State Street AIS exec does not rule out further expansion

Fund AdministrationInvestorsLaunchesOutsourcingPeople Moves
23 Jul, 2012

The head of State Street’s Alternative Investment Solutions (AIS) business has not ruled out any further acquisitions and said its takeover of Goldman Sachs’ administration unit will not impact client service.

It was announced publicly last week that State Street would pay $550 million for Goldman Sachs Administration Services (GSAS). The combined entity will collectively service approximately $700 billion in hedge fund Assets under Administration (AuA) making it the world’s largest hedge fund administrator, leapfrogging previous incumbent Citco. In total, State Street will now look after more than $1 trillion in alternative AuA.

“If you look at our history, you will see that we have acquired businesses and grown organically to get where we are today. If there are opportunities out there, we shall look to take advantage of them,” said George Sullivan, executive vice president and global head of State Street’s AIS team in Boston.

While not alluding to any organisations, Sullivan said consolidation was inevitable in the fund administration sector given the changing regulatory environment. “Fund administrators are facing new regulatory challenges and demands from clients. Attaining an economy of scale is essential nowadays to thrive,” he said.

The State Street AIS-GSAS merger is the second major M&A deal in the fund administration space this year. In May 2012, it was announced that SS&C Technologies would acquire GlobeOp for £572 million creating a business with northwards of $300 billion AuA. There have been numerous reports of other fund administrators up for sale. There is speculation Morgan Stanley could be the next bank to shed its fund administration business although this has not been confirmed.

Goldman’s desire to streamline costs and raise assets amid a drop in overall revenue is believed to be the main factor behind the sale of its administration arm. Others have said some institutional investors complained they did not like Goldman acting as both prime broker and administrator to certain hedge fund clients. Nevertheless, the deal will give State Street access to several high-profile Goldman clients including York Capital and Och Ziff, as well as entry into new markets such as Cayman and Singapore.

Sullivan said the integration, which should take about 15 months to complete, would not disrupt client service on either side.  “There will be a continuity of client service. We have been discussing with clients on both sides about our plans and strategy, and the response has been overwhelmingly positive. Many in the industry view the merger as a natural combination because our business models, values and cultures are similar,” he said.

He added both firms would leverage each other’s technology offering. “We are going to take the best of both worlds and build some of the new capabilities we’ve seen in GSAS’ systems onto our IFS platform,” said Sullivan. He also acknowledged Goldman clients would be given access to State Street’s regulatory reporting systems as soon as possible. “We are going to give Goldman’s clients full access to our suite of regulatory reporting products. These include tools to help them with Form PF, OPERA protocol and FATCA.”

There will also be no jobs losses, according to Sullivan. “We have acquired a lot of high quality client-facing individuals so there will not be redundancies. There is no overlap of the business and we view this as an expansive play,” he said.

Goldman’s prime brokerage clients often received subsidised rates from GSAS raising questions as to whether this would continue under the new set-up. Sullivan confirmed there were no plans to increase fees. “The fees at GSAS are competitive and we have no immediate plans to change them,” he said.

Asked whether integrating the somewhat unique culture at Goldman would pose any challenges, Sullivan remained optimistic. “We have done a number of acquisitions and each one is different and you have to understand and respect each culture. We have taken over a lot of businesses and we have substantial experience at making integrations work,” commented Sullivan.

Not all of State Street’s’ takeovers have, however, gone smoothly. The bank’s acquisition of IFS was soured when IFS founder James Kelly and several other senior executives left to form HedgeServ, another fund administrator. This prompted State Street to file a lawsuit against HedgeServ although it was later settled.

AuACaymanFATCAForm PFGlobeOpGoldman SachsMorgan StanleyOch ZiffOPERA ProtocolSingaporeSS&C TechnologiesState StreetYork Capital