State Street Set To Grow Its Administration Compensation Package

August 28, 2012

The hedge fund industry is closing in on the foreign exchange industry in terms of value. State Street Corporation has not been left behind. The regulatory arm of the hedge fund administration industry has encouraged independence of assessment of funds, prompting several deals in the sector. The Boston-based hedge fund administrator is in the process of acquiring Goldman Sachs Group’s hedge fund administration unit, which will make it a global leader in that business.

No Goldman Sachs’ Prime Brokerage in Deal

State Street indicated that the deal excludes Goldman Sachs’ prime brokerage business. The acquisition will add to State Street’s full year earnings in terms of cash, noted Reuters in a report published July 17. Additionally, the report notes that the administrative unit, which typically operates from back office, will take care of various hedge fund operations such as accounting and performance tracking. This will further grow the company’s hedge fund salaries, as it seeks to become the world’s largest hedge fund administrator.

State Street’s reputation is thus set to shift from its usual tag of a custody and trust bank to the world’s largest hedge fund administrator, administering approximately 877 billion U.S. dollars for some of the world’s largest hedge funds. The company said it would pay Goldman Sachs a total of 550 million U.S. dollars to complete the deal.

150 Investment Managers with 200 Billion Dollars in Assets

The company will be bringing on board approximately 150 investment managers, whose funds amount to approximately 200 billion U.S. dollars. This, State Street believes, is what will make it the biggest hedge fund administrator, based on industry statistics, the report noted. The hedge fund industry is currently valued at around 2 trillion U.S. dollars, and thus, with over 770 billion U.S. dollars, State Street will be administering more than 38 percent of the total value.

The latest move State Street could have well been catalyzed by the current market environment, which has seen regulators advocate for use of administrators in an effort to foster independence in assessment of funds. State Street has three arms of business, namely, investment management, investment research and trading, and investment services.

Deal Almost Wrapped

State Street has been increasing its business by acquiring several firms and units. The report notes that a source close to Reuters indicated that State Street was close to finalizing the deal with Goldman Sachs.

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