BOSTON - Nicholas Lopardo, chairman and chief executive officer of State Street Global Advisors, expects strategic acquisitions to help the firm reach its goal of nearly doubling assets under management to $350 billion within six years from over $187 billion.
Mr. Lopardo would like a third of the assets to come from what he calls the "consumer" sector - defined contribution plans and retail mutual fund investors. He also would like half of the assets to come from foreign businesses.
Likely candidates for acquisitions might include firms that would complement or add to existing areas. (State Street Bank, the parent of State Street Global, was rumored to have been a suitor of Wells Fargo Nikko Investor Advisors, San Francisco, which just agreed to be sold to Barclays PLC. Mr. Lopardo would not confirm the rumor.) Among the possibilities: a quantitative global fixed-income manager; the private asset management division of a large bank and a domestic or foreign real estate firm.
"We will look for external growth through acquisition where appropriate. We're looking at a few things in Europe," he said, which might be announced by year end.
Mr. Lopardo would like to create a private banking operation in Switzerland to run money for high net worth individuals.
In January, State Street Bank restructured its asset management division - State Street Global Investment Management - so that it now includes five divisions: State Street Global Advisors, the core institutional business with $152.4 billion including a $6.5 billion mutual fund family and $1.02 billion from State Street Banque, Paris; State Street Personal Trust and Investment Management, with $4.7 billion; State Street Retirement Investment Services, with $30.16 billion and State Street Brokerage Services, a discount broker.
Retirement Investment Services to date has concentrated on the large and small plan markets, but not the middle market, of defined contribution plans with 2,000 to 5,000 participants, he said.
"We would be interested in a midmarket defined contribution manager," Mr. Lopardo said.
"Price is only a function of your desire to want to be in a business. When you get to $180 billion in these five businesses acquisitions are not necessarily a must," he said.
"There would have to be a good fit strategically and the timetable to integrate the businesses would have to be short. As for State Street Global's institutional assets, 50% are indexed.
Is that still a growing business? "Last year we had our largest growth in domestic indexing. While it's more difficult in the U.S. - a share stealing game - there's tremendous growth overseas in non-U.S. markets by foreign plan sponsors and governments. They see the disappointing results of pure active management. They're moving more to indexing. I'm not one of the naysayers who says the indexing game is over. It's very robust. We have great scale and leverage in that business," Mr. Lopardo said.
One business the firm is not a large player in is fixed income. Although it has $68 billion in cash and short-term assets, it has only $7.7 billion in long bonds.
"Long bonds are the smallest part of what we do. We're an equity dominated firm. It bothers me simply because if you look at our active fixed-income performance you'd find consistent ability to beat the Lehman Aggregate" over eight years.
While Mr. Lopardo said he doesn't like to set goals for individual asset classes, he said, "I would be disappointed if we didn't grow the fixed-income business - double it in the next two to three years."
Why? "For the same reason we decided in 1987 to grow a firm that's multidisciplined and multimarket - you're able to weather markets that go up and down because we're diversified. That's the kind of firm we wanted to build and built." Another key market is what Mr. Lopardo calls "the consumer," which includes defined contribution plans. A key vehicle for that market is the firm's mutual fund family, the Seven Seas funds, launched in 1988, with $6.5 billion in assets. At this point, however, less than 2% of the mutual fund assets are from 401(k) plans, according to Gus Fish, principal of State Street Global.
Outside the United States, State Street has $600 million in seven funds registered in France and sold in continental Europe to 3,000 clients.
In the Far East it is a subadviser to several investment trusts of securities firms and it is one of nine foreign trust banks with a trust bank license in Japan. Still, penetrating the market is slow, he said.
Excluding State Street Global's cash management business, it runs about $10.12 billion or 12% of its assets, for foreign investors.
"We have to double that. As regulations come down and more government plans move to private pension funds and the population ages and cross-border investment continues to be popular, it presents a great opportunity.
"We're one of the few firms in this business that's truly global," he said. State Street has five investment centers outside Boston, manned by local professionals. They are in Montreal, Tokyo, Paris, London and Sydney.
In terms of U.S. client investments abroad, the firm runs $31.2 billion, invested in 14 to 15 markets.