State Street grows in alternatives with Mourant buy

Date: Wednesday, December 2, 2009
Author: Svea Herbst-Bayliss, Reuters

State Street Corp (STT.N), already one of the financial industry's biggest record keepers, will become the biggest service provider for alternative assets after it buys Mourant International Finance Administration.

Boston-based State Street said on Tuesday that it will acquire the Channel Islands-based company in an all cash deal for an undisclosed amount.

The deal will leave State Street with roughly $600 billion in alternative assets under administration, which include private equity and hedge fund assets. The deal realizes one of the company's long-held goals -- to expand its asset servicing business in Europe and Asia.

Even as demand for hedge funds and private equity funds picks up among pension funds and other large investors, alternative assets still make up only a small portion of the $17.9 trillion State Street has in total assets under custody and administration.

The company also counts as one of the world's biggest institutional investors with $1.7 trillion in assets under management.

Mourant, which has $170 billion in assets under administration and is known for its expertise in providing fund administration to alternative investments, has offices in Dublin, Singapore and New York.

Providing accounting statements and calculating prices for mutual funds and hedge funds may not sound very exciting, but it is lucrative.

In the third quarter, State Street earned $833 million in servicing fees, the bulk of its $1.5 billion in total revenue during the three months.

State Street said the transaction is expected to add slightly to 2010 earnings.

Shares of State Street rose 3.4 percent to close at $42.72 on the New York Stock Exchange. Since January, State Street's share price has climbed about 5 percent, performing better than rival Bank of New York Mellon (BK.N), whose share price has dropped 6 percent.

State Street has looked hard for acquisition targets over the years.

Two years ago it spent $4.5 billion to buy its cross-town rival Investors Financial Services. Critics said State Street CEO Ron Logue overspent on the deal, but he countered that State Street made the deal a success by ensuring that most of the company's top clients stuck with State Street.

In 2002, State Street bought International Fund Services.

State Street's closest rival in the alternative asset servicing business is Citco Fund Services CITCOF.UL.