State Street Corp., the third- largest custody bank, is in talks to acquire Bank of Ireland’s asset-management business, according to three people familiar with the matter.
Macquarie Group Ltd., which had been in negotiations to take over the Dublin-based unit known as BIAM, dropped out, according to two of the people, who asked not to be named because the negotiations are private. No agreement has been reached and a sale may take months, said two of the people.
Scott Powers, chief executive officer of the Boston-based company’s money-management unit, State Street Global Advisors, said in an interview published on Aug. 3 that the indexing specialist is looking for acquisitions to expand actively managed investments and cut reliance on passive funds. BIAM is primarily an active manager, while State Street is the second- biggest U.S. provider of index funds after BlackRock Inc.
“For a company like State Street that wants to get more integrated in the active asset-management business, a smaller manager could be the foundation for building a much larger product over a five-to-10-year period,” Gerard Cassidy, an analyst with RBC Capital Markets in Portland, Maine, said in a telephone interview.
The European Commission ordered the sale of the unit as a condition of approving a government bailout of Bank of Ireland. BIAM controlled 25 billion euros ($31.8 billion) of assets as of April 16, down from 57.5 billion euros in 2004, when it was Ireland’s largest investment manager.
Less than 5 percent of the $1.78 trillion that State Street Global Advisors handles for clients is held in traditional, actively managed stock and bond investments.
Active investing, which can bring in higher fees, relies on fund managers to select securities based on their own research or mathematical models. Passive investing seeks to track the returns of broad markets or industries by following an index.
State Street employs about 2,000 in Ireland, according to the company’s website. In March it opened a facility in Dublin that will eventually house 1,100 employees, working mostly in asset servicing.
A completed deal would mark the firm’s first asset- management acquisition since it bought the passive equity business of Gartmore Investment Management Plc in 2001. The company made two European acquisitions in the past year in the asset-custody business.
It purchased Mourant International Finance Administration in the U.K.’s Channel Islands in April and the securities- servicing unit of Italy’s Intesa Sanpaolo SpA in May.
Custody banks keep records, track performance and provide securities lending services for institutional investors including mutual funds, pension funds and hedge funds. The company’s money-management unit operates mutual funds and investment accounts for institutions and wealthy individuals.