LDI Specialist Cutwater to Fold into BNY Mellon

BNY Mellon has reached a deal to purchase fixed-income firm Cutwater Asset Management, the banking corporation announced on Monday.

Cutwater, a specialist in liability-driven investing (LDI) products, has roughly $23 billion in assets under management. If the purchase closes as expected, it will merge into Insight Investments, a boutique operation under BNY Mellon Investment Management’s umbrella.

Based in Armonk, New York, with a US clientele, Cutwater would significantly expand London-based Insight’s reach into the American institutional market.

“Insight has grown by aligning our investment solutions with the needs of our clients,” said Insight’s CEO and CIO Abdallah Nauphal. “Cutwater’s strong US domestic fixed income and solutions track record and experienced team will complement Insight’s strategy in the US as we build upon our existing position as a European leader in liability risk management and fixed income.”

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BNY Mellon Investment Management’s CEO Curtis Arledge credited Cutwater with “an impressive performance history, strong intellectual capital, and an investment culture consistent with BNY Mellon’s.”

Cutwater is at present wholly owned by holding company MBIA, which also operates divisions that guarantee public and private debt.

BNY did not disclose the price it agreed to pay for Cutwater. Following regulatory review, the transaction is expected to close before the third quarter of 2015.

Related Content: 2013 Liability-Driven Investing Survey

billgrosspimco2 Company ownership, succession planning, and governance are among the key factors investors should consider when assessing a fund manager’s key man risk, according to ratings agency Fitch.

Fitch has given details of its own criteria for assessing this risk in the wake of Bill Gross’ unexpected defection to Janus Capital at the end of September. The PIMCO co-founder is set to begin managing money today.

“While PIMCO has evolved to a point where its operating and governance infrastructures served to alleviate key man risk, Gross’ stature as a driver of the firm’s success also drove the magnitude of the risk of negative response to his exit,” Fitch’s note said.

While not specifically mentioning Janus, Fitch’s comments will be of interest to the firm’s management as it prepares for an expected wave of inflows into the strategies Gross is to run.

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Fitch stated that “a firm’s size, staffing, ownership, maturity, and—perhaps most importantly—its overall governance structure” can all help reduce the risk of a fund management company becoming too reliant on any one individual.

“Fitch evaluates key man clauses and redemption mechanisms such as manager replacement clauses, manager insurance policies, and manager-related redemption gates that may be explicitly outlined within fund agreements,” the ratings agency added. “Some of these factors may be important in controlling key man risks.”

Outflows from PIMCO funds “have not been material enough to raise serious concerns” so far, according to Fitch, despite the group having recorded withdrawals of more than $23 billion in September alone. The agency cited PIMCO’s scale, diversity, and the “background and expertise” of its management team as key to its financial health and stability.

Janus has $178 billion in assets under management across a range of equity and fixed-income funds and mandates, while PIMCO has almost $2 trillion across its products, although there is a much greater emphasis on bonds.

Last week, fixed-income managers played down the expected impact on the bond market of extensive withdrawals from PIMCO’s giant Total Return fund, which Bill Gross ran until his departure. The fund, which has more than $200 billion in assets, is now managed by CIOs Scott Mather, Mark Kiesel, and Mihir Worah.

Related Content: Too Big to (Not) Fail? & PIMCO’s Annus Horribilis