(Bloomberg) -- State Street agreed to buy General Electric's asset management unit for as much as $485 million in cash to expand alternative investments such as private equity and real estate.
The purchase of GE Asset Management will add about $100 billion in assets overseen for institutional clients, including retirement plan sponsors, foundations, endowments, sovereign wealth funds and insurers, according to a statement today from Boston-based State Street.
The deal “will bring new alternatives capabilities in direct private equity and real estate,” Ron O’Hanley, who heads State Street’s asset management unit, said in the statement.
O’Hanley, a former executive at Fidelity Investments who pushed that firm into new areas, took over State Street’s $2.25 trillion money management unit last year. Once the top provider of exchange-traded funds, State Street lost ground in recent years to BlackRock and Vanguard, which have attracted more client money with new offerings and low fees.
As part of the deal, State Street will manage assets of the GE pension plan that are currently overseen by GE Asset Management, according to a statement from the Fairfield, Conn.-based company. The existing team at the asset management unit is expected to join State Street, except for a small number of employees who will stay with GE to oversee the company’s primary benefit plans.
GE Asset Management, separate from the GE Capital lending arm, is being sold as CEO Jeffrey Immelt narrows his focus on industrial operations making products such as oilfield equipment and jet engines. GE is selling the bulk of the banking unit, which imperiled the company during the financial crisis.
Net proceeds of the sale will be put into the pension trust. The transaction won’t change the benefits received by participants in GE’s pension plan and doesn’t change GE’s requirement to meet its pension funding obligations, the company said.
State Street said it plans to issue preferred shares before the transaction closes, which is expected to happen in the third quarter, to offset the impact on its leverage ratios. The bank expects merger and integration costs of $70 million to $80 million through 2018.
Credit Suisse advised GE Asset Management.