BNY Mellon is a prominent investment company in the financial industry. It has a market capitalisation of USD45 billion and is one of the world’s largest investment managers with USD1.7 trillion in AUM.
More specifically, BNY Mellon is best known for its expertise in investment services. This side of the business accounts for approximately 70 per cent of the Company’s revenues; whether that’s core custody capability, administration – both traditional and alternative – corporate trust work, issuing depositary receipts and so on. It currently has approximately USD743 billion of alternative AuA and/or custody.
Despite its size, BNY Mellon is acutely focused on servicing the various assets and fund structures of its clients, whether they be pension funds, mutual funds, hedge funds and other alternative asset managers.
“We aren’t just growing our business organically. We continue to make strategic investments to build out our capability. In February this year, for example, we announced an outsourcing arrangement with Deutsche Asset & Wealth Management’s direct real estate and infrastructure asset management and servicing business; that’s a really powerful addition to our fund administration business,” says Frank La Salla, CEO of BNY Mellon Alternative Investment Services.
The deal adds roughly USD46.3 billion in AuA and demonstrates a commitment by BNY Mellon to broaden its capabilities across alternative asset classes.
“Wouldn’t it be better to find a partner that can deliver back to an organisation, over time, economies of scale through extending that capability into our broader franchise and at the same time build out a multi-client proposition based on that capability?
"Deutsche Asset & Wealth Management are among the largest real estate and infrastructure asset managers, so we went from being on the periphery of that business to quickly having real scale," explains La Salla.
La Salla confirms that outsourcing arrangements such as these, as opposed to out-right acquisitions, could be the future model for BNY Mellon but certainly not exclusively: "because if we take on costs at the same time as we take on business we're not achieving any scale benefits.
"Should we pursue a future transaction, we might want the assets but we probably wouldn't want all of the technology and people costs; we don't want all of those costs coming to us every time we do a deal. We now have a core skill-set in place to service these real estate and infrastructure assets so let's leverage on that," states La Salla.
Indeed, La Salla confirms that they are already getting interest from some of Deutsche's peers who are deciding whether they too should remain in the fund admin space. “It's early days but we expect that to turn into more business in due course,” adds La Salla.
Currently, about 30 per cent of real estate managers outsource their fund administration. With European regulation bedding in, and investors looking for greater accountability from managers, that percentage is expected to climb.
"In the hedge fund space we announced the Bridgewater transaction a couple of years ago which gave us additional capabilities around derivatives processing and hedge funds. What this Deutsche deal does is push us into another really important asset class. We've also done significant deals in the long-only space.
"We will continue to build out the fund administration franchise and capability so that regardless of the asset class or market managers are trading in, they will come to BNY Mellon," concludes La Salla.
