State Street has bought Mourant International Finance Administration, making it the worlds largest alternative asset administrator at around $600 billion.
For Jack Klinck, executive vice president and global head of State Streets Alternative Investment Solutions team, the purchase of Mourant expanded State Streets geographical reach in the right areas. Speaking to Global Custodian the day before flying to Jersey to meet the Mourant team, Klinck said: For State Street, it is a case of expanding into new markets. We only have a handful of employees in the Channel Islands. With the acquisition, we now have over 400. We hope to gain greater market share in these offshore centres. We also hope to bring State Streets banking products to Mourants private equity customers. It brings State Street a much bigger revenue outside US, and it is important to remember the goal of State Street to diversify revenue 50% US and 50% non-US.
Overall assets under custody and administration total $17.9 trillion at State Street, making $600 billion for alternatives assets under management seem small. But State Street has been active in developing this business over the past decade. In 2002, the company bought Dublin-based International Fund Services. In 2007, State Street spent $4.5 billion on Investors Financial Services, a 17-year old company that offered mutual fund, offshore and hedge fund servicing, custody, securities finance, cash management, foreign exchange and transition management for $2.2 trillion in assets. In the same year, the Boston-based bank bought Palmeri Fund Administrators, private equity fund administrator.
Mourants $37 billion real estate administration business holds a particular interest for Klinck, where we have a very small offering today. Although it has been known that Mourant was offering its administration business for some time, Klinck insisted that State Street approached the Channel Island-based provider back in January 2009. Klinck also admitted that State Street looked at Augentius Funds Administration and IPES both based in the Channel Islands before settling on Mourant, with real estate playing a major factor in the decision. We felt Mourant provided the best fit in terms of people, reputation and focus on operational excellence, plus their expertise around real estate, said Klinck. We really see real estate as a market that has the potential to evolve like private equity and hedge fund administration. Combined with geographic footprint Mourant was the one that stood at the top of the list.
State Streets 50/50 revenue split also looks to tap into the Asian market. Mourant offers a strong presence in private equity and real estate administration in Hong Kong. In the Global Custodian Private Equity Fund Administration Survey 2009, only the long-standing rule preventing a shift of more than one rating per year denied Mourant receiving being Top Rated in Hong Kong. Globally, the acquisition makes sense. Mourant was also rated in the Channel Islands, London, Singapore and the United States. State Street Private Equity Fund Services was only rated in the United States. As a result lay-offs are unlikely. According to Klinck: We have some targets we have to hit around cost cutting but they are not based on large employee numbers, more about moving their systems onto our platforms and leveraging our legal and human resources.
Operationally, State Street can begin to look at potential synergies among its hedge fund, private equity and real estate administration platforms. Klinck explained State Streets approach: Our belief is that we need to create scale in private equity, hedge fund and real estate administration, and dedicated platforms and management for each of the three from an operations perspective. But then what we do is wrap it with one service level, one relationship management team. For many of our big global clients, they are using all three of those product capabilities and we are able to give them a more dedicated offering in terms of reporting, in terms of relationship management, and in terms of rate cards.
Acquiring new businesses looks like an intelligent option from State Street when potential targets are economically viable. Although the terms of the deal remained undisclosed, State Street paid in cash for Mourant. Given the current state of the private equity industry according to Kazushige Kobayashi, CEO of private equity fund of fund AI Capital: In the private-equity world, 2009 has been the lost year it would a serious failure of State Streets negotiating acumen if they failed to be pleasantly surprised by the end price
The fact that State Street paid in cash, and the deal only got going in summer of 2009, rather than from the initial meeting in January, also implies that State Street got a good deal. But Mourant will also be pleased with the outcome in terms of the law firms long term business plan. Mourant originated from offshore law firm, Mourant du Feu & Jeune, founded in Jersey in 1947. With the sale of its administration business to State Street, and the sale in February 2009 of its private wealth business to Royal Bank of Canada, Mourant is looking to get back to its core legal business.
State Street used Freshfields Bruckhaus Deringer as legal advisor in UK and Carey Olsen in Jersey. The deal will be completed in Q1 2009, and will operate under the State Street brand.
Mourant holds $170 billion assets under administration, with $130 billion in private equity, $37 billion in real estate, and $3 billion in hedge fund administration. As of 30 September, State Street had over $420 billion of alternative assets under administration.