NEW YORK - TIAA-CREF, the ultra-heavyweight manager of $185 billion for 403(b) plans, has filed with the SEC to offer six no-load mutual funds.
The funds will be offered primarily as a private savings vehicle to the nearly 1.8 million plan participants it already services.
But the Teachers Insurance and Annuity Association - College Retirement Equities Fund's entry into the marketplace comes late and probably will be limited in scope, at least at first.
The six funds will be international equity, growth equity, growth and income, managed allocation, bond and money market.
While market observers said TIAA-CREF has a built-in investor base for its mutual funds - the participants in its existing plans - they doubt the behemoth will make much headway in the mass retail market.
Others say TIAA-CREF and other variable annuity providers are at serious risk from encroachment from mutual fund families into their basic business of 403(b) and 457 qualified plan record keeping and investment management. So they must modernize their product line, build loyalty and add more investment vehicles, even those on the taxable side, like retail mutual funds.
Claire Sheahan, TIAA-CREF's press relations director, said executives can't talk in detail about the introduction of the mutual funds because the funds are in registration with the Securities and Exchange Commission.
According to the draft prospectus, the funds will be managed using the investment styles of some of the seven retirement portfolios offered within CREF's variable annuity program for 403(b) plans: the CREF Stock Account; the Money Market Account; the Bond Market Account; the Social Choice Account; the Global Equity Account; the Growth Account; and the Equity Index. An eighth variable annuity option is the Real Estate Account, managed by TIAA. CREF will introduce a ninth portfolio, the Inflation Index Bond Account, into the line-up of variable annuity choices for 403(b) plans later this spring.
The company's targeted market for the mutual funds seems to be its own existing participant base. In a statement, TIAA-CREF said: "As our customer base continues to grow, TIAA-CREF participants increasingly are looking to TIAA-CREF to provide not only their employer-sponsored pension and insurance benefit programs, but also vehicles that they can use for their discretionary personal investing and savings needs .*.*."
Most consultants believe that at least at first, TIAA-CREF will have to concentrate on cross-selling to its existing customers.
"A lot of people are looking at whether (TIAA-CREF) will go beyond (its customer base) to try to attack other markets," said Peter Starr, a consultant at Cerulli Associates Inc., Boston.
"They are going to take baby steps here. They'll start with their own clients. The next logical step is the 401(k) plan market. They know how to do this market, too, since its so similar to what they are offering on a bundled basis to 403(b) plans.
Usually, mutual funds will only succeed in a 401(k) plan setting if they have some name-brand recognition.
But TIAA-CREF is a different animal and with its high exposure in the non-profit retirement plan market, will probably find it easier to crack into the corporate 401(k) arena. But retail distribution is another story. It won't be easy," Mr. Star said.
Said Jim Johnston, chief executive officer of the Stevenson Group, a consultant in West Hartford, Conn.: "I can't see them being able to leverage these new mutual funds much beyond their present distribution channel. They and other 403(b) and 457 plan providers are equally at serious risk of losing core clients - from the pension side - if they don't figure out a way to trim current costs for their 403(b) programs. . . . They have got to figure out better distribution for pension products or they will be blown away by the mutual fund vendors as the distinctions between 401(k) plans and 403(b) and 457 plans evaporate."
According to the prospectus:
Carlton N. Martin, an equity analyst with CREF, will manage the growth and income equity mutual fund.
Scott C. Evans will manage the growth equity mutual fund; he also manages the CREF growth account.
Elizabeth D. Black, who manages CREF's bond account, will manage the bond mutual fund.
James G. Fleischmann, responsible for global equity research for CREF equity accounts, and Michael T. O'Kane, who supervises the investments in CREF's bond and money market accounts, will co-managed the managed allocation mutual fund. The fund will invest about 60% of assets in the equity mutual funds and about 40% in the bond mutual fund.
The prospectus did not name managers of the international and money market mutual funds.
