Why buy Nuveen?
Dazed and Confused
Monday morning a Morningstar analyst informed me that TIAA-CREF had purchased Nuveen Investments. My response: "Huh? Maybe this will make sense to me at a later date."
It's currently Wednesday morning and, as of yet, no such luck.
I don't know why an investment-management firm would wish to buy Nuveen. There was a time when Nuveen had a compact, comprehensible business. It was a municipal-bond underwriter and investment manager, based in Chicago, and a market leader and innovator in two niche business, unit investment trusts and closed-end funds. (Nuveen pioneered the leveraged closed-end muni fund.) Buying Nuveen meant instantly becoming a leader with municipal bonds, UITs, and closed-end funds.
Doing a deal with that version of Nuveen would have been similar to Franklin's purchase of Templeton in 1992. Franklin was a bond manager that joined forces with an international-stock firm, which made integration a snap. Franklin had one large bond management group, another large international-stock management group located elsewhere, and the two units continued to do their own things. Franklin finished its three-legged stool four years later when it added U.S. equities manager Mutual Series.
Things are not so simple with Nuveen. Over the past 15 years, Nuveen has conducted several of its own, smaller acquisitions. As a result, it no longer is solely a muni-bond specialist. Nor does it continue to run all of its assets from its Chicago office. Rather, its investment-management operations are spread across the country, in what Nuveen calls a "multiboutique" system.
This leads to the question of how TIAA-CREF--or any other asset-management company for that matter--can benefit from Nuveen. Nuveen's operations are pleasantly profitable, as are those of every other mutual fund company of a certain size. However, Nuveen would also be pleasantly profitable if it were owned by Microsoft, or (as was recently the case) by a private equity firm. What makes Nuveen more useful for TIAA-CREF than for other owners? Where is the strategic value?
No doubt that TIAA-CREF believes that it has the answers. The trouble is, I've heard such stories before and they rarely seem to pan out. Although mutual fund firms have collectively spent hundreds of billions of dollars on acquisitions, most of the industry's leaders grew organically. By my calculation, nine of the 15 largest U.S. fund companies (counting exchange-traded funds, but excluding money market funds and funds of funds) built essentially their entire businesses without acquisitions. Among those 15 are the three largest fund companies, Vanguard, Fidelity, and American Funds, which have more assets than the remaining 12 combined.