Nuveen Investments Inc. executives, positioning for an IPO in the next few years, are counting on Robert Doll and a new product line to help broaden the firm's asset base and prepare it to shed more than $4 billion in debt.
Eight equity mutual funds and companion institutional strategies managed by Mr. Doll were launched on July 1 by Nuveen Asset Management LLC, the largest of seven investment shops owned by Nuveen Investments.
Both companies are based in Chicago. Nuveen Asset has $126.5 billion under management, the biggest chunk of Nuveen Investment's $224.4 billion in AUM.
Nuveen Investments has $60.9 billion in institutional assets; Nuveen Asset, $13.6 billion.
Mr. Doll is seen as someone who can help Nuveen Asset grow organically because he is a known name who can attract investors, said William Huffman, Nuveen Asset's president.
And, organic growth is one of the ingredients to a successful initial public offering for Nuveen Investments, said a high-level company official, who spoke under the condition his name not be used because he is not authorized to talk about an IPO.
Executives of Nuveen and Madison Dearborn Partners LLC, Chicago, the private equity firm that took Nuveen Investments private in a 2007 leveraged buyout, would like to complete an IPO in the next year or two, the official said.
Too much debt
Nuveen had been a symbol of what can go wrong when a company is leveraged up with debt. Madison Dearborn offered shareholders a 20% premium — right before the financial meltdown. The Nuveen debt is rated as junk by major bond rating services, and Madison Dearborn Partners so far has been unable to find a way to give new life to the money-losing Nuveen.
Nuveen Investments lost $571 million in 2012, as fee losses from net outflows and interest on its debt put costs ahead of revenue.
Part of Nuveen Investments' overall strategy has been to broaden its product offering, and the transition has been most apparent at its largest affiliate, Nuveen Asset Management. Mr. Huffman said he was hired in 2009 with a key charge of broadening the firm's asset base beyond investing in municipal bonds and attracting institutional business.
The acquisition added $25 billion in assets under management to Nuveen Asset Management's $57 billion municipal bond portfolio, expanding its assets to include mutual funds and new separately managed institutional portfolios in areas such as equities, real assets and asset allocation.
Market gains and net inflows increased Nuveen Asset Management's assets to $126.5 billion as of May 31, said Mr. Huffman.
But he said many investors still think of Nuveen Asset as a muni shop, which is where Mr. Doll — with his 30-plus years of experience managing equities and his huge exposure through television appearances — came in.
“We needed a catalyst to help build the brand image,” Mr. Huffman said.
He said Mr. Doll will continue to promote Nuveen's equity strategies in general, but also will be managing his own strategies.
Mr. Doll said in an interview he will use his well-honed investment approach — a combination of fundamental stock picking and quantitative analysis — on nine different strategies being offered as mutual funds and separate accounts.
The large-cap stock offerings are core, value and growth. There's also a core dividend strategy, a concentrated 20-stock portfolio, a traditional short extension, an equity long/short strategy and equity neutral. Mr. Doll also will become a co-portfolio manager on an existing stable growth strategy.
Mr. Doll said the fact that Nuveen Asset already had diversified into equities attracted him.
“I don't think I would have joined a firm that was brand new to equities,” he said. “I wanted someplace that could hit the ground running, meaning they were already established and had an opportunity for growth.”
He acknowledged there are no guarantees, saying he will need a combination of rising equity markets, successful stock selection and good distribution to achieve success. “If we connect on all three cylinders, we will raise billions of dollars, and if we don't connect on any of them, we won't raise much at all,” he said.
Mr. Doll was president and chief of investments at Merrill Lynch Investment Managers, which was bought by BlackRock (BLK) in 2006. He lost his job at BlackRock as part of a restructuring of equity teams. Mr. Doll's long-term track record going back three decades regularly beat benchmarks and peer strategies, but his performance was challenged during the financial crisis.
In any case, Mr. Doll will need to build a new track record at Nuveen because he did not take his BlackRock equity team members to Nuveen. Instead, Mr. Doll will be working with Nuveen Asset's existing group of 17 fundamental and three quantitative analysts.
The hiring of Mr. Doll is a positive step by Nuveen, said Robert Callagy, a vice president and senior analyst at the managed investment group of Moody's Investors Service in New York.
“The addition of Bob Doll ... definitely increases the visibility of NAM and its brand given that Bob Doll is well respected in the asset management industry,” he said. “It is a positive in terms of his ability to market and give better visibility to the brand.”
Mr. Callagy said the acquisition of FAF Advisors has helped strengthen the firm through increased scale and broader investment capabilities.
But Mr. Callagy said Moody's still rates Nuveen Investments debt as below investment grade because of its high leverage, 11 times EBITDA.
Mr. Callagy said Madison Dearborn officials “can't earn their way out of the debt, and their intent has always been to exit their investment through a sale to a strategic partner or through an IPO,” he said.
Market plays a role
Market conditions also might control when that transaction can take place. Nuveen Investments needs to get a purchase price that would allow it to significantly reduce its debt and draw investors to an IPO, according to the Nuveen executive who wouldn't allow his name to be used.
He did not disclose the multiple necessary for the deal to work.
Multiples paid for asset managers have improved since the financial crisis took the amount buyers were willing to pay to as low as six to eight times EBITDA. Deals today generally can be in the eight to 11 times EBIDTA range, depending on the quality of a company.
The officials said strong asset growth at other Nuveen affiliates is also important in order for the IPO to be completed.
Nuveen Investments affiliates had a 7% organic growth rate in 2012. But that excluded net outflows from two equity affiliates, Los Angeles-based Tradewinds Global Investors LLC, which manages global equities, and NWQ Investment Management Co. LLC, a domestic equity firm.
The net outflows at Tradewinds have been severe since the announcement in March 2012 that CIO David Iben was departing. AUM stood at $7.4 billion as of March 31, 2013, according to data provider eVestment LLC, Marietta, Ga. That figure is down from $38 billion as of February 2012, according to data from Nuveen.
The source said Tradewinds outflows have stabilized over the past few months and the worst seems to be over.
At NWQ, assets under management have declined to $15.3 billion as of March 31, 2013, from $23. 5 billion 24 months earlier, according to eVestment.
Nuveen Investments had outflows of $644 million for the three months ended March 31, which was a fraction of the $6.4 billion the company experienced in net outflows in the same quarter a year earlier, according to financial disclosures Nuveen made to debtholders. Nuveen suffered $14.2 billion in net outflows in 2012.
Net losses also appear to be moderating so far this year, Nuveen data show: The company experienced a net income loss of $9.1 million for the three months ended March 31, compared with a loss of $43.8 million in the same period last year.
This article originally appeared in the July 8, 2013 print issue as, "Nuveen banking on Doll for turnaround".