by Lou Whiteman | Published July 17, 2012 at 10:46 AM
Custodial banking giant State Street Corp., on Tuesday, July 17, said it would acquire the hedge fund administration business of Goldman Sachs Group Inc. in a $550 million deal that would create one of the world's largest servicer of alternative assets.
Boston-based State Street said it would acquire Goldman Sachs Administration Services, which administers about $200 billion in single manager hedge fund assets on behalf of about 150 investment manager clients worldwide. The deal incorporates GSAS employees, including client-facing staff and management team, but does not include Goldman's prime brokerage business.
State Street currently provides a suite of administrative services to hedge funds, private equity, real estate and institutional investors, with about $877 billion under administration as of June 30. The company, which is also a leading asset manager, said that the deal would establish it as the largest hedge fund administrator globally, and give it access to a prestigious list of new clients.
"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," State Street executive vice president George Sullivan said in a statement. "We expect that GSAS clients will benefit from State Street's robust and flexible global servicing platform that is scalable for funds of all types and sizes."
Like other bank custodians, State Street has struggled in the face of record low interest rates and its money management business has been hit by weak equity markets. "We are approaching the second half of 2012 with continued caution," said State Street CEO Joseph Hooley in a statement. "The global economic environment remains challenging and so we are focused on controlling what we can."
The deal comes on the same day that both companies announced second quarter earnings. Goldman quarterly profit fell 11% on low deal flow, outperforming analyst expectations. Investment banking revenue came in at $1.21 billion, down 17% from a year prior, results that were partially offset by a 37% growth in sales at the company's fixed-income division.
All in Goldman earned $962 million, or $1.78 per share, beating a consensus estimate of $1.16 per share.
State Street meanwhile earned $480 million, or 98 cents per share, in the quarter, matching estimates, on weak international markets and a loss on Greek investments.