Both in terms of the financial market and global assets, the potential for growth looks brighter outside of the U.S., the analysts added. Non-U.S. assets under management at BNY Mellon AM now account for 22% of the firm's total compared with about 10% in 2003. The strategies attracting non-U.S. clients also tend to involve higher fees; revenue from overseas clients accounts for 40% of the total revenue compared with about 16% in 2003, according to data from BNY Mellon.
“Our growth strategy (overseas) is, in fact, different from region to region,” Ronald P. O'Hanley, Boston-based president and CEO of BNY Mellon AM, said in a telephone interview. “In the U.K., we're a very established player, so the aim is to continue to do exactly what we have been doing. In the Middle East, we've inherited a set of relationships that go back 40 to 50 years with the merger with BNY, and what we want to do there is to bring in investment capability.”
In Japan, the firm won two mandates earlier this year to run a total of about ¥150 billion ($1.6 billion) for the Government Pension Investment Fund, which is the world's largest pension fund with about $1.2 trillion in assets. The appointment has helped BNY Mellon AM gain other institutional mandates in Japan, company officials said. The focus in China is more retail-oriented. The firm already has an established subadvisory relationship with China Southern Fund Management Co. Ltd. and is also seeking regulatory approval to form a joint venture with Western Securities Co. Ltd. to tap into the domestic mutual funds sector.
“We're leveraging our position and infrastructure in Japan, Hong Kong and Australia to extend to the priority countries, including China, Korea and Taiwan,” Mr. O'Hanley said. “In essence, how we operate in each market largely depends on how clients behave and our position in that particular market.”
Richard Slimmon, London-based managing director in Deutsche Bank AG's financial institutions group who advises on M&A transactions in the money management sector, said the shift to a more global business model benefits managers in several ways.
“Scale can provide added product diversification,” said Mr. Slimmon, whose company advised Insight's parent, Lloyds Banking Group PLC, on the transaction. “Undeniably, it is also an advantage from the point of view of dealing with distribution partners and managing back-office costs more efficiently.”
Compared with the U.S., where BNY Mellon AM manages $408 billion in cash, overseas expansion has been driven by more specialist active strategies, which tend to command higher fees. For example, in Japan, global equity has been a leading strategy among Japanese pension fund clients, who are willing “to pay significantly more for global equity than for Japanese equity,” Mr. O'Hanley said.
But similar to many of its competitors, BNY Mellon AM also is making a “clear movement from products to solutions,” Mr. O'Hanley said. “Managers not only have to become bigger, they also need depth of capability. Not only do you need to have available great money managers within asset classes, but also actuaries, economists, market strategists to deliver comprehensive problem-solving capability.”
This is where the acquisition of Insight makes sense, Jonathan Little, London-based vice chairman of BNY Mellon AM, said in a separate telephone interview. Companies don't want “the shocks of pension fund shortfalls and fluctuations in value” feeding through to the balance sheets. Insight's LDI strategy is likely to become a key part of the comprehensive solutions that BNY Mellon AM offers clients.
BNY Mellon AM already offers LDI strategies to small and midsize pension plans in the U.S., as well as a separate LDI business focused on insurance balance sheet management, Mr. Little said. “What we don't have is large-pension LDI (expertise). If we can combine the skills and knowledge at Insight with our existing businesses in the U.S., I think what we'll have is market-leading capabilities” globally. Mr. O'Hanley said BNY Mellon's global LDI footprint could broaden not only geographically — including the Netherlands, Australia, Germany and Japan — but also to other sectors, including insurance and retail funds.