Exclusive: Northwestern Mutual explores sale of Russell Investments: sources

NEW YORK Tue Jan 7, 2014 6:16pm EST

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NEW YORK (Reuters) - Northwestern Mutual Life Insurance is exploring a possible sale of its Russell Investments asset management business, which has $247 billion in assets under management, according to four people familiar with the situation

The Milwaukee-based insurer is discussing selling the Russell subsidiary because it has decided it is not a core part of its business, the people said on Tuesday.

All of the sources wished to remain anonymous because they are not permitted to speak to the media.

A Northwestern Mutual spokeswoman declined to comment.

Seattle-based Russell provides pension consulting, investment management, transition management services and indexes such as the Russell 1000 Global Index.

If the firm decides to go ahead with a sale, it is unclear if the business would be sold in its entirety or broken up, two of the sources said.

It could not be determined how much Northwestern would receive if it decides to sell the firm. Northwestern bought Russell, which was then called Frank Russell Company, in 1999 for $1.2 billion.

Russell's roots date back to 1936 when founder Frank Russell established a brokerage firm in Tacoma, Washington. Over the years it has grown as a consultant to pension plans, provider of asset management and in 1984 it introduced its own indexes. Today Russell's indexes have $4.1 trillion in assets benchmarked to them, according to Russell's website.

Russell would not be alone in selling its index business. Barclays Plc (BARC.L) is also exploring a sale of its index business, sources have told Reuters.

Given the growing popularity of index-based funds and exchange-traded funds, firms like Barclays and Russell could obtain a good premium for selling their index businesses, sources said.

In the first 13 months of 2013, investors poured $279 billion into index-based funds and ETFs, almost double the $146 billion they invested in actively managed funds and ETFs, according to fund researcher Morningstar Inc (MORN.O).

Russell and many of its peers encountered hurdles during the 2008 financial crisis. That year, the firm shut down its hedge fund of funds operation. Russell's money market funds had more than 5 percent exposure to securities of Lehman Brothers Holdings Inc, which went under in 2008. As a result Northwestern Mutual put $764 million into those money funds to protect investors.

In 2010, Russell sold its private equity manager, Pantheon Ventures, to Affiliated Managers Group for $775 million.

In 2012, Russell closed its 25 ETFs because it failed to garner significant assets after being in the market for little over a year.

(Reporting by Jessica Toonkel; editing by Matthew Lewis)

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