State Street to explore options for asset management arm

State Street is exploring options for its asset management business, including a merger with a competitor, as it seeks to gain scale, people familiar with the matter said.

The Boston-based firm has been informally working with an adviser to review strategic alternatives for the unit, known as State Street Global Advisors, according to the people. It has evaluated potential combinations with the asset management operations of rivals including Invesco and UBS Group, the people said, asking not to be identified because the information is private.

While those discussions didn’t lead to an agreement, State Street continues to study potential deals, the people said. Such combinations often stumble over the ownership split and valuation differences.

Shares of State Street rose as much as 4.7% Friday, reversing earlier losses. They were up 3.8% at 2:33 p.m. in New York trading, giving the company a market value of $26.3 billion.

No final decisions have been made, and there’s no certainty the deliberations will lead to a transaction, the people said. Representatives for State Street, Invesco and UBS declined to comment.

Index investing

State Street Global Advisors, which has more than $3 trillion under management, runs dozens of mutual funds and was a pioneer in index investing. Its SPDR S&P 500 ETF Trust became the first U.S. exchange-traded fund in 1993 and is now the world’s largest ETF, with about $320 billion in assets.

The business, which competes with BlackRock’s iShares unit, has lost some ground over the past decade. Its U.S. ETF market share fell to about 16% this year, from 25% in 2010, according to Bloomberg Intelligence data. Vanguard Group vaulted past State Street in 2015 to become the country’s second-biggest ETF issuer, the data show.

Consolidation is ramping up among asset managers, which require scale to compete as the industry’s fees increasingly come under pressure. Bank of Montreal is exploring options for its fund business, while Wells Fargo and Societe Generale have also been considering selling their asset management units, Bloomberg News has reported.

Activist stake

Invesco has been in the spotlight since October when Trian Fund Management LP disclosed a 9.9% stake in the Atlanta-based money manager. Led by the billionaire activist investor Nelson Peltz, Trian has been zeroing in on money managers for more than a decade and orchestrating mergers as seismic changes reshape the industry. He has said that successful companies need to add enough scale to compete with BlackRock.

UBS has been scouting for an asset management deal for some time. Talks on combining its business with Deutsche Bank AG’s DWS unit to create a European powerhouse stalled in 2019, Bloomberg News previously reported.

State Street’s biggest division is its investment servicing business, which offers custody and fund administration to other asset managers. The company also provides data and technology platforms to institutional investors.