Following one of the worst kept industry secrets, State Street today said it has agreed to acquire the hedge fund administration business of Goldman Sachs. State Street will pay $550 million in cash for the business, which it says is subject to certain adjustments.
In June it was it was reported that the parties were in late stage talks over the sale. Reports said the investment bank had been investigating the sale of its hedge fund administration unit for several months and had spoken to a number of potential acquirers. In recent weeks, State Street had emerged as the clear frontrunner. The custodian bank declined to comment on the reports.
Subject to regulatory approvals, the transaction is expected to be finalized early in the fourth quarter of 2012. State Street expects the transaction to be accretive in the first full year of operation on a cash basis.
The acquisition will add scale to State Streets suite of middle office, fund administration, risk analytics and credit services to hedge funds, private equity funds, real estate funds and institutional investors. The new business will be integrated within State Streets Alternative Investment Solutions (AIS) team, which currently has more than 3,000 employees in multiple offices around the world.
GSAS administers approximately $200 billion in single manager hedge fund assets on behalf of approximately 150 investment manager clients from locations across the globe. GSAS employees, including client-facing staff and the management team, are expected to join State Street following the close of the transaction. The transaction does not include Goldman Sachs Prime Brokerage business, which remains an important offering of Goldman Sachs.
George Sullivan, executive vice president and global head of State Streets AIS team said, GSAS is a premier provider of hedge fund administrative services and represents a strong franchise supported by longstanding relationships with highly regarded clients and an industry-leading service philosophy similar to our own. We expect that GSAS clients will benefit from State Streets robust and flexible global servicing platform that is scalable for funds of all types and sizes. Our continued investment in our global operating platform and technology solutions makes us well-positioned to meet clients increasing needs for regulatory compliance, reporting, transparency and risk management requirements. We look forward to extending these comprehensive solutions to GSAS clients.
Cory Thackeray, managing director and global head of GSAS, who will continue to lead the teams servicing the GSAS clients post-close, said, With this transaction, we will be well-positioned to offer our clients an enhanced product offering that covers the entire investment lifecycle and provides relevant regulatory compliance, risk and transparency solutions that our clients often request to help them navigate todays complex environment.
Thackery will report to Sullivan. The intellectual capital, service lines and customer book will be integrated within State Street AIS.
The acquisition will strengthen State Streets position as one of largest providers of hedge fund administration and will establish the company as the No. 1 hedge fund administrator globally based on industry survey data from HFMWeek. According to its latest pro forma reporting State Street has $505bn of hedge fund assets under administration. Following a combination of the businesses, the provider will have AuA of $705 billion. State Street is largest servicer of alternative assets in the world with $877 billion under administration at June 30, 2012.
Scott Carpenter global head of client relationship management and strategy for State Street Alternative Investment Solutions told Global Custodian: We are committed to the asset servicing businesses and view alternatives as an area of strategic growth for our firm. We are always looking to grow our business organically and also via acquisition when the right opportunities present themselves. Through GSAS we will acquire an excellent employee base servicing blue chip clients. State Street and GSAS share a client focused service philosophy that makes this acquisition a strong cultural fit. GSAS has hedge fund operating locations in many of the same geographies as we do in our hedge fund servicing business at State Street, including New York/New Jersey, Toronto, and Dublin. Additionally, we will be gaining new hedge fund operating teams in Cayman and Singapore.
The development comes amid accelerated consolidation in the fund administration space, whereby increasing in regulation and growing investor pressure have spurred the outsourcing of functions such as the calculation of risk and NAV to external providers. The most recent example of M&A activity in the fund administration space is SS&Cs acquisition of GlobeOp, whereby SS&C shareholders agreed to the 485-pence-per-share (approximately 522 million) acquisition May.
(JDC)