Bank of New York Mellon Corp., which has said since its formation that it wants to expand internationally, announced Tuesday it is acquiring a Brazilian asset manager, Arx Capital Management.
Arx, of Rio de Janeiro, specializes in multistrategy, long-short, and long-only investment strategies. Buying it would boost BNY Mellon Asset Management Brasil's assets under management by $2.6 billion, to $28.6 billion.
Jon Little, the vice chairman of BNY Mellon Asset Management, said he wants to grow internationally, with a focus on markets such as Brazil, China, and India.
"I think the last few years have been a good test, as these markets went from boom to bust and the economic cycle is ready to slow down there, with deregulation and better economic management," he said in an interview Tuesday. "These are core markets, and as the middle class and the high-net-worth grow, the demand for individual investment management is growing. These are high-growth markets."
According to the Investment Company Institute, Brazil's asset management industry is the 10th largest in the world, and over the last five years has grown 27% annually. Mr. Little said Brazil is moving from traditional fixed-income strategies to equity and alternative investment products.
Mellon Financial Corp. of Pittsburgh, which merged with Bank of New York Co. Inc. in July, had been in Brazil for 10 years. BNY Mellon Asset Management Brasil focuses on fixed income, hedge funds, and long-only equity funds.
Mr. Little said Bank of New York Mellon has grown more comfortable with the market, especially as Brazil's economy has improved.
"Brazil is a big country with a big population that for a long time just had too many issues, including high inflation, high debt, and a poor business environment," he said. "But a lot has changed." BNY Mellon Brasil "has gone from a loss-marking business to a successful and profitable business that compares well with any of our businesses elsewhere in the world."
Mr. Little said Brazil has become more attractive as other global markets have suffered and as Brazilians have begun to invest domestically. "They are coming back," he said. "And we are seeing growth of family offices and investment managers in Brazil."
Analysts said large trust companies have spent the past couple of years looking to expand internationally. Since July, Bank of New York Mellon executives have said its international business could generate half its revenue and earnings in five to 10 years, versus about 25% currently. State Street Corp. has set a similar goal.
Mr. Little said Bank of New York Mellon is generally not interested in being the first company in a market. "We like to be careful," he said. "We want to fund the right kind of deal. We are interested in buying something that has been in existence for a number of years."
Mr. Little said Arx is a good example of the kind of business that appeals to BNY Mellon. Arx and BNY Mellon Brasil have worked together for years. Arx manages 20 equity and hedge funds and BNY Mellon DTVM Brasil — BNY Mellon's fund processing unit in Brazil — has been the administrator for most of the funds since Arx launched in 2001.
Arx is to be integrated with BNY Mellon Asset Management Brasil, and the combined business will become one of the largest asset managers in the country. The deal is scheduled to close next quarter and is expected to be accretive to earnings in the first year. The price was not disclosed.
Mr. Little said South America and Latin America remain attractive markets for Bank of New York Mellon, but it wants to see how things develop before it makes another acquisition deal.
"Brazil is the biggest economy in the region, but we just haven't determined what the financial center is going to be in the region yet," he said. "It might be Buenos Aires, Santiago, Sao Paolo, or Rio de Janeiro. We can do everything we want to do in Latin America from Brazil. I think we'll just wait and see from here."