madison Square Investors LLC on Jan. 1.
The new company will be a wholly owned subsidiary of NYLIM and will be one of the firm's family of boutiques, said John Kim, president and chief executive officer of NYLIM, in a phone interview. Madison Square will also be based in New York.
When he joined the firm in April, Mr. Kim said he started to analyze the multiboutique institutional business model.
“It became very clear that the multiboutique model was best for us,” he said, saying the structure allowed the subsidiaries autonomy and helped promote entrepreneurial thinking.
NYLIM acquired its other boutique businesses — MacKay Shields LLC, New York,; Institutional Capital LLC, Chicago; and McMorgan & Co. LLC, San Francisco. Madison Square Investors is the only one that has been spun out from the parent company, Mr. Kim said
Tony Elavia, chief investment officer of the equity investors group, will become CEO and CIO of Madison Square. The group had $13 billion in assets under management as of Sept. 30, about 38% of which, or $5 billion, represented institutional tax-exempt assets, Mr. Elavia said.
The group currently offers a variety of traditional strategies that are managed by investment teams organized by style — core, growth, value and international — in various capitalization ranges. The group also offers 130/30 and absolute-return strategies. Firm executives do not plan to roll out any new strategies immediately after the spin out, Mr. Elavia said.
The unit has about 40 staff members, including around a dozen portfolio managers, Mr. Elavia said. Key positions will stay the same, but with the transition to Madison Square Investors, NYLIM is planning to eventually set up a phantom equity stake arrangement for portfolio managers, Mr. Kim said. He called such an arrangement “a very powerful incentive for folks to work in a place.”
Previously, compensation was primarily based on performance of each strategy. In particular, against the existing benchmark. “That's how clients evaluate us,” Mr. Elavia said. So if the strategy you managed performed well compared to the benchmark and peers, you were compensated better than if the strategy you managed performed poorly. “John advocates making sure people have an interest in the entity where they work,” Mr. Elavia said, adding that compensation for portfolio managers will continue to be based on performance immediately after the transition.
NYLIM sent a letter to institutional clients informing them of the change last week.
