BNY Mellon shifts active management to affiliates

BNY Mellon Investment Management's decision to shift the active units of its Mellon Investments Corp. business to its affiliate managers is not of particular concern for industry players.

The $2.2 trillion money manager said this month that Mellon's $105.2 billion fixed-income unit, covering stable value, municipal, efficient beta and taxable fixed-income strategies, will move to global fixed-income and liability-driven investment firm Insight Investment, bolstering AUM to $1.1 trillion.

Mellon's equities and multiasset capabilities will move to Newton Investment Management, which will also get the Japanese equities team from BNY Mellon Investment Management Japan, creating a $140 billion firm. Newton had $62.8 billion in AUM as of Dec. 31.

And Mellon's cash capabilities will move to Dreyfus Cash Investment Strategies, creating a $300 billion firm, up from Dreyfus' $259.5 billion as of Dec. 31.

The moves should be completed by the end of the third quarter, leaving Mellon Investments as a $390 billion firm focused on running institutional index strategies — "which is really what created Mellon so many decades ago," said Hanneke Smits, CEO at BNY Mellon IM based in London.

Mellon CEO Des Mac Intyre will leave at the end of February. Michael Germano, chief operating officer, will take on responsibilities as CEO of active management during the transition. Stephanie Pierce will remain CEO of the index business.

While the decisions were made in collaboration with the respective managers, it also marks the first major change under Ms. Smits, who replaced Mitchell Harris in October.

"It's a very exciting opportunity to realign a number of the key components of Mellon, in particular in Insight and Newton," Ms. Smits said in an interview.

The rationales for the changes include strengthening each affiliate manager, increasing the global footprint of Insight and Newton and also ensuring that each firm could keep up with the demands of increasingly outcome-oriented clients, Ms. Smits said.

Clients are "increasingly looking for outcome-oriented investing, moving away from the traditional benchmarks. They've also been moving more into alts," she said.

The firm's other affiliates, including high-conviction equities manager Walter Scott & Partners Ltd. and private credit manager Alcentra Ltd. round out "quite a nice lineup of specialties that we can start to deliver more at scale to our clients," Ms. Smits said.

For those in the market who keep an eye on the manager and its boutiques, there are no particular qualms about the changes — particularly given that BNY Mellon IM is no stranger to shifting capabilities around.

"I certainly don't expect any material change to the company's financial results as a result of the realignment," Rajiv Bhatia, equity research analyst at Chicago-based Morningstar Inc., said in an email. "It seems to me they are taking the active part of Mellon … and moving it to their respective specialists leaving Mellon to be an index player."

Mr. Bhatia said realignments — particularly with an industry backdrop of consolidation and fee pressure — "are nothing new for BNY Mellon's investment management unit with its multiboutique model," noting that the firm had 27 boutiques at the end of 2007 but now has eight.

The industry backdrop was also highlighted by Portland, Ore.-based consultant RVK Inc. A statement provided by a spokeswoman said the move is one of several restructurings and M&A moves in money management that it is tracking and assessing for clients.

RVK's sole concern is whether the change "adversely affects our clients and we look for signs of a weakening organizational culture, distractions that take attention away from investing, higher turnover among key investment professionals, reduced focus on innovation, and performance in favor of simply building scale to cite just a few examples," the statement said.

In terms of hires and terminations, Mellon has had a few over recent years. In 2019, Pensions & Investments reported five terminations, with four citing reasons including personnel changes and underperformance.

David A. Daglio Jr. stepped down as active equity CIO in March 2019. The $4.9 billion Phoenix City Employees' Retirement System terminated Mellon from its $37 million active domestic midcap value, citing Mr. Daglio's change as a reason for the termination. And the joint retirement investment board for the Town of Fairfield, Conn., terminated a $22 million Mellon domestic equity strategy citing personnel changes and underperformance. The board oversaw about $384 million in assets as of June 30.

But Mellon also added a number of clients in 2019 — P&I reported five hires that year — including the $14.4 billion New Mexico Public Employees Retirement Association, Santa Fe, which hired Mellon for a passive risk-parity index replication allocation that could be funded up to 10% of the association's total assets.

The firm also made a number of key personnel hires, including Patrick Kent, who joined in February 2019 to take on some management responsibilities from Mr. Daglio.

No changes are expected to the teams joining Insight, Newton and Dreyfus for the time being, executives said.

For Insight and Newton, the new teams will bring expansions of expertise and global reach.

Insight is gaining expertise in municipal bonds and efficient beta as well as access to new areas in terms of client reach — specifically the insurance sector and defined contribution market.

There are two angles to the DC piece, Abdallah Nauphal, London-based CEO, said in an interview. The firm has always specialized in outcome-oriented investing and decumulation — the latter of which "has been particularly pronounced in the institutional space in the past. But we have developed quite a few areas of expertise that can focus on individual retirement as well," he said.

Adding Mellon brings a stable value business, giving Insight access to participants who are close to or at retirement — "an important part of the longer-term strategy of our business," Mr. Nauphal said.

While that business is more applicable to the U.S. right now, Insight executives are thinking it could be brought to the U.K., although with a slightly different approach, he said. Bringing on Mellon's teams "extends into a new area which for us we believe is ultimately essential because … for now there is a lot of DB going into decumulation. In 10 years it's all about DC."

For Newton — which in June will welcome new CEO Euan Munro from Aviva Investors — the big addition will a "quantitative skill set," Julian Lyne, chief commercial officer in London, said in an interview. "There's a consistency in terms of the importance of themes, private asset research, geopolitical research. But perhaps just as important … we see ourselves as being a purposeful investor — and we're further down the track in terms of the integration of ESG and the importance of sustainability, but that's absolutely something that our Mellon colleagues subscribe to as well," he said.

Mellon has also been "doing a lot of work in the target-date fund area. So the ability for us to bring those insights and to bring those skill sets into not only the U.K., but also in terms of Asia — which from a Newton and Mellon standpoint we have not perhaps been able to grow as a business as much as we want," Mr. Lyne said.