Why BNY Mellon’s Decision To Close EACM Advisors Makes Sense

Bank of New York Mellon (NYSE:BK) recently announced its decision to shutter EACM Advisors, its subsidiary which offers specialized solutions for traditional multi-manager portfolios as well as customized hedge fund portfolios. EACM Advisors currently has roughly $3.9 billion in total assets under management, of which $2.1 billion is in hedge fund investments, and the remaining $1.8 billion is in long-only equity strategies. As a part of BNY Mellon’s decision, the hedge fund investments will be liquidated over the coming months, while the equity portfolio will continue to be maintained as a part of BNY Mellon’s Investment Management division.

BNY Mellon Investment Management consists of several investment boutiques which cater to specific investment requirements of institutional investors and high net worth clients. While this gives the custody banking giant’s existing and potential clients access to a wide range of in-house investment management options, it also results in a complex operating structure for the investment management division with considerable redundancies. Given the dwindling demand for fund of hedge fund strategies since the recession – especially with low-cost ETFs becoming the default investment option for most institutional as well as retail investors – BNY Mellon’s move to close EACM Advisors marks another step towards streamlining its asset management business. We capture the impact of changes in total assets under management as well as profit margin on the bank’s share price in our interactive valuation dashboard for BNY Mellon.

See our full analysis for BNY Mellon here

Investment Management Contribution

As the world’s largest custody bank, BNY Mellon generates value primarily through its role as a custodian. However, as can be seen from the chart above, the bank’s investment management operations are also an integral part of its business model – contributing almost 24% of its total value. At the end of the second quarter of the year, the bank’s investment management division reported total assets under management (AUM) of $1.8 trillion – including assets in equity, fixed income, index-linked, currency, alternative and money market funds. This implies that the EACM Advisors unit was responsible for a little over 0.2% of BNY Mellon’s total AUM.

Notably, EACM Advisors acts as the Portfolio Allocation Manager for three major BNY Mellon mutual fund products: the Dreyfus Select Managers Long/Short Fund, the Dreyfus Select Managers Small Cap Growth Fund, and the Dreyfus Select Managers Small Cap Value Fund. As Dreyfus Select Managers Long/Short Fund is a fund of hedge funds, it will be liquidated by the end of November, while the other two mutual funds will be managed within BNY Mellon Investment Management.

It should be noted that BNY Mellon’s decision to liquidate the fund of hedge fund investment offering won’t necessarily mean a loss of clients, as the bank still offers this investment product as a part of its more diversified offerings under other investment boutiques. It is, therefore, very likely that the proceeds from the liquidation will find its way back into BNY Mellon’s investment management division soon. This would mean that the net impact of the move will be to help BNY Mellon reduce its operating costs. This should result in a marginal increase in the bank’s income over subsequent years – in turn positively impacting its value.

You can find additional info in our interactive dashboard for BNY Mellon

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