Tradewinds' AUM falls 72% in 10 months

Lagging performance adds to the bad news for parent Nuveen

Assets under management at Tradewinds Global Investors LLC are down more than two-thirds since the announcement in March that star money manager David Iben was leaving.

Tradewinds data show the company was managing $10.3 billion as of Sept. 30, compared with $38 billion at the end of February, two weeks before Mr. Iben, the firm's chief investment officer, announced he was leaving.

Consultants say two factors are primarily at work: Mr. Iben's strong identification with Tradewinds, and a heavy reliance on natural resources stocks that have underperformed in recent months.

Performance-wise, the firm ranks at the bottom of the heap among value managers.

Its asset collapse also has wider implications for Chicago-based Nuveen Investments, Tradewinds' parent.

Nuveen, which is made up of seven boutique investment affiliates, had more than $220 billion in assets under management as of Sept. 30. Tradewinds was among the most profitable units, several informed sources say. It was second in AUM among the seven affiliates before the outflow, behind Nuveen Asset, which has more than $100 billion, the sources said.

But while Nuveen Asset Management is oriented toward fixed income, Tradewinds is an equity shop, with average fees double those for fixed income.

Parent Nuveen has been struggling with its overall debt load, which increased to $4.5 billion from $4.1 billion following a debt restructuring in September.

The debt resulted from Madison Dearborn Partners LLC, Chicago, taking the company private in a leveraged buyout in 2007.

The company, however, now faces a new debt maturity wall of $3.1 billion in 2017.

“It will be difficult to earn their way out of this debt load,” said Rory Callagy, an analyst with Moody's Investors Services, New York.

Mr. Callagy said company officials can do an initial public offering that would raise cash to pare debt, or another financing if an IPO isn't feasible.

The September refinancing was Nuveen's fourth since the LBO.

Nuveen spokeswoman Kathleen Cardoza said no one at Nuveen or Tradewinds would comment.

Change in plans

Several informed sources say Madison Dearborn officials were hoping they could take Nuveen public again this year, but Mr. Iben's departure for Vinik Asset Management scuttled that idea.

Glen Richter, chief operating officer at Nuveen, said in a Nov. 12 earnings call that while outflows stabilized somewhat in the third quarter, he still expected more outflows this quarter.

He also notedthe two major wire houses that distribute Tradewinds' products to retail investors — UBS Financial Services Inc. and Wells Fargo Advisors — were not adding new business while they reviewed Tradewinds. He said the review could take up to a year. UBS officials didn't return phone calls; a spokeswoman for Wells Fargo said no one would comment.

Mr. Richter acknowledged that Tradewinds' AUM and revenue were “significantly lower,” but added that inflows at other affiliates offset the Tradewinds declines.

Nuveen reported $220 billion in AUM at its seven affiliates as of Sept. 30, flat from the previous quarter and the third quarter of 2011.

But last quarter's numbers also include $14 billion from Gresham Investment Management LLC, a commodities manager in which Nuveen purchased a 60% stake last December.

Investment consultants attribute much of Tradewinds' asset drain to the fact that no other star was waiting in the wings when Mr. Iben left.

“It's great to have a star to be the signature person associated with a strategy, but the danger is if the star stumbles or leaves,” said consultant Charlie Waibel, managing director of Sellwood Consulting LLC, Portland, Ore.

Jeffrey MacLean, Los Angeles-based CEO at Wurts & Associates, said Tradewinds and Mr. Iben were synonymous.

Mr. Iben was the sole portfolio manager for Tradewinds' largest strategies and mutual funds and was also in charge of overseeing the stock selection for all offerings. Nuveen replaced Mr. Iben with other Tradewinds investment staffers, including portfolio managers, but none had amassed the track record of Mr. Iben.

To guard against more turnover, sources say, Nuveen signed the roughly two dozen remaining investment personnel to two-year contracts. They say they believe Nuveen remains committed to Tradewinds for now, but if assets were to continue to drop, other actions might have to be considered.

Tradewinds was spun out of another Nuveen equity-investing affiliate, NWQ Investment Management, in 2006. One possibility might be to reunite the two firms, the sources say.

Subadviser outflows

While initial asset withdrawals after Mr. Iben's announcement were attributed largely to institutional clients that had a key-man clause in their contracts, companies that had used Tradewinds as a subadviser have followed suit. Northern Trust Co. (NTRS), ING Investment Management and Guidestone Financial Resources all terminated relationships with Tradewinds in recent months, resulting in the loss of more than $700 million in assets.

John O'Connell, a spokesman at Northern Trust, declined comment. Officials at ING and Guidestone did not return phone calls.

But the firm's investment performance had been challenged even before Mr. Iben left, according to data provider eVestment Alliance, Marietta, Ga.

Mr. Iben's largest institutional strategy by assets, global all-cap value, had strong performance in 2010. But by the end of 2011, the strategy lagged its benchmark (the MSCI All Country World Index, net of dividends) by 444 basis points, according to eVestment Alliance.

Year to date through Sept. 30, the strategy has severely underperformed, returning 0.68% compared with the benchmark's 15.64%.

The global all-cap strategy separate account had $12.57 billion in AUM on Feb. 29, according to Nuveen data, but dropped to $1.3 billion as of Sept. 30, eVestment Alliance reported.

Wurts' Mr. MacLean said he believes Tradewinds could rebuild its institutional client list if the firm can show a several-year track record of solid performance.

Sellwood's Mr. Waibel agreed it will take time for the new team to rebuild performance, but said it's not impossible: “The San Francisco Giants have won two world championships after Barry Bonds retired.”

This article originally appeared in the December 24, 2012 print issue as, "Tradewinds' AUM falls 72% in 10 months".