2015 U.S. Lipper Awards focus on funds with steady returns
(Story refiled to correct spelling of Hotchkis in final paragraph)
LONG BEACH, California 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 humility.
"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 December 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."
(The author is a Reuters contributor. The opinions expressed are his own)
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Editing by Lauren Young and Stephen Powell)