Debate as to whether more banks will sell admin businesses
Debate is mounting as to whether more banks are going to spin out their administration businesses amid falling overall revenues and regulatory capital requirements.
GSAS and GlobeOp both sold at high prices
Speculation is rife in industry circles that Morgan Stanley wants to put its fund administration business on the market following the successful sales of Goldman Sachs Administration Services (GSAS) and GlobeOp.
“Banks need to raise regulatory capital and were Morgan to sell its administration arm, it would help bolster its balance sheet,” said one source on condition of anonymity. Another source said the administration arm at Morgan Stanley was peripheral to its core business and was a likely target for cost cutting.
A source close to Morgan Stanley denied claims it planned to sell its fund administration business, which currently has $142 billion in Assets under Administration. The bank issued an official statement saying “Morgan Stanley continues to actively invest in the growth of our leading fund administration business.”
There has been rampant M&A activity among fund administrators this year. In May 2012 SS&C Technologies acquired GlobeOp for $920 million while State Street Alternative Investment Solutions (AIS) paid $550 million for GSAS in July 2012.
One boutique fund administrator said there was no shortage of candidates who might acquire a large scale or bank-backed administrator. “I would not rule out State Street doing another deal,” he said. Speaking in July 2012, George Sullivan, executive vice president and global head of State Street’s AIS team in Boston, refused to rule out further acquisitions. “If there are opportunities out there, we shall look to take advantage of them,” he said, although he did not allude to any particular business.
The boutique administrator reckoned TPG, the private equity firm which failed in its bid to buy GlobeOp, and Citco, might also be interested in bolstering their businesses. “TPG really wanted to buy GlobeOp but was outbid by SS&C Technologies so it might have another crack. Citco on the other hand has a lot of money and it is a very successful business so might also be interested. Citco might also want to re-establish itself as the biggest fund administrator by AuA, which would be a driver for an acquisition,” speculated the boutique administrator.
Citco and TPG both declined to comment.
Another driving force behind banks shedding their administration arms is growing pressure from institutional investors who are demanding hedge funds not use the same service provider as both prime broker and administrator. “It is not best practice to have administration and prime brokerage performed by the same bank,” said one source.