NY Life To Acquire ETF Firm IndexIQ

December 04, 2014

A big insurer, looking to jump-start its entry into ETFs, plans an interesting acquisition.

New York Life, the biggest U.S. mutually structured insurance company, agreed to acquire the ETF firm IndexIQ, marking its investment subsidiary’s first foray into the rapidly expanding world of exchange-traded funds. Terms weren’t disclosed.

IndexIQ is arguably the ETF market’s most successful alternative investments fund sponsor. Its hedge fund replication fund, the IQ Hedge Multi-Strategy Tracker ETF (QAI | B-73), has almost $1 billion in assets under management. With a price tag of 75 basis points, or $75 for each $10,000 invested, that’s a fraction of what an actual hedge fund might charge, so it’s easy to see why New York Life is interested.

Once the transaction is closed, IndexIQ will be integrated into New York Life Investment Management (NYLIM) and marketed through the company’s MainStay Investments platform. IndexIQ's head Adam Patti will remain CEO after the deal is concluded in the first half of next year. IndexIQ's $1.5 billion in total AUM will be added to assets of $101 billion at MainStay, largely an array of mutual funds, the two companies said today in a press release.

“Retail and institutional investors are increasingly attracted to ETFs because they offer a cost-effective, transparent way to access investment opportunities across asset classes around the globe,” Drew Lawton, NYLIM’s chief executive officer, said in the press release.

“IndexIQ has established itself as a true innovator and market leader offering the next generation of liquid alternative ETFs, and we intend to leverage IndexIQ’s capabilities to become the dominant provider of nontraditional ETF solutions to the market,” Lawton added.

IndexIQ’s Chief Executive Officer Adam Patti said in an interview with ETF.com that he will continue to head the firm he co-founded once it becomes a wholly owned subsidiary of New York Life. Moreover, Patti’s expertise in the ETF business will be brought to bear as New York Life formulates and implements its growing presence in the ETF world.

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Get In While The Going Is Good

The New York Life-IndexIQ pairing is the latest example of a developing trend of large companies in the financial world looking to stake a claim in the ETF market via acquisition while the industry is still in growth mode.

In mid-October, for example, the mutual fund company Janus said it planned to acquire VelocityShares, a firm behind a number of relatively sophisticated ETFs and ETNs. ETF industry sources think transactions like these two are likely to become more common in the coming years.

After all, total U.S.-listed ETF assets now stand at $1.996 trillion, according to data compiled by ETF.com, and ETFs' rate of adoption by both institutional and retail investors is accelerating. By comparison, hedge funds have about $3 trillion in assets and open-end mutual funds have about $15 trillion in assets.

“Our partnership with New York Life marks a major turning point for IndexIQ and the liquid alternative ETF category,” David Fogel, president and co-founder of IndexIQ, said in the prepared statement.

Plenty Of Options

“With the backing of New York Life’s robust investment management business, we expect to reach a new universe of institutional and retail clients.”

By way of setting up investors’ broad expectations of what New York Life’s IndexIQ unit might be involved in, it’s important to note that Patti’s Rye Brook, New York-based firm already obtained broad regulatory permission to market both indexed and active exchange-traded funds. That includes permission to use fund-of-fund structures and, where necessary, derivatives.

In other words, in theory at least, the ETF world may now be IndexIQ’s oyster, courtesy of the deep pockets and strategic aims of New York Life, a nonpublic insurance company that survived the subprime mortgage crisis and the 2008-2009 market collapse unscathed and in solid financial health.

 

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