M&A activity in fund admin space could lead to $1 trillion plus AUA provider
The rampant M&A activity proliferating the fund administration space could potentially lead to a very small minority of providers servicing northwards of $1 trillion in Assets under Administration (AuA), an expert has said.
“We could potentially see a fund administrator with $1 trillion AuA given all of the M&A that has been happening at the top end of the fund administration space. We have seen SS&C acquire GlobeOp while Goldman Sachs Fund Administration appears to be in late stage talks with State Street. There are going to be some major juggernauts entering the fray,” said Peter Hughes, group managing director at Apex Fund Services, a fund administrator with $20 billion AuA.
According to news reports, Goldman Sachs appears on the verge of sealing a deal with State Street. If the deal goes through, the combined entity will service over $700 billion in AuA, overtaking Citco, which has well over $500 billion AuA. Meanwhile, the SS&C/GlobeOp merger will create an entity with $300 billion AuA putting it slightly behind BNY Mellon, which has just under $400 billion AuA.
However, Hughes expressed surprise these giant deals were only just happening given the market dislocation since 2008. “Fund administrators have been behind the curve a bit and a lot of these firms haven’t been making as much money as they had done pre-2008,” he said.
Hughes added it would be a very positive development for State Street were it to acquire Goldman’s fund admin business, which was first reported to be on the market back in April 2012. “Goldman has always been very selective with the managers they take on so their client base is the crème de la crème. It is good for State Street to have access to these brand managers.”
The sale came as Goldman sought to streamline costs following a drop in overall revenue. Goldman acts as prime broker to many of its own administration clients, which Hughes reckoned, could also have been a factor behind the sale. “Many investors view it as best practice for hedge funds not to use the same bank to act as prime broker and administrator,” he said.