In 2011, BNY Mellon acquired 35% of HedgeMark, which was founded by Ken Phillips in 2009. Now, BNY Mellon has bought the remaining stake in the company, a provider of managed accounts and hedge fund risk monitoring, and HedgeMark will become a part of BNY Mellon’s Asset Servicing business. Samir Pandiri, BNY Mellon executive vice president and CEO of Asset Servicing, talks to Global Custodian about the acquisition.
What does the HedgeMark deal mean for BNY Mellon?
SP: It’s important to BNY Mellon on a couple different levels. Now that we own 100%, that gives us more flexibility in terms of shaping the future direction and strategy and making sure that it’s aligned from a company perspective with the rest of our company’s strategy. We’re excited because our clients tend to have a very large investment allocation into alternatives. If you look at our pension clients as an example, almost 24% on average of clients’ holdings are in alternatives, which obviously includes hedge funds. That gives us the ability to support those clients in a much more meaningful way across a number of different areas: for instance, risk reporting, governance in terms of managing their hedge fund portfolio and – whether it’s a managed account platform or a single manager fund—enhancing transparency and providing a lot more customization. If you look at a client ten years ago, they might have invested $1 million, $2 million, maybe $5 million in hedge funds. Now that figure is in the tens of millions. So they want a lot more from their service providers, and HedgeMark will give us the opportunity to provide that to our clients in a much more meaningful way.
Do you plan on expanding the business to new markets?
SP: The client base that we would be targeting at first would be large institutional global investors who have large asset pools or allocations towards hedge funds. In the U.S., the big client base would be insurance companies, pension funds, endowments, Taft-Hartleys. Similarly, most of those would apply in Europe and the Middle East, with the addition of sovereign wealth funds because they have large allocations to hedge funds in their portfolios. And it’s the same probably a little bit in Asia as well. This is not a U.S.-specific play: HedgeMark can support global transactions and will be very integrated with our Global Risk Solutions business,.
How do you see managed accounts playing out over the next few years?
SP: There are really two avenues with managed accounts that I see. The first really has to do with individuals that have large allocations to hedge funds. They want to have a separate dedicated managed account for their own particular holdings. They want to get risk, governance, transparency, reporting and performance solutions to better understand how their own portfolio is doing. So that’s going to be step one, and that’s going to be a big push and a big initiative. Step two is really going to be a MAP (managed account platform), where you can have an account set up and multiple clients have a pooled vehicle for a managed account provider. The benefit of that is you could have not just qualified institutional investors, but also high-net-worth individuals. From a distribution perspective, it opens up a lot of doors.
How does this sector fit into Asset Servicing’s overall goals?
SP: For us, alternatives are a big, big push and have been for the last eight or nine years. We now have close to 2,200 people within Asset Servicing that are focused specifically on the alternatives business. We have seen a lot of expansion in single manager hedge funds and fund of hedge fund structures, but we’re also seeing significant expansion in private equity, real estate,and loan structures. So HedgeMark really gives us the ability to go deep in terms of supporting our clients. Over time we’re going to see additional elements to support some of those other sectors like real estate and private equity.
Do you have any targets in those sectors?
SP: When you have a target, it’s really not just up to you, it’s up to the target as well. We’re looking at a lot of different options, including how to strategically grow through partnerships and different vehicles. As a company we’re very focused on the alternatives space and we’re going to see a lot more development and a lot more growth in this space, certainly in the next 24 months.
We are making a very concerted effort to bring in new leadership in this space, while HedgeMark obviously brings on additional capability. And the last part is about really bringing our clients together—not just from an Asset Servicing perspective, but tying in our distribution,administration and middle-office outsourcing capabilities, and really bringing all of that together. I think there are two mega trends. One is people are a lot more invested in alternatives than they ever were. The other is that increasingly clients are recognizing they need to go to experienced administrators and providers that can really help them to outsource their risk, reporting, analytics and provide the tools that are required to manage these complex portfolios, and that’s something we’re really focused on.
GC Friday Interview: Samir Pandiri, EVP and CEO of Asset Servicing, BNY Mellon
In 2011, BNY Mellon acquired 35% of HedgeMark, which was founded by Ken Phillips in 2009. Now, BNY Mellon has bought the remaining stake in the company, a provider of managed accounts and hedge fund risk monitoring, and HedgeMark will become a part of BNY Mellon's Asset Servicing business. Samir Pandiri, BNY Mellon executive vice president and CEO of Asset Servicing, talks to Global Custodian about the acquisition.