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.”
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, New York-based IndexIQ adds $1.5 billion in assets under management, according to a statement today 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 percent this year, while the Standard & Poor’s 500 Index is up 12 percent.
The main IndexIQ fund has gained 3.7 percent this year. It’s returned about 3 percent 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 percent, less than the performance fees and asset-based expenses of a typical hedge fund.
“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 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.