Chase Manhattan Corp. has reached an agreement with M.D. Sass Investors Services Inc. to set up a partnership to handle short-term investment management for fixed income-securities.
The partnership will manage short-term investment funds, and handle cash collateral accounts related to securities lending portfolios. It will start out with $5 billion of assets under management.
The bank declined to disclose financial arrangements for the partnership, which is expected to begin operation in July after obtaining regulatory approval.
However, Mark Tennant, vice president for planning and administration in Chase's global securities division, said the bank will be taking a majority stake in the new firm, Chase & M.D. Sass Partners.
Chase acts as a custodian for more than $600 billion in non-U.S. securities. Sass currently manages $2 billion worth of assets.
The partnership will give Chase access to top quality fixed-income management. Sass, meanwhile, gets "funds way beyond what they could get on their own," Mr. Tennant said.
Securities lending is growing rapidly in response to demand from customers for incremental yields on their securities portfolios, shorter settlement times, and an increase in derivatives transactions.
"Clearly, Sass brings some capabilities Chase either doesn't have or doesn't think worthwhile building," said David Berry, a banking analyst with Keefe, Bruyette & Woods. "It makes sense," Mr. Berry added, "because banks as a general rule need to get away from the idea that if they don't build it themselves, it's not worth doing."