Charles River in sales talks with State Street: sources

Financial services firm State Street Corp is in talks to buy Charles River Systems, a maker of investment management software, according to four sources.

It’s not clear if discussions include a sale of all or part of Charles River, or at what stage the talks are at, the people said. Financial terms were also not known.

Charles River could not be reached for comment. State Street declined to comment.

Charles River, based in Burlington, Mass., provides investment management software for the institutional investment, wealth management and hedge fund industries. It provides a front-end trading solution that competes with Eze Software, which is backed by TPG.

Peter Lambertus, president and CEO, founded the company in 1984. Today it employs more than 750 people spread through 11 regional offices. Charles River is believed to produce about $100 million in revenue, according to a banker.

State Street, based in Boston, boasts a market cap of more than $40 billion. State Street Global Advisors, a unit of the larger firm, is the world’s third largest asset manager with more than $2.8 trillion in AUM as of Dec. 31. State Street’s other divisions — which include global services, global markets and global exchange — have $33.1 trillion in assets under custody and administration, a spokeswoman said.

State Street is looking to move from asset management, where profit margins are dropping, into middle-office software, sources said. Most pointed to BlackRock’s Aladdin as one of the drivers for the transaction.

Developed in the 1980s, Aladdin, short for Asset Liability and Debt and Derivatives Investment Network, is an in-house operating system that provides risk analytics, portfolio management, trading and operations tools on a single platform, Barron’s has reported. Aladdin has evolved into an enterprise system used by asset managers and institutional investors, the Financial Times said. Aladdin has a 9 percent share of the 250 largest asset managers and 15 percent of the insurance market, the FT said, citing a Credit Suisse report.

“If I’m State Street I’m very worried about what BlackRock is doing with Aladdin,” said a private equity executive active in the space.

Sources also pointed to Charles River’s strong institutional investor client base. More than 350 companies globally use the Charles River IMS to manage over $25 trillion in assets, the company said.

Action Item: Learn more about Charles River on its website:

Photo of State Street Corp’s ticker and logo is displayed on a screen at the post where it’s traded on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., June 30, 2016.  Courtesy REUTERS/Brendan McDermid