Bank of New York Still Shopping for Acquisitions
December 13, 2004
As the oldest bank in the United States, The Bank of New York has seen many changes over the past 220 years. But perhaps none as important as the regulatory changes being ushered into the financial services industry by the Securities and Exchange Commission within the last several months.
BONY is the leading provider of global products and services to the world's financial institutions, including a host of back-office services to the mutual fund industry. The Bank of New York is also the investment advisor to the BNY Hamilton Funds family and the parent to Ivy Asset Management, the $14.6 billion hedge fund manager-of-managers that the bank acquired in 2000. It also bought Lockwood Financial Services and Pershing last year, which it then merged to provide a single platform for managed accounts for the financial adviser marketplace.
Bank of New York President Gerald L. Hassell recently sat down with Money Management Executive Editor-at-Large Lori Pizzani to discuss operating in this heightened regulatory environment and the bank's strategic areas of growth. A 30-year-plus veteran of the bank, Hassell has served as its president since 1998.
MME: What are the fastest-growing segments of your business?
Hassell: The two fastest-growing areas are our hedge fund-of-funds manager, Ivy, which continues to perform very, very well, and our alternative investments services business. Ivy was a U.S.-based hedge fund-of-funds manager, but it has expanded and now chooses global hedge fund managers and has global investors. It now also includes a couple of Asian private-label funds, and we are very pleased with the reception throughout Asia and the Middle East.
As for the alternative investments servicing business, it was the right product at the right time. We first entered this hedge fund servicing market after purchasing a small company, International Fund Administration of Bermuda, more than a year ago. Assets under administration are up 30% this year. We can now service hedge fund clients in offshore areas including Dublin and Bermuda.
As a point of note, we also have a Bank of New York servicing platform in Ireland through an alliance with Allied Irish Bank that allows us to provide services to the Ireland offshore market. We really do see the international markets as real growth vehicles for us. Offshore markets are seeing a more rapid rate of growth than domestic markets.
MME: Which businesses do you expect to add the most to your bottom line in 2004?
Hassell: We already discussed two areas that have added to our breadth of services. But we also look to our core securities services to financial institutions. These include custody, ADRs [American Depository Receipts], execution and clearing services and corporate trust. We also have Treasury management services through which we provide cash management, funds transfer, trade financing and more services.
And, of course, there is our asset management side. We have clearly been putting more capital into our asset management business through our acquisition of Ivy, as well as Gannet Welsh & Kotler, which we acquired in 2002, and Estabrook Capital Management, acquired in 1999.
MME: The Bank of New York is obviously a big believer in acquisitions, with 80 acquisitions having been made across the company since 1995. Why make acquisitions versus building a capability internally?
Hassell: It is a question taking too long to get us where we want to be. Beyond that, acquisitions also bring us a customer base with name recognition, a track record and scale.
MME: Is there any area of asset management that you might consider adding via another acquisition?
Hassell: We continue to look at specialist firms. We could use some strength in fixed-income strategies. The Bank of New York has been a money market fund and long-only equity manager, so an acquisition is possible if it added to our capabilities, just as the acquisition of Ivy gave us more strength offshore.
MME: Would you consider adding another hedge fund manager subsidiary to complement Ivy's core competency?
Hassell: Yes. In addition, the hedge fund servicing area may be ripe for consolidation. As more and more money flows into hedge funds, people want more of an institutional servicing platform. There could be an acquisition opportunity for us here.
MME: Are there concerns among other hedge fund managers that you are now competing in their space by both servicing hedge funds as well as building your own sponsorship of hedge funds through Ivy?
Hassell: No, we really haven't seen that. That's because Ivy is a hedge fund-of-funds manager, so we are not competing with them. We are directing money into many hedge funds instead of trying to siphon off assets. Our reputation for servicing puts a Good Housekeeping seal of approval on their attracting new hedge fund investors.
MME: Which sector do you see as your most important clientele right now?