State Street (NYSE: STT) is a financial holding company, providing a full range of products and services for large pools of investment assets. With $18.79 trillion in assets under custody and $1.91 trillion in Assets Under Management (AUM), their primary clients are institutional investors. STT operates in 25 countries and in more than 100 markets worldwide. State Street manages for some of the world's largest money managers and asset owners with foreign exchange services and transition management services, and quantitative research and technology-driven tools.
State Street's revenue relies on management and performance fees. It announced in June 2008 on their alignment of its global alternative investment servicing capabilities. Their newly formed State Street Alternative Investment Solutions (AIS), which operates under the Investment Servicing business, combines State Street Corporation’s hedge fund, private equity, and alternative risk offerings to provide a complete set of fund accounting, fund administration and risk services to hedge funds and private equity funds.
State Street faced legal troubles in early 2008 when investors sued over losses in fixed-income strategies managed by State Street Global Advisors. The plaintiffs claim that State Street did not properly communicate the investment objectives of the fund. The company set aside $618 million for legal expenses.
State Street Corporation provides a full range of products and services for institutional investors worldwide, through its subsidiaries, including its principal banking subsidiary, State Street Bank and Trust Company. The company was founded in 1832, and has a total of 27,310 full-time employees. Its company headquarter is located in Boston, MA, with office operating in 26 other countries and network spanning more than 100 geographic markets.
In 2009, STT posted total revenues of $9.6 billion. This was a decline from its 2008 total revenues of $12.9 billion. This in turn had a huge impact on STT's net income. Between 2008 and 2009, STT went from a net profit of $1.8 billion in 2008 to a net loss of $1.9 billion in 2009.
The company's broad and integrated range of services spans the entire investment spectrum, such as research, investment management, trading services and investment servicing. It has nearly $2 trillion under management, foreign exchange and securities lending, etc. Its subsidiaries include State Street Corporation, State Street Bank and Trust Company. State Street operates in 3 lines of business, which are Investment Management, Investment Servicing, and Investment Research and Trading.
This division, named State Street Global Advisors (SSgA), serves as an investment advisor to investment companies globally. They offer investment strategies for clients of every size and investment objective. It provides integrated solutions and trading services to their clients who want to outsource aspects of their investment programs.  Their services include active and passive United States and non-US equity and fixed income investment management strategies as well as securities finance, etc.
This division offers custodial and other investment services to insurance companies, foundations, endowments, corporate and public retirement plans, hedge funds, US mutual funds, global collective investment funds, and institutional investors. They provide shareholder services, including mutual fund and collective investment fund shareholder accounting, through its half-owned affiliates, Boston Financial Data Services, Inc. and the International Financial Data Services group. Their products comprise of custody, accounting, daily pricing and administration; master trust and master custody; recordkeeping; foreign exchange, brokerage and other trading services; securities finance; deposit and short-term investment facilities; loans and lease financing; investment manager and hedge fund manager operations outsourcing; and performance, risk and compliance analytics to support institutional investors.
State Street has benefited from the growth in hedge funds, mutual funds, and other entities needing investment servicing. The hedge fund boom has resulted in a jump from $40 billion in hedge fund assets under management in the late 80s to over $650 billion AUM in the 2000's. Below is a breakdown of State Street's assets since 2003. Since STT earns revenues based on a percentage of its total AUM, this increasing trend bodes will for STT's future revenues.
State Street has benefited from the high growth of international markets. Over 25% of serviced and managed assets at State Street are from overseas. The company operates a global business that can withstand a slow US economy and thrive on international growth. The company has the largest global exposure among its competitors at 41% of total revenues. 32% at Bank of New York; 34% at Northern Trust.
State Street relies on management and performance fees for revenue. Adverse market conditions in 2007-08 leads to client assets reduction and thus State Street's revenue. On the asset management side, fund performance is negatively impacted due to weak equities. However, State Street has profited from these conditions in the form of higher foreign exchange revenues and better lending spreads.
Against most of its competitors, State Street has the advantage of size. Its competition consists of the following: