Goldman Sachs Group Inc., the fifth-biggest U.S. bank by assets, is in talks to sell its hedge-fund administration unit to State Street Corp., according to a person with knowledge of the matter.
A final agreement is yet to be reached, said the person, who declined to be identified because the negotiations are private. The unit provides fund accounting, valuation and risk-management for hedge funds.
Regulators including the U.S. Securities and Exchange Commission have increased oversight of companies that do business with hedge funds in response to convicted fraudster Bernard Madoff’s Ponzi scheme and industry losses in 2008. State Street, the third-biggest custody bank, added $170 billion of hedge-fund and private-equity assets when it bought Mourant International Finance Administration, based in Jersey in the Channel Islands, in December 2009.
“This is a sensible move for Goldman Sachs in getting out of this largely unglamorous business, in which increased regulation and oversight from SEC has put additional risk on the administrator without necessarily generating the commensurate revenues,” said Christopher Wheeler, analyst with Mediobanca SpA in London. Such sales have “become a common practice for U.S. banks since the Madoff scandal, following a similar trend in Europe.”
State Street had $506 billion in hedge-fund assets under administration at the end of March, the Boston-based company said in an April 30 presentation.
“As a matter of policy, we don’t comment on rumor or speculation,” Hannah Grove, a State Street spokeswoman, said in an e-mail. A Goldman Sachs spokeswoman in London declined to comment.
The combined business would have about $700 billion in assets, according to the Financial Times, which reported the talks earlier today.