Columbia's been through deals before, but the Ameriprise union is a biggie.
Columbia is grappling with another merger, and this one could muddy recent moves that have benefited shareholders.
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.
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.
Columbia portfolio managers use a risk budget to keep track of how much their portfolios differ from their benchmarks. Moreover, many of the style-conscious funds, such as Columbia Large Cap Value
This might sound like a recipe for index-hugging, but in fact a number of Columbia funds have put up topnotch returns over the past five years. Furthermore, no Columbia funds suffered catastrophic losses in 2008 like those suffered by Oppenheimer's bond funds (and various funds from other families), which is evidence that the risk controls were working.
Moving Past Market-Timing
In addition to consolidating the fund lineup and unifying the investment culture, Columbia also faced fallout from the 2003-04 market-timing scandals. Both Columbia and the former Nations funds were implicated. After the charges emerged, Columbia took a number of steps to make itself more shareholder-friendly, some mandated by a settlement with regulators and some not. Whereas manager compensation used to be skewed toward short-term performance and asset growth, now it is heavily weighted toward three- and five-year performance, and asset size is not a factor. The settlement required Columbia to lower the fees on its funds for five years, but the firm made the lower fees permanent, and now most of its funds are cheaper than peers in comparable share classes.
Since the market-timing settlement, Columbia has brought in new blood at the top, especially on the legal and compliance side. Michael Jones joined from Robeco in November 2006 as the head of distribution for Columbia Management, and a year later he was promoted to president of Columbia Management, a position he still holds. Linda J. Wondrack, formerly of MFS and Deutsche Asset Management, became a director of Columbia Management in 2005 and chief compliance officer of the Columbia funds in 2007. James R. Bordewick, chief legal officer for the funds, also came over from MFS in 2005. These are experienced executives capable of producing concrete results for shareholders.
Overall, Columbia has taken big steps to create a coherent corporate culture, bringing its stewardship practices up to industry norms. Its funds have been respectable performers, for the most part, and the firm has kept its nose clean, with no hints of regulatory impropriety since 2004. It has wisely let Columbia Wanger Asset Management maintain its own distinctive, investor-friendly culture, which has settled down after some management turnover soon after Columbia bought Wanger and the Acorn funds.
The merger with the RiverSource funds presents its own set of challenges, though it helps that key Columbia executives, notably Michael Jones and Colin Moore, will have similar responsibilities in the combined firm. This corporate culture is competent, but it lacks the track record of some key competitors, which have demonstrated a long-term dedication to shareholders' best interests. It remains to be seen whether Columbia can continue to improve while digesting another big merger.
David Kathman is a mutual fund analyst with Morningstar.