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February 03, 1997 12:00 AM

VOYAGEUR RECASTS ITSELF AS INSTITUTIONAL FIRM

Christine Williamson
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    MINNEAPOLIS - In an unusual move, the Voyageur Cos., which began in 1983 as a specialty mutual fund manager, is exiting the retail fund business to concentrate on its institutional side.

    Subject to regulatory and shareholder approval, Lincoln National Corp., Fort Wayne, Ind., later this year will acquire Voyageur's $2.8 billion retail fund business, managed by a subsidiary, Voyageur Fund Managers. The terms of the deal involve payment to Voyageur of $69 million in LNC stock.

    While many institutional boutique managers are running a late race to enter the mutual fund business, Voyageur officials have decided to sell rather than expand retail fund offerings. Voyageur has been largely a boutique manager, with a specialty in municipal bond fund management, mostly for high net worth individuals seeking tax-sensitive investments.

    On the retail side, Voyageur has 23 open-end, single state municipal bond funds; nine open-end mutual funds; six closed-end funds; and several retail unit investment trusts. The largest is Minnesota Tax-Free, with $440 million under management and a four-star rating by Morningstar Inc., Chicago.

    The company's strength has been concentrated in a regional distribution network, but Voyageur officials saw that both national distribution and a broader array of investment products was necessary for adequate growth in a market in which ever larger economies of scale have become necessary, said John G. Taft, president and chief executive officer of Voyageur.

    "We have been openly looking for some time for a partner to help Voyageur expand its retail mutual fund business by providing a wider product line and nationwide distribution," said Mr. Taft.

    But the success of Voyageur's $11 billion institutional business, which offers a broader investment style lineup and is much less oriented toward specialty boutique management, convinced company officials to sell, rather than expand, the retail business.

    In 1989, Voyageur officials began to expand into institutional management as a way to diversify the company's revenue base, said Mr. Taft.

    "We began as a mutual fund company, but saw that we needed to provide another source of growth beyond mutual funds for stability. The institutional side has finally grown large enough to support itself. We've crossed over now," Mr. Taft said.

    "We've been focusing attention equally on both the retail and institutional sides of the business. We decided to sell the retail funds so we can refocus our attentions to bring a sharper, clearer focus on the needs of institutional investors," he added.

    Most of the company's growth from just $1.5 billion in 1990 came from direct marketing to pension funds and other institutional investors. Consulting wrap-fee separate and commingled account business for institutions and high-net-worth individuals has become a strong source of revenue for Voyageur, Mr. Taft said.

    It is a segment on which the company will focus heavily in the future. Most of the wrap-fee business has gone into the company's large-cap growth strategy, directed by the broker/dealer community.

    Ten investment strategies are managed by the company's four investment management subsidiaries in separate accounts and in commingled and institutional-only mutual funds: six different taxable municipal bond strategies, a tax-sensitive municipal bond strategy, two large-cap growth styles and one balanced style.

    Voyageur Asset Management, Minneapolis, manages $5.5 billion, including $100 million in four taxable fixed-income institutional mutual funds. The Clifton Group Inc., Minneapolis, manages $3.5 billion in enhanced indexing and derivative overlay programs. Segall Bryant & Hamill L.P., Chicago, manages $1.7 billion in domestic stock and bond portfolios. Voyageur International Asset Managers Ltd., Edinburgh, manages less than $50 million in international equities with an emphasis on European companies.

    One retail mutual fund bond portfolio manager, Steve Eldridge, will remain with Voyageur after the sale of the retail funds is completed, and the company might beef up its equity department from three large-cap managers, said Mr. Taft.

    Ironically, Voyageur Cos. might go back into mutual fund management next year, but only to make some of its institutional investment styles available in mutual fund format.

    "We want to be able to provide the investment strategies in whatever format a client wants them," said Mr. Taft.

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