Will TIAA-CREF's New Goals Threaten Its Culture?
A bold growth plan in its early stages raises questions.
TIAA-CREF is beginning a major transformation that seems to be at odds with the firm's sleepy reputation. As part of a recently launched 10-year strategic plan, TIAA-CREF plans to double its mutual funds' assets under management in the next five to seven years by launching new funds and by allowing some of its existing funds to follow bolder courses.
The plan, which comes two years into CEO Roger Ferguson's tenure, may have a significant impact on TIAA-CREF's corporate culture. As background, the firm's 90-plus-year history is built on securing the retirements of very specific customers: people in the academic, medical, cultural, and research fields. TIAA-CREF's business, most of which is not-for-profit, historically has been anchored in two key areas, the CREF variable annuity product and the TIAA Traditional Annuity. The latter was the firm's first product, launched in 1918 as a mostly fixed-income offering for higher-education professionals. Today, these two businesses combined represent about 90% of TIAA-CREF's assets under management.
Funds to Fuel Growth
The mutual fund business, which started in 1997, had about $26 billion in assets as of April 30, 2010, making funds a distant third relative to assets in TIAA-CREF's annuity businesses. Broadly speaking, the firm increasingly has emphasized its mutual fund business in recent years as its core 403(b) (retirement plans for employees of organizations including higher education and churches as well as some tax-exempt, not-for-profits such as hospitals) client base has looked more often to consultants to shape the investments in the 403(b) plan. TIAA-CREF says those consultants are more comfortable recommending mutual funds to 403(b) plan providers than annuities.