How One Fundamental Asset Manager Got a Quant Overhaul

Euan Munro knows this from experience. The Newton Investment Management CEO was hired two years ago, just after BNY Mellon Investment Management decided to merge Newton with Mellon’s active equity and fixed income teams. The two BNY subsidiaries would create a $100 billion investment business, combining fundamental and quantitative multi-asset strategies.

Integrating two businesses, particularly if the goal is to cut costs, can be messy, said Munro. “When businesses have been put together with a focus on synergies and cost cutting, a lot of them have been mishandled,” he said.

Munro set out to tell a different story with this integration: Rather than cutting costs or headcount, the two firms would benefit from one another’s complimentary investment strategies.

“Stage one was making sure our clients understood what was happening,” Munro said. “This was in 2022, a year with plenty of distractions.”

The two businesses were lucky, according to one expert. They were operating differently — Newton had a more fundamental approach to investing, while Mellon was more quantitative in nature.

“It’s a complimentary brand,” said Richard Bruyere, managing partner at asset management consulting firm Indefi. “There are fewer pitfalls than if you’re integrating people and teams that are doing the exact same thing.”

The London-based business, Newton, had a multi-strategy, fundamental approach to investing. That team builds economic models. Newton’s San Francisco team — once known as Mellon — was focused on quantitative portfolio management. In Munro’s view, simply trying to “smash” their processes together to form one investment thesis would have been “like trying to combine oil and water.”

“I think if you own both complimentary capabilities, it’s a great growth story to be told,” Bruyere said. “For clients that are being managed in a traditional way, you bring in another layer of competency and risk management.”

According to Munro, this messaging worked — the investment firm didn’t lose a lot of assets, even in a challenging year in the financial markets.

Now that the combination of the businesses has been executed, Munro’s team is now focused on demonstrating the benefits.

The teams are sharing functions where they can — in this case, they both have shared their portfolio models with one another to improve the overall data available for investment decision-making.

The addition of a London office has been a boon for the U.S. team in other ways as well. European investment managers tend to be ahead of those stateside when it comes to ESG, and these businesses were no exception. “We’re much more developed in the UK, but we’re training up the U.S. investors now,” Munro said.

The timing, according to Bruyere, was smart. It’s hard to operate as just a massive fundamentals-focused investment manager, he said.

“Today it’s difficult to be just a pure fundamental house,” Bruyere said. “A lot of the businesses have become very data-driven. That’s why the quant teams are so important.”