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Nuveen snubbed in bid to go upscale

John Nuveen Co. is enduring snubs as it strives for respectability as a money manager for the rich.

San Diego-based Nicholas-Applegate Capital Management, a specialist in stock investing for the wealthy, recently turned down a Nuveen buyout proposal in favor of a more lucrative offer from Allianz AG, the German insurer.

And earlier this month, the head of Nuveen’s own wealth management unit, Rittenhouse Financial Services Inc., walked out.

The rejections hurt more than Nuveen’s feelings. They also cloud the 102-year-old Chicago investment house’s aspiration to diversify beyond its specialty of municipal bond funds, a slow-growing business that looks downright dowdy in an era of soaring stock markets.

Since a foray into the mass-market mutual fund sector fizzled, Nuveen has been hoping to win acceptance at the upper end of the financial scale.

But competition for admission to the club is intense, and the Chicago firm is up against larger rivals with much more money to spend.

If Nuveen can’t accelerate its growth rate, the firm could itself become a target in the consolidating asset management business.

Nuveen’s stock has been rising recently on a wave of industrywide buyout speculation. But its price, though up 30% this year, isn’t much higher than it was in 1993.

Nuveen, 78.5% owned by Minnesota-based insurer St. Paul Cos., has asked an investment bank specializing in money management deals to provide some introductions.

Nuveen, however, will be hard pressed to match the bidding power of giants like Allianz – which agreed to pay as much as $2.7 billion for Nicholas-Applegate – and the U.S. unit of Dutch bank ABN Amro NV.

“Between losing out on [Nicholas-Applegate] and losing the leadership at Rittenhouse, they’ve got a lot of things to pull together,” says Burt Greenwald, a Philadelphia-based financial services consultant.

Rittenhouse president Richard D. Hughes left two months after Nuveen recruited Merrill Lynch & Co. veteran Allen J. Williamson to oversee the firm’s mutual fund and managed-account business.

Mr. Hughes, who previously reported directly to Nuveen chairman and CEO Timothy Schwertfeger, became Mr. Williamson’s subordinate.

A memo circulated among the division’s 150 staffers said Mr. Hughes left for personal reasons, sources say. Nuveen declined to comment. Mr. Hughes couldn’t be reached.

Nuveen lost a proven executive in Mr. Hughes, who had led Rittenhouse since 1989. Acquired by Nuveen for $145 million in 1997, Rittenhouse has been a critical driver of earnings and assets.

Fees move upward

In 1999, investment advisory fees on managed accounts at Nuveen, the bulk of which are handled by Rittenhouse, rose 41% to $81.6 million – accounting for 24% of Nuveen’s $338.8 million in annual revenues.

Nuveen posted net income of $97.3 million in 1999. Between the time of its acquisition by Nuveen and the third quarter of 2000, assets managed by Rittenhouse more than doubled to $20 billion, still relatively small.

During the same period, Nuveen’s overall assets grew 23% to $61 billion; its core bond fund business increased only 6% to $27.6 billion.

“Rittenhouse is a critical component of Nuveen at this point,” says Mario Cibelli, an analyst for Robotti & Co. in New York.

Mr. Hughes’ departure could mean more than the loss of a top executive. If things run true to form, Rittenhouse managers and clients are likely to follow him.

Defections at Rittenhouse could weaken Nuveen’s Wall Street connections. Rittenhouse has longtime ties to such brokerage houses as Merrill Lynch & Co. and Morgan Stanley Dean Witter & Co., key sources of wealthy-client referrals.

Uncertainty at Rittenhouse comes as Nuveen is falling behind in the rush to acquire wealth management firms, a trend that includes ABN Amro North America Inc.’s acquisition this month of Alleghany Asset Management for $825 million.

Besides its recent run for Nicholas-Applegate, sources say, Nuveen has nosed around RS Investment Management LP in San Francisco and Boston-based Eaton Vance Corp.

Nuveen executives have spoken with boutique investment bank Putnam Lovell Securities Inc. about potential acquisitions, says a source close to Nuveen.

The Chicago firm will have to dig deep to make a buy in a market where sellers are demanding – and getting – high premiums from buyers with much deeper pockets than Nuveen’s.