Bank of New York Mellon Corp., the bank that manages $1.5 trillion in client assets through 16 different investment-advisory firms, is starting a hedge-fund unit led by a trader who specializes in government bonds and related derivatives.
Edward George Fisher, a onetime Brevan Howard Capital Management LP trader who is also known as E.G., is the chief executive officer of 484Wall Capital Management, an advisory company formed in September to run fixed-income arbitrage strategies, according to regulatory filings. 484Wall will use an approach similar to that of 5:15 Capital Management, a defunct hedge-fund firm that Mr. Fisher and two other former Brevan Howard traders set up and named for a song by the British rock group the Who.
BlueCrest Capital Management, Millennium Management and other hedge-fund firms have stepped up their fixed-income trading after U.S. banks were forced to curtail those operations under the Volcker rule provisions of the 2010 Dodd-Frank Act.
“Most people who do fixed-income arbitrage would tell you its been a good investment environment because, between the financial crisis and the Volcker rule, the banks have largely been absent,” said Anne Casscells, chief investment officer for Aetos Alternatives Management, a Menlo Park, Calif.-based firm that allocates client money to absolute return funds.
BOUTIQUE UNITS
Mike Dunn, a spokesman for New York-based
BNY Mellon, declined to comment on the new unit.
BNY Mellon ranks as the eighth-largest money manager in the U.S., according to trade publication Pensions & Investments. The firm has 16 boutique money-management subsidiaries, according to its website, including Mellon Capital Management, Boston Co. Asset Management, Standish Mellon Asset Management and Dreyfus.
With $27.4 trillion under custody and administration, the company is also the world's biggest custody bank. Custody banks keep records, track performance and lend securities for institutional investors. They also manage investments for individuals and institutions.
The growth in assets under custody has yet to translate into higher revenues, which have remained about the same on that side of the business for the past six years, said Richard Bove, a financial services analyst with Rafferty Capital Markets. “Asset management creates a much greater opportunity” for
BNY Mellon, Mr. Bove said.
'MACRO OVERLAY'
484Wall registered with the Securities and Exchange Commission at the end of October.
The firm will seek to produce stable absolute returns with relatively low volatility through the use of “global fixed- income arbitrage strategies with a macro overlay,” it said in a customer brochure included in the filing. It anticipates using leverage, or borrowed money, to amplify returns.
The plan echoes the approach taken by 5:15 Capital Management, named for a track on the Who's 1973 album “Quadrophenia.” Mr. Fisher teamed with Morris Sachs and Rob Wahl to start 5:15 Capital Management in July 2009.
Their 5:15 Master Fund traded government debt from the world's seven largest economies, seeking to spot differences in relative values between bonds. Mr. Sachs said in a 2009 interview that the strategy would be coupled with a “macro-overlay” in which the managers looked at macroeconomic trends for patterns in interest rates and yield curves.
5:15 REDEMPTIONS
The firm's assets in its core strategy peaked at $1 billion in early 2012, while gross assets, a figure that includes the use of borrowed money, totaled $11.4 billion firmwide at the end of that year, according to documents 5:15 filed with the SEC. Mr. Fisher and his colleagues told investors in April that 5:15 Capital Management would wind down its operations and return client money after redemptions cut net assets in the core strategy to about $370 million.
The withdrawals were driven by “sector rotation” and “weakness in the fund-of-funds industry,” the firm's principals said in the April 16 letter, according to a copy obtained at the time by Bloomberg News.
“We came to the conclusion that because our trading orientated strategy requires a significant and robust platform to meet our high standards for institutional quality risk management, execution, operational control and regulatory compliance, it is in our investors' best interest to wind down the fund,” the letter read.
Mr. Fisher was part of a group of former traders who left RBS Greenwich Capital Markets in March 2008 to join the U.S. operations of Brevan Howard, a hedge-fund manager co-founded by Alan Howard. Mr. Fisher and the other traders focused on trading liquid rates products tied to bonds issued by the Group of Seven nations until November 2008, when Brevan Howard discontinued most of its U.S. operations.
(Bloomberg News)
