Mellon Global Securities Services says it is looking to expand its hedge fund servicing business domestically and abroad through acquisitions like its deal this week for a New Jersey hedge fund administrator.
The parent, Mellon Financial Corp. in Pittsburgh, announced Tuesday that its asset servicing group had agreed to buy Derivatives Portfolio Management LLC, a Somerset, N.J., company that oversees $30 billion of assets for 91 clients. Its business also includes middle- and back-office outsourcing and transparency services.
Jim Palermo, a vice chairman at Mellon and the president of Mellon Global Securities Services, said the company decided to do the DPM deal because, “after a strategic review process, we saw an important product gap is hedge fund administration to stand-alone managers and global institutions.”
The DPM deal was “clearly a good opportunity. We had been watching DPM over the past couple of years and were impressed with their management team and business growth,” he said.
The deal also fits Mellon’s overall strategy, said Mr. Palermo, because now the company can serve “virtually any global financial institution.”
Terms of the deal, which is scheduled to close by March 31, were not disclosed.
Similar deals are possible for Mellon down the road, said Mr. Palermo. “We’re always looking at opportunities in the marketplace. If one came up in this area or another area, we’d consider it,” he said. In considering potential deals, Mellon wants companies “that can bring us product or distribution capabilities,” he said.
Mr. Palermo said that Mellon plans to further expand DPM’s operations in Europe to meet growing demand from international hedge fund managers. “It is our intention to establish a hedge fund administration capability in Dublin, where we already have a substantial asset servicing hub,” he said in a press release.
Mellon’s recent deals include a 2002 joint venture with the Dutch banking giant ABN Amro Holding NV.
ABN Amro Mellon Global Securities Services BV is based in the Netherlands and is a separately capitalized company with a banking license. It allowed Mellon to inherit more than 100 clients and $250 billion of assets the two companies serve under a four-year-old marketing alliance.
Hedge fund opportunities are especially attractive to Mellon because the industry has grown to $870 billion from $350 billion in a few years, said Mr. Palermo. “We expect it to surpass $1 trillion soon, and it’s an enormous opportunity,” he said.
His unit also has asset servicing hubs in London, in Germany, and in the Netherlands, he said, and Mellon will next look to Luxembourg because it offers a good opportunity to do onshore and offshore business. He has no timetable for a Luxembourg hub, Mr. Palermo said.
Mellon has custodial relationships in more than 40 countries, compared with 17 in 2000. “Internationally, the market is growing rapidly,” he said. “We are seeing more activity and more demand for custodial and related services.”
The company sells financial services — such as institutional asset management, mutual funds, private wealth management, asset servicing, human resources, and treasury — to institutions, corporations, and high-net-worth individuals.
It has more than $3.7 trillion of assets under management, administration, or custody, including $670 billion under management.
