New York Life buys IndexIQ to expand liquid alts offering, add hedge fund ETFs

Deal adds $1.5 billion in AUM to N.Y. Life, including $950 million in multi-strategy exchange-traded fund

Dec 4, 2014 @ 9:46 am

By Bloomberg News

New York Life Insurance Co. agreed to buy asset manager IndexIQ, pushing into exchange-traded funds and adding offerings for retail investors who want to copy hedge-fund approaches.

The transaction “puts us into the forefront of two very important growth trends in the industry,” Drew Lawton, chief executive officer of New York Life Investment Management, said in an interview. “Not just ETFs, but also alternatives and, maybe more specifically, liquid alternatives.”

(More: Hedge fund performance continues to disappoint)

New York Life CEO Ted Mathas has been using deals to expand beyond polices that provide death benefits and annuities at his 169-year-old company. The insurer acquired Dexia SA's asset manager this year after adding funds from firms such as Cornerstone Capital Management and Marketfield Asset Management.

The purchase of Rye Brook, N.Y.-based IndexIQ adds $1.5 billion in assets under management, according to a statement Thursday from the buyer. That includes about $950 million in the IQ Hedge Multi-Strategy Tracker ETF, which seeks to replicate results at funds that bet on macroeconomic themes, wager on individual stocks rising and falling, or invest in companies targeted for acquisitions.

New York Life's MainStay Marketfield Fund has been one of the biggest beneficiaries of demand for products called liquid alternatives, which seek to mimic strategies used by hedge funds while letting clients invest or withdraw money daily. Still, the mutual fund's performance from investing in stocks, bonds, commodities and other assets shows the risk of those strategies. The Marketfield fund declined 11% this year, while the Standard & Poor's 500 Index is up 12%.

(More: Advisers who sold MainStay Marketfield a fickle bunch)

CORE ALTERNATIVE

The main IndexIQ fund has gained 3.7% this year. It's returned about 3% annually over the last five years, in line with the performance of the Bloomberg Global Aggregate Hedge Fund Index. The fund's annual operating expenses are 0.91%, less than the performance fees and asset-based expenses of a typical hedge fund.

(More: Largest alternatives funds)

“It's your cheap core alternative hedge-fund exposure,” said Adam Patti, co-founder and CEO of IndexIQ. “Hedge funds are never going to beat the S&P 500 in a roaring bull market. They're going to provide much lower volatility, and downside protection.”

The firm also offers ETFs that bet on mergers (using the ticker MNA), seek to protect against inflation (CPI), and invest in small real-estate investment trusts (ROOF).

Those products each have less than $100 million, and Mr. Patti said that they may benefit from the marketing of the buyer, which is the biggest U.S. life insurer owned by its policyholders and oversees more than $100 billion at its MainStay mutual fund business.

AMERIPRISE, JANUS

New York Life may eventually introduce ETF versions of some of its mutual funds using IndexIQ's expertise, Mr. Lawton said. He declined to discuss the terms of the IndexIQ deal, which is scheduled to be completed in the first half of next year. RBC Capital Markets is the banker for IndexIQ, which received legal advice from Paul Weiss Rifkind Wharton & Garrison.

Asset managers including Ameriprise Financial Inc. have been diversifying beyond traditional stocks and bonds. The company's Columbia Management announced an agreement last month to join with Blackstone Group LP to increase retail investors' access to hedge fund strategies. Janus Capital Group Inc., the fund manager that hired Bill Gross, acquired VelocityShares this year.

New York Life isn't seeking to compete with larger ETF providers like BlackRock Inc. and State Street Corp., Mr. Lawton said. Those firms offer products that track indexes such as the S&P 500 and seek to distinguish themselves with low fees. State Street's SPDR S&P 500 ETF Trust oversees about $200 billion and has an expense ratio of less than 0.10%.

“That's really not our natural place,” Mr. Lawton said. “We're creating more access to hedge funds, or hedge-fund-like vehicles, to a much broader population than probably has had access to them in the past.”

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