For Nuveen Investments of Chicago, it's been a long, evolutionary journey through the world of money management. That voyage has transformed the firm from a small niche municipal bond player into a broad-based, multi-disciplinary equity, fixed-income and alternative investment management force to be reckoned with. Nuveen is 80% owned by The St. Paul Companies of St. Paul, Minn.
Nuveen's 105-year history of success has brought it to its current standing as the third-largest, and one of the most respected, asset management separate account consultant program providers in the U.S. As of March 31, Nuveen had $19.3 billion in consultant program assets, pushing it slightly ahead of Brandes Investment Partners, with $18.6 billion in assets, and Lord Abbett & Co. with $12.7 billion, according to Cerulli Associates of Boston.
First and second place still belong to Citigroup Asset Management and Merrill Lynch Investment Management, respectively, with Citigroup's massive $61.9 billion in assets and Merrill's lesser, but not too shoddy, $27.1 billion.
Nuveen and affiliates, with a collective 5.3% market share, also win a nod as being the second-largest investment managers to manage separate accounts within the programs of third-party companies, predominantly broker/dealers. Only Brandes manages more assets.
The Transformation Begins
From its humble beginnings in 1898 as a municipal bond underwriting and trading firm, Nuveen first evolved by offering municipal bond portfolios in 1961. It rolled out its first municipal bond mutual fund in 1976 and a municipal money market fund five years later. In 1987, Nuveen launched its first exchange-traded, municipal closed-end fund. As of the end of last year, Nuveen managed a total of 39 open-end mutual funds and 102 closed-end funds, predominantly municipal products.
The 1990s brought Nuveen into the wonderful world of separately managed accounts and equity investments, but also allowed it to bolster its muni business. In 1995, the firm introduced a separate account capability followed by the introduction of a trio of equity mutual funds - the firm's first-ever equity mutual funds - in August of 1996. The equity trio included a large-cap value fund, a balanced municipal and stock fund, and a balanced fund. Nuveen proprietarily managed the municipal piece of the funds, while Institutional Capital Corp. (ICAP), also of Chicago, managed the equity and fixed-income portions.
In 1997 Nuveen bought Flagship Financial, another municipal bond manager that ran both muni funds and muni portfolios for the affluent. The unit was subsequently folded into Nuveen's municipal bond unit.
Nuveen Investments now touts four distinctive investment management brands, three of which were selectively acquired in recent years. The firm's Nuveen Asset Management unit is still the firm's proprietary municipal bond shop. But seeking to organically add an equity capability, Nuveen bought Rittenhouse Asset Management of Radnor, Pa., in 1997. Rittenhouse specializes in managed equity and balanced portfolios for high-net-worth clients. Rittenhouse's strong presence in the managed account industry propelled Nuveen squarely into the separately managed account arena.
Four years later, in 2001, Nuveen bought Symphony Asset Management of San Francisco. Symphony, an active player in the market-neutral strategies and alternative investment sandbox, brought Nuveen a large institutional clientele. The firm also manages hedge funds.
Still shopping for another complementary manager with promising offerings, Nuveen acquired NWQ Investment Management of Los Angeles late last year. NWQ, which caters to separate account management for both high-net-worth individuals and institutions, specializes in small-cap, international and value investments, with an emphasis on risk management. The deal brought Nuveen $4 billion in institutional assets.
Managing the Brands
Nuveen's cherry-picked acquisitions have been slow and deliberate, said Chris Allen, spokesman for the firm. "Nuveen has always had a strong reputation as a safe, high-quality manager. We didn't want to confuse what we stood for, so we were careful who we bought," Allen said. "We only got serious with a very few firms, and we are very pleased with the mix."
Why buy and not build capabilities? "Speed," Allen added. "It would have taken too long to build the capability we recognized we needed," he said.
Once Nuveen's house was built, deciding how to execute and move forward with four distinct asset management brands wasn't a cakewalk, said Alan Brown, Nuveens chief marketing officer since November 2001.
"Originally, my thinking was why keep the sub-brands? But I was wrong. Investors and advisers valued these boutique firms, so we decided to do a 180-degree change and keep the brands." Brown said. "You want to maintain their uniqueness, but bring them together cohesively." Nuveen brought together all of the firms' sales, marketing and servicing functions under a common platform piloted by Nuveen.
While some of Nuveen's competitors have chosen to focus almost exclusively on building their separately managed account business, Nuveen has opted to love and nurture all of its divisions equally. "We sell investment disciplines and we leave the packaging to our customers," Brown said. That means that brokers can choose to access a capability in an open- or closed-end fund, or a separately managed account, he said.
Despite the obvious macro shift to separately managed accounts within the adviser-assisted investment channel, the product-pushing mentality continues to proliferate, Brown said. The mindset has been slow to change. "In order to be in the separately managed account business, you have to cross the chasm; you have to deconstruct the business model you [previously] had and cannibalize the top accounts," he added.
At the same time, the faces of Nuveen's advisers and customers are changing, Brown said. While 80% to 85% of the firm's business hails from traditional wirehouses, more regional firms have been sending business Nuveen's way, as have trust departments and fee-based registered investment advisers - an audience Nuveen began targeting two years ago, Brown added. Industry consolidation and layoffs have turned out a lot of people seeking fee-based income, he added.
Brown also sees a challenge with information overload, and getting advisers the information they need when they need it, without causing them "inbox fatigue."
Solutions to the myriad of mistakes that the investment management industry as a whole made over the past decade are now finding their way into the separately managed account universe, said Michael H. Lewers, managing director of Rittenhouse. Lewers oversees the firm's adviser consultant team that works with intermediaries. "We are seeing an evolution of the business, a shift away from transactions and selling products to delivering consultant services to clients," he said.
That has fostered the propagation of multiple disciplinary accounts, which can provide asset and style allocation among different best-of-breed managers. Instead of hiring only one manager as in the past, advisers today are looking to offer clients several managers within an open architecture framework, Lewers noted. Moreover, they want to snare just the right blend of managers who will complement each other. And they're no longer looking to chase hot managers. Plain vanilla managers are back in vogue, he said.
One current challenge is getting advisers to realize that newfangled multi-disciplinary managed accounts are not a panacea, Lewers said. "It fills a need, but it might be perceived as turning the plane over to autopilot," he counseled. "There is still a very real need for human intervention to land the plane."
One additional mistake advisers are still making is in firing out-of-style managers whose investment style may not come back into vogue for several years, Lewers noted. The problem is that when their style begins to see an upward trend, clients will have missed the boat.
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