The chief executive of BNY Mellon Asset Management said it expects to generate more than half of its revenue from outside of the United States within the next three or four years and, unlike its rivals, it expects to achieve that goal without further acquisitions.
Last year non-U.S. clients accounted for 36% of BNY Mellon Asset Management's revenue, including 40% in the fourth quarter. "It is growing a little every quarter and it is becoming a pretty big number," said Ron O'Hanley, the CEO.
The Bank of New York Mellon Corp. unit, which ended 2007 with $1.1 trillion of assets under management, is well established in the United Kingdom, Italy, Germany, Japan, and Australia, and in the past six months it has started to expand in China and Brazil.
The company is keeping a "close eye" on emerging markets such as Russia and India, but it does not need to make an acquisition in those markets, Mr. O'Hanley said.
"We are an established player now in every country that we need to be in," he said. "Anything we do now isn't about planting flags. We are now moving from asset- and client-gathering mode and into client-servicing mode."
BNY Mellon Asset Management will continue to consider buyouts, but "if we don't make another acquisition for two or three years, I'd be fine with that," Mr. O'Hanley said. "I think we have enough of a distribution presence on the ground internationally that we have formidable opportunities for organic growth."
Analysts said most financial services companies, including Bank of New York Mellon's competitors in corporate trust, have turned their attention overseas with the housing and credit crises weakening domestic markets.
Mark Fitzgibbon, the head of research at Sandler O'Neill & Partners LP, said asset management growth outside of the United States has been much faster and margins have been stronger.
"BNY Mellon has set an aggressive goal, but it is a smart goal given the dynamics of the asset management business," Mr. Fitzgibbon said. "Bob Kelly" — Bank of New York Mellon's CEO — "has set the bar high for all of his business units. He understands the value of being diversified."
Northern Trust Corp.'s international assets under custody have grown an average of 30% a year for 15 years, but in 2007 the increase was 50%. Thirty percent of the Chicago company's employees and 52% of its $4.1 trillion of assets under custody are outside the United States. State Street Corp.'s international business accounted for 41% of its revenue last year, versus 39% in 2006.
Mr. O'Hanley said BNY Mellon does not go head to head with State Street and Northern Trust overseas, because the international market is large and fragmented. He said State Street concentrates more on the custody business abroad, and Northern Trust has a different focus. BNY Mellon is more likely to compete with companies such as AllianceBernstein, BlackRock, and Franklin Templeton.
Mr. Fitzgibbon said U.S. financial services companies are targeting areas including China, the Middle East, and the Nordic region.
"In order to do what we've done, competitors would need to secure a lot of distribution in a lot of different markets," Mr. O'Hanley said. "We think that we have quite a head start against our competitors."
Distribution was a big part of that head start. Mellon Financial Corp. and Bank of New York Co. Inc. had been developing their own multicountry distribution platforms since 2000.
"Everyone wants to expand globally. It is a big opportunity, but the barrier to entry will be distribution," Mr. O'Hanley said.
He said BNY Mellon made strategic buyouts of overseas distribution companies over the past eight years, including West LB of Germany.
"We are well positioned now to deepen our footprint," he said. "We are in enough countries now that we think we can begin to develop country-specific products. We have services and distribution on the ground now, but our manufacturing is still elsewhere. So, if we find opportunities like Arx in Brazil, we are going to move in that direction." (BNY Mellon bought Arx Capital Management, an independent equity manager in Rio de Janeiro, in January.)
Mr. O'Hanley said he thinks there are opportunities to expand in the so-called Bric emerging markets: Brazil, Russia, India, and China.
In September, BNY Mellon announced the launch of the $4 billion qualified domestic institutional investor mandate it subadvises on behalf of China Southern Fund Management Co. Ltd. It has received $8 billion in subscriptions from Chinese investors, BNY Mellon said.
Mr. O'Hanley said he is confident there will be more chances to work with institutional investors in China. BNY Mellon Asset Management was the first nondomestic asset manager to receive approval in China to advise on such mandates, and the September launch is the largest mutual fund launch in either Bank of New York or Mellon's history.
"There is a lot of money and a lot of opportunities in China," Mr. O'Hanley said. "We are participating in some and we hope to participate in more."
Arx Capital, which specializes in multistrategy, long-short, and long-only investment strategies and has more than $2.8 billion of assets under management, was integrated into BNY Mellon Asset Management Brasil. The combined business, which offers both asset management and asset servicing, is one of Brazil's largest asset managers. "We've been in Brazil for a long time," Mr. O'Hanley said. "We've been there through the thin, and now we want to be there for the thick."
Mr. O'Hanley said Russia offers BNY Mellon "significant" opportunities. "We don't do any asset management for Russian clients," he said. "We invest in Russia, but we have not done much in terms of asset management onshore there yet. We are keeping a close eye on the market."
BNY Mellon wants to expand in India, where it inherited a small mutual fund business with its 2000 acquisition of Newton Management Ltd., its U.K. investment arm, Mr. O'Hanley said.
"We'd like something there, but it doesn't make sense to buy businesses at these multiples," he said. "We don't need to acquire, and frankly the best acquirers are people that don't need to acquire. You paint yourself into a corner when you have to make an acquisition and you can't discriminate price or quality."
