A year after Boston-based State Street Corp. acquired General Electric Co.'s $120 billion asset management business, the integration appears to be going smoothly.
Although money management unit State Street Global Advisors has experienced outflows since the deal was announced in late March 2016, assets under management continue to grow, reaching $2.56 trillion as of March 31. And its outsourced chief investment officer business — a key attraction of the deal — has skyrocketed since the integration.
"Integration is progressing well and is proceeding as anticipated. SSGA's Stamford office (where GE Asset Management's unit was established) is fully functional and operating well," said Greg Hartch, chief risk officer for SSGA. "A few legacy transition services agreements with GE remain in effect, but SSGA anticipates the integration to be fully complete by year-end 2017," he added.
When State Street acquired GEAM in July 2016 for up to $485 million, it was done to add new alternatives capabilities in direct private equity and real estate, strengthen SSGA's hedge fund, fundamental equity and active fixed-income teams, and add OCIO services to SSGA's lineup.
When State Street announced its intent to acquire GEAM in March 2016, SSGA President and CEO Ronald P. O'Hanley said at the time his firm was "highly focused" on building its outsourced CIO capabilities, an area "in which we see a lot of growth."
State Street's most recent earnings statement released April 26 showed its assets rose 3.8% from three months earlier and increased 11.5% for the year.
In the earnings call to investors, State Street Corp. Chairman and CEO Joseph L. "Jay" Hooley said most growth from the first quarter "was driven by market appreciation, with an additional 5% of growth in the acquired GE Asset Management business, which is performing very well."
Added Mr. Hooley: "We continue to make good progress in the integration of the acquired GE Asset Management business. Notably, for the first nine months, we've achieved accretive operating-basis earnings."
Associated AUM of GEAM operations was $120 billion as of March 31, up 9.1% from July 2016, documents from SSGA show. However, SSGA also experienced net outflows of $11 billion and institutional net outflows of $26 billion during the first quarter. The outflows came from alternatives, equities and fixed income.
Tne news is also good for SSGA's OCIO business, which has grown considerably. Data from P&I show SSGA had $80.25 billion in global institutional outsourced assets under management as of March 31, up 359% from a year ago. State Street spokesman Andrew Hopkins confirmed most of the increase in its OCIO AUM is due to the integration.
At least one GEAM client said that despite initial concerns, the integration appears to be working. "They've done everything they said they were going to do," said Gary Harbin, executive secretary of the $18.1 billion Kentucky Teachers' Retirement System, Frankfort. "The same people are in place, the process hasn't changed, the team has autonomy and the performance is where we expect it to be," he said. "So far we've been happy with the acquisition." The firm manages $800 million in active large-cap growth equity for the system.
Mr. Harbin added: "It was really concerning that GEAM was purchased by a passive firm. We were worried that (the investment team's) attention would be diluted. But 12 months later, things are fine."