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State Street (STT) Gains on Plans to Sell Asset Management Unit
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Shares of State Street (STT - Free Report) rose 1.5% on Friday after reports (citing persons familiar with the matter) stated that the company is mulling strategic options for its asset management business — State Street Global Advisors (“SSGA”). The options include a potential divestiture of the division.
While the Bloomberg report mentioned Invesco (IVZ - Free Report) and UBS Group AG (UBS - Free Report) as potential contenders that State Street is currently evaluating, a report from the Wall Street Journal claimed that it is in talks with UBS Group to merge their asset management operations. The report stated that both the companies have been holding discussions since the beginning of this year, but it’s not clear as to why the deal wasn’t finalized yet.
SSGA, established in 1978, runs several mutual funds and is a pioneer in index investing. Also, in January 1993, it launched SPDR S&P 500 ETF (SPY), the first U.S. exchange-traded fund (ETF) and now the world’s largest with approximately $320 billion in assets. As of Sep 30, 2020, SSGA had almost $3.15 trillion of assets under management and more than 2,400 clients.
However, the business has been losing ground of late. Per Bloomberg Intelligence data, SSGA’s U.S. ETF market share declined to nearly 16% in 2020 from 25% in 2010. The data shows that Vanguard outpaced State Street nearly five years ago to become United States’ second largest ETF issuer after BlackRock’s (BLK - Free Report) iShare unit.
The company executives seem to be of the opinion that the operation needs to get bigger to remain competitive. While buying another asset manager is an option, the current capital regulations put a cap on how much State Street could spend. Thus, the company is mulling over several strategic options for SSGA.
Consolidation in the asset management space is gaining momentum, given the cut throat competition and a shift toward passive fund management. Also, industry players are facing rising costs related to technology, outflows, fee pressure and heightened regulations, which are major headwinds.
Even if we just look at this year’s M&As in the industry, there have been some notable ones. These include planned acquisition of Waddell & Reed Financial by Sydney, Australia-based Macquarie Group’s asset management arm, for $1.7 billion. Further, in October, Morgan Stanley inked a deal to acquire Eaton Vance for $7 billion, while in July, Franklin Resources acquired Legg Mason for $4.5 billion.
Additionally, there have been many on-bolt acquisitions. All these have improved the acquirer’s operating efficiency and scale. The wave of consolidation is expected to continue next year as the industry grapples with the after effects of the coronavirus pandemic and above-mentioned concerns.
The Hottest Tech Mega-Trend of All
Last year, it generated $24 billion in global revenues. By 2020, it's predicted to blast through the roof to $77.6 billion. Famed investor Mark Cuban says it will produce ""the world's first trillionaires,"" but that should still leave plenty of money for regular investors who make the right trades early.
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State Street (STT) Gains on Plans to Sell Asset Management Unit
Shares of State Street (STT - Free Report) rose 1.5% on Friday after reports (citing persons familiar with the matter) stated that the company is mulling strategic options for its asset management business — State Street Global Advisors (“SSGA”). The options include a potential divestiture of the division.
While the Bloomberg report mentioned Invesco (IVZ - Free Report) and UBS Group AG (UBS - Free Report) as potential contenders that State Street is currently evaluating, a report from the Wall Street Journal claimed that it is in talks with UBS Group to merge their asset management operations. The report stated that both the companies have been holding discussions since the beginning of this year, but it’s not clear as to why the deal wasn’t finalized yet.
SSGA, established in 1978, runs several mutual funds and is a pioneer in index investing. Also, in January 1993, it launched SPDR S&P 500 ETF (SPY), the first U.S. exchange-traded fund (ETF) and now the world’s largest with approximately $320 billion in assets. As of Sep 30, 2020, SSGA had almost $3.15 trillion of assets under management and more than 2,400 clients.
However, the business has been losing ground of late. Per Bloomberg Intelligence data, SSGA’s U.S. ETF market share declined to nearly 16% in 2020 from 25% in 2010. The data shows that Vanguard outpaced State Street nearly five years ago to become United States’ second largest ETF issuer after BlackRock’s (BLK - Free Report) iShare unit.
The company executives seem to be of the opinion that the operation needs to get bigger to remain competitive. While buying another asset manager is an option, the current capital regulations put a cap on how much State Street could spend. Thus, the company is mulling over several strategic options for SSGA.
Shares of this Zacks Rank #3 (Hold) company have gained 16.2% over the past six months, outperforming the industry’s rally of 14.8%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Our Viewpoint
Consolidation in the asset management space is gaining momentum, given the cut throat competition and a shift toward passive fund management. Also, industry players are facing rising costs related to technology, outflows, fee pressure and heightened regulations, which are major headwinds.
Even if we just look at this year’s M&As in the industry, there have been some notable ones. These include planned acquisition of Waddell & Reed Financial by Sydney, Australia-based Macquarie Group’s asset management arm, for $1.7 billion. Further, in October, Morgan Stanley inked a deal to acquire Eaton Vance for $7 billion, while in July, Franklin Resources acquired Legg Mason for $4.5 billion.
Additionally, there have been many on-bolt acquisitions. All these have improved the acquirer’s operating efficiency and scale. The wave of consolidation is expected to continue next year as the industry grapples with the after effects of the coronavirus pandemic and above-mentioned concerns.
The Hottest Tech Mega-Trend of All
Last year, it generated $24 billion in global revenues. By 2020, it's predicted to blast through the roof to $77.6 billion. Famed investor Mark Cuban says it will produce ""the world's first trillionaires,"" but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>