Goldman Sachs is close to signing a deal to sell its hedge fund administration business to U.S. bank State Street Corp., a source familiar with the situation said, the latest deal in a sector enjoying growing demand for its back-office services.

According to the source, the U.S. investment bank is in late-stage discussions with State Street over the deal, which would create the biggest administration services provider to hedge funds worldwide.

The combined business would oversee funds of close to $700 billion, although no formal agreement has been reached, the source added.

Goldman Sachs and State Street declined to comment.

Hedge fund administrators provide back office services such as portfolio valuation and risk assessment for the $2 trillion industry.

Demand from regulators and investors for more independent assessment of fund valuations in recent years has increased hedge funds' use of their services, prompting a series of deals in the sector as providers look to capitalize.

Earlier this year U.S. financial software provider SS&C Technologies agreed to buy hedge fund administrator GlobeOp Financial Services , trumping an offer from buyout group TPG.

The deal values GlobeOp, which administers around $173 billion in client assets, at more than 570 million pounds ($879 million).