BOSTON - State Street Global Alliance LLC thinks small when it comes to building its portfolio.
The alliance - a joint venture between State Street Corp., Boston, the parent company of the world's largest institutional asset manager, and Stichting Pensioenfonds ABP, Heerlen, Netherlands, Europe's largest pension fund - takes a different tack from that of other holding companies: It looks for small firms most people have never heard of.
In recent months, the alliance acquired a stake in two such firms, BDC Asset Management, Boston, and Innovest Strategic Value Advisors, New York, its 10th and 11th partnerships since the alliance formed in January 2001.
Unlike most other holding companies, which seek out more established players, the State Street Global Alliance seeks out emerging managers. The alliance is unique in having the backing of a large institutional money manager and a large pension fund, said Ben Phillips, analyst at Cerulli Associates, Boston.
Early stage companies
"We're dealing with early stage companies," said John Snow, vice chairman of State Street Global Advisors and State Street Global Alliance. "We're looking to identify trends before the market does."
The latest acquisition, Innovest, is one example. Innovest provides research for socially responsible investment firms and portfolios.
"We do believe that socially responsible investing is an area of increasing concern for institutional clients," said Mr. Snow. While socially responsible investing has been employed at endowments, foundations and public funds for years, it has not yet caught on with the mainstream corporate pension fund client.
The alliance looks for smaller firms primarily because that is where leading edge innovation is being conducted. "The real challenge in our business is finding innovation," he said. "Having an alternative business model gives us much more of an opportunity to attach our business to new ideas and product innovation," he added.
The portfolio of alliance companies includes a broad range of niche businesses that act as an alternative to State Street Global Advisors' core business, which is indexing. The alternative model also provides State Street with the opportunity for growth beyond its core businesses, he said. "Growth becomes a bigger challenge, the bigger you get."
Among the companies are Advanced Investment Partners, Clearwater, Fla., which uses a patented process for managing assets; Pallada Asset Management, a Russian money manager; and Rexiter Capital Management Ltd., London, an emerging markets investor.
The ownership structure of State Street Global Alliance is also different from that of most holding companies. The alliance is a minority owner in most of its relationships
"We did not want to become an acquirer," Mr. Snow said. "We wanted to become a partner."
There's no set limit on how many firms the State Street Global Alliance may acquire, he said.
"As long as we keep finding innovative and unique capabilities, we'll probably keep doing this," Mr. Snow said.