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Columbia Funds Needs to Pull Itself Together, Again

Columbia's been through deals before, but the Ameriprise union is a biggie.

David Kathman, 03/19/2010

Columbia is grappling with another merger, and this one could muddy recent moves that have benefited shareholders.

Ameriprise Financial AMP, owner of the RiverSource, Seligman, and Threadneedle mutual funds, announced in September 2009 that it will buy the long-term asset-management business of Columbia Management from Bank of America BAC for around $1 billion in cash. The deal, which is expected to close in mid-2010, will connect Ameriprise's army of financial advisors with Columbia's mutual fund lineup.

The combined firm will take the Columbia name and will be based mostly in Boston, but it will be run by a combination of both firms' leaders. Ameriprise chief investment officer Ted Truscott will lead the combined company, while top investment personnel will come from Columbia: President Michael Jones will be president of U.S. asset management, and chief investment officer Colin Moore will have the same title at the new company. Thus, the combined firm will feature aspects of both predecessors' cultures, though Columbia's culture is likely to have a bigger influence on how its mutual funds are run.

Many Branches on This Family Tree
Columbia Management certainly is no stranger to mergers, and until recently, it was difficult to describe any overarching corporate culture at Columbia Management. The firm by and large took its present form in 2004, when Bank of America merged with FleetBoston, bringing the former's Nations funds together with the latter's Columbia funds.

The Columbia funds, in turn, were the result of several past mergers. In addition to the original Columbia funds, the parent also acquired Wanger Asset Management, advisor to the Acorn funds; the former Galaxy funds; and former Stein Roe, Newport, Colonial, and Liberty funds. Bank of America also bought Marsico Capital Management in 2001, but it was never part of Columbia Management. In late 2007, Marsico bought itself back from Bank of America, though it still subadvises several Columbia funds.PAGEBREAK

Bringing Order to Chaos
After Bank of America bought Columbia in 2004, Columbia set out to institute order among the sprawling, even bewildering, lineup of funds. At that time, the mutual fund segment of Bank of America operated in nine different cities; over the next few years, Bank of America closed several offices in order to focus on the Boston and Portland, Ore., operations. Meanwhile, Columbia trimmed its lineup of roughly 120 funds to 90 through mergers and liquidations, though it added eight Columbia Retirement target-date funds in 2006 and three more funds in 2008. Now there are about 100 open-end retail mutual funds under the Columbia umbrella.

While the lineup still features some overlap in investment style, it's comparable to that at other big fund families. For example, as of February 2010, Columbia had 17 large-cap domestic-stock funds, the same number as T. Rowe Price, while Fidelity had 41 (not including the Fidelity Advisor funds) and Vanguard had 28. Of course, the Ameriprise merger will cause another spike in overlap, given that RiverSource, Seligman, and Threadneedle together run 90 funds. Further consolidation is inevitable, and there's bound to be some uncertainty.

A Cohesive Culture
Columbia has worked to create a uniform, coherent investment culture from a wide-ranging collection of smaller historical entities. Colin Moore, former head of equities who was promoted in 2007 to chief investment officer, helped created a common research platform as well as central quantitative and risk-management groups that are available to all the shop's equity funds.

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