(The author is a Reuters contributor. The opinions expressed
are his own)
By Conrad de Aenlle
LONG BEACH, Calif., March 24 TIAA-CREF is an
example of a whole that's greater than the sum of its parts. The
firm was recognized at the 2014 U.S. Lipper Fund Awards last
week as the best large fund management company overall, despite
the fact that none of its portfolios received individual honors.
It was the second straight year that the New York company
took the top prize, reflecting a consistency that has become one
of its defining characteristics. TIAA-CREF has earned a
reputation for getting the basics right and generating solid,
stable performance, even if that limits the opportunity to beat
all comers in any one investment niche.
As much fun and profit as investors might derive from owning
a fund that shoots the lights out occasionally, experts say
you're better off entrusting your money to a company that does
many things very well over the long haul.
"Their retail products are excellent," says Jeff Tjornehoj,
head of research for Lipper Americas. "It might seem unusual
that the overall winner has no individual awards, but being next
best or right after that is worthy, as well, and TIAA-CREF is
close in many categories."
That's broadly what the firm is going for, according to
Robert Leary, TIAA-CREF's head of asset management.
"If we're not stars in any particular fund, that's fine with
us," Leary says.
Leary highlights a culture of discipline and focus, along
with teamwork, pooled research and a heavy emphasis on risk
controls. "We don't have a star culture, we have a
mission-oriented culture," he says.
Fulfilling that mission these days involves heavy U.S.
exposure in its portfolios, with stocks preferred to bonds,
although he encourages investors not to anticipate returns
approaching the 30 percent that benchmark indexes recorded last
year. Elsewhere, the outlook is bright on China, mixed on Europe
and cautious or worse on emerging markets and Japan.
Although TIAA-CREF is more process-driven than ego-driven,
Leary acknowledges that success also depends on avoiding excess
"You can't have great performance without giving managers a
fair amount of leeway," he notes. While research and analysis
are centralized, "portfolio managers are free to go with the
stocks and bonds they choose. There are good risk management
tools, but at the end of the day they decide what risks to take.
We don't put tough guard rails around them."
Maybe not, but financial advisers admire the firm for
keeping managers heading in the right direction at a safe speed.
"They take a unique approach to investment selection, using
a risk management team and a traditional investment management
team to provide an additional set of controls regarding risk and
asset allocation," says Brett Gottlieb, an investment adviser
representative at Comprehensive Advisor in Carlsbad, California.
Christopher Cordaro, chief investment officer of
RegentAtlantic Capital in Morristown, New Jersey, agrees. He
credits the firm, which he uses to manage education savings
plans for clients, with "adding value with their security
selection and overlaying that with natural conservatism and risk
control. Their consistency is their best attribute, combined
with reasonable costs."
PENSIONS FOR PROFESSORS
If TIAA-CREF is light on investors' wallets, some of the
credit may be due to the 19th century Scottish-American
industrialist Andrew Carnegie. After he made his fortune in
steel, Carnegie set about disbursing it through worthy causes,
one of which was establishing pensions for college professors
around the turn of the 20th century.
This led in 1918 to the creation of the Teachers Insurance
and Annuity Association of America, or TIAA (one A fell by the
wayside). That entity mostly held bonds; when it was decided in
1952 that teachers could benefit from owning stocks, TIAA
started the College Retirement Equities Fund, expanding its
portfolios and its acronym.
TIAA-CREF got into mutual funds in 1997, and while the $70
billion in fund assets, as of Dec. 31, is sizable, it's dwarfed
by the nearly $500 billion managed for teachers and other
employees of nonprofit organizations. Economies of scale keep
expenses down for fund owners as the costs of research, trading
and administration are spread among the entire client base.
As many strengths as the firm has, some of them can also be
drawbacks. The managers sometimes are too risk averse, in
Tjornehoj's opinion. He also finds that "some of their products
aren't terribly tax efficient" due to the historical emphasis on
running pension money for non-profits.
Cordaro adds that the firm can be too big to navigate
through certain market niches.
"Their funds are good core investments," he says, "but
because of their size, they can't invest in thinly traded or
esoteric corners of the market." He considers that a minor
quibble, however, and stresses that he would not want TIAA-CREF
to change appreciably.
"We're happy with them," Cordaro says. "They should stick to
their knitting and keep doing what they're doing."
(Follow us @ReutersMoney or here;
Editing by Lauren Young and Stephen Powell)