Hartford Investment Management Co. was the odd man out this month when its parent company announced a partnership agreement with Wellington Management Co., a status that could undermine HIMCO's plans to grow its third-party institutional business.
On Dec. 8, Hartford Financial Services Group Inc. announced the signing of a seven-year “preferred partnership agreement” with Wellington, making the Boston-based giant the sole subadviser for Hartford's $100 billion mutual fund family. Under the agreement, Wellington will add as much as $30 billion in fixed-income assets being overseen by HIMCO to the $70 billion in equity assets it already runs.
Hartford executives, while praising HIMCO's performance, described the move as an unsentimental acknowledgement of the strength of the Wellington brand name in the mutual fund arena.
Speaking at an investor conference Dec. 9, David Levenson, the president of Hartford's wealth management division, noted that Wellington is a lot better known in the retail channel than HIMCO. Wellington is better placed to help Hartford balance a “high beta” domestic equity-heavy fund lineup that has proven poorly positioned to benefit from the investor rush into fixed-income funds in recent years, he said.
In Hartford's news release announcing the Wellington partnership, Liam E. McGee, the parent company's chairman, president and CEO, insisted HIMCO remains “an important part of The Hartford,” and will focus its third-party asset management business going forward on the institutional market.
Some market veterans predict Hartford's decision to favor Wellington over HIMCO can only make it harder for HIMCO to tell its story in that institutional marketplace.
“Most money managers with an institutional owner start off well behind the ball in competing with the likes of a Wellington or other top managers for investment talent,” noted Donald Putnam, San Francisco-based managing partner with boutique investment bank Grail Partners LLC. Hartford's decision to hire a “bigger, better competitor” can only hobble HIMCO's aspirations, perhaps fatally, he said.
In a telephone interview, Hugh Whelan, HIMCO's acting president, said strong performance in products such as Treasury inflation-protected securities, high-yield bonds, emerging markets debt and short-duration bonds has powered a pickup in HIMCO's third-party business this year.
To the extent investors focus on the Wellington news, that momentum could be tempered, Mr. Whelan acknowledged, but ultimately the business is a meritocracy and if the steps HIMCO has taken to better calibrate risk over the past three years continue to pay off, any slowdown should be temporary, he predicted.
Mr. Whelan pegged the assets in play on account of Hartford's expanded relationship with Wellington at just less than $20 billion, or 12% of the $165 billion in assets under management HIMCO reported as of Sept. 30. The parent company's general account assets account for roughly $100 billion of that total, with third-party institutional business accounting for the remaining assets.
Some consultants say they've been told the mutual fund assets that will transfer to Wellington from HIMCO are closer to $30 billion.
Market veterans say it's not always easy for money managers whose primary responsibility is managing an insurance company's general account assets to succeed in the third-party institutional marketplace.
One executive with experience running an insurance company's asset management affiliate, who declined to be named, said the skills involved in making credit decisions to complement a portfolio of insurance products don't necessarily translate to skill in running an institutional client's bond portfolio. Also, investors are forever skeptical that the general account won't get first dibs on the firm's best credit ideas, which often have capacity constraints, he said.
