In a deal that reshuffles the mutual fund space, TIAA-CREF said Monday it had agreed to acquire Nuveen Investments Inc. for $6.25 billion from a group led by private-equity firm Madison Dearborn Partners.
The deal is the largest transaction in the asset management business since 2006 and is a major coup for TIAA-CREF, an asset manager with $569 billion under management and roots as a major retirement servicer for nonprofit organizations such as universities and hospitals.
The acquisition deepens TIAA-CREF's investment expertise and distribution capabilities in the adviser-sold market for mutual funds, given Nuveen's deep relationships with broker-dealers and financial planners, according to industry consultant Geoffrey H. Bobroff.
“It's a significant step for TIAA-CREF, which has not been known to be an acquirer,” said Mr. Bobroff. “It is a distribution play.”
Nuveen, which has its roots in municipal bonds, brings some $221 billion in assets and an entrenched brand in mutual funds. Through the years, the company has acquired boutiques and worked to expand its expertise in areas such as equities and commodities. The business includes one of the largest sponsors of closed-end funds, as well as $54 billion in open-end mutual funds and offerings in separately managed accounts.
Madison Dearborn was the lead buyer in the $5.75 billion deal in 2007.
What TIAA-CREF's acquisition of Nuveen means for financial advisers
Nuveen has grown through hires and acquisitions. Subsidiary Nuveen Asset Management brought on Robert C. Doll as chief equity strategist after he retired from BlackRock Inc. in 2012, for instance. And the firm took stakes in other businesses, including boutique portfolio managers such as Gresham Investment Management, which specializes in commodities.
Despite those efforts, Nuveen suffered outflows to the tune of $23 billion over the last two years. Nonetheless, the company swung to a profit of $74.7 million in 2013 after losing nearly $637.2 million in 2012, according to financial statements.
Tom Schreier, vice chairman for wealth management at Nuveen, said the outflows have tapered off this year and that the company is “in a very attractive environment for the asset classes that we manage.”
“The most important thing is [advisers are] going to benefit from the continuity of Nuveen as it is today and removal of any concern from how we'd exit from private-equity ownership,” Mr. Schreier said.
TIAA-CREF, meanwhile, has been working to build a position in retail advisory. In addition to its $73 billion open-end mutual fund business, which has enjoyed strong enough performance to win a Lipper U.S. fund family award for two years in row, its Individual Advisory Services division said last year it plans to hire 200 financial advisers by the end of 2014.
Now the firm has made its mark with its largest acquisition ever, and the largest — in absolute terms — in asset management since BlackRock Inc. acquired Merrill Lynch's fund business, Merrill Lynch Investment Managers, in a 2006 deal valued at $9.6 billion. In so doing, TIAA-CREF has created what will be a top-20 sponsor of open-end mutual funds.
Robert Leary, president of TIAA-CREF Asset Management, said Nuveen's strength with retail advisers helps broaden its strengths within the retirement plan market, including 403(b) plans.
“When you look at Nuveen, they're very, very strong on the retail side as well as the institutional, intermediaries, wirehouses, brokerages, banks — they're very strong there in a way that we haven't been,” Mr. Leary said.
Nuveen will now operate as a subsidiary within Mr. Leary's division and its management and investment teams, including chief executive John Amboian, will remain in place.
The executives said there was a cultural fit between the two firms, but some analysts disagreed.
“They're not going to combine them operationally so in that sense it may not be critical that they have a cultural match,” said Laura Pavlenko Lutton, analyst for research firm Morningstar Inc. “But I think of them as having two different cultures just given the history of their businesses.”
She said the firms also have different clients, product mixes and cost structures, with TIAA-CREF typically having lower-cost products.
“The question is how do they work together going forward,” said Ms. Lutton. “Is that primarily through distribution or are they going to end up designing products together, and time will tell how that all works.”