Nuveen Content to Keep Mining Tax-Exempt Niche

CHICAGO - While many mutual fund companies are trying to become everything to everyone, John Nuveen & Co. is digging itself deeper into its niche.

Bucking an industry trend, the Chicago-based mutual fund company isn't rushing to broaden its product line or link up with another fund firm. Indeed, the company has no new products on the Securities and Exchange Commission's registration rosters, and Nuveen executives say there are no plans to merge, or be merged.

"We've positioned ourselves as a niche provider of quality secured, tax-exempt income products," said Jerome S. Contro, manager of the national bank division for Nuveen.

With $300 million in capital and no debt, Nuveen has the financial capacity to stay solo. The St. Paul Cos. still owns a 72% stake in the company, and, like a strict parent, has a strong say in what Nuveen does,

However many companies, including Nuveen's hometown rivals, Van Kampen Merritt and Kemper Financial Services, have decided it makes sense to couple with competitors, in a drive to survive.

Then again, Nuveen isn't one to follow the crowd. When the company moved offices eight years ago from the heart of Chicago, it settled on a site on the western fringes of the Loop, as Chicago's business district is known.

"It was like the Wild West back then," Mr. Contro said.

But Nuveen is used to being a trailblazer. While hundreds of companies were pushing mutual funds in the 1960s and '70s, Nuveen built a reputation for selling unit investment trusts.

In contrast to a mutual fund, in which investments are constantly being traded, the composition of a unit trust portfolio is static. The portfolio has a preset termination date, like a certificate of deposit, and tends to sell well when interest rates are rising.

Because these vehicles don't adjust their portfolios, they tend to invest in conservative securities, especially municipal bonds. Ninety-five percent of the assets in unit investment trusts are in tax-exempt securities.

Nuveen parlays this expertise into its mutual fund business by including a strong lineup of bond funds in its mutual fund family.

As banks cut down the number of outside investment products they offer to customers, Nuveen's focus on unit trusts has helped the company win coveted spots on banks' shrinking short lists, Mr. Contro said. While the company lacks a full stable of products, it has made preferred products lists at such places as Banc One Corp. and Citicorp because of its unit investment trust expertise.

"The good niche companies will always have a role," said Kenneth R. Leibler, chief executive of Liberty Financial Cos., Boston.

"There are always opportunities for people to carve out niches," agreed R. Scott West, director of sales for financial institutions at Van Kampen/American Capital Inc. For example, "you can buy your coffee at a supermarket, or you can buy it a Starbucks," Mr. West said. Like the gourmet coffee shop, Nuveen aims its products at an upscale market.

Last year, Nuveen also succeeded in securing shelf space at several prominent banks, including BayBanks, First Union Corp., and Chemical Banking Corp. Being in the unit trust business these days has helped Nuveen keep its sales through banks booming.

"Our mutual fund sales slowed down in the third and fourth quarters, just like everyone else's did," said Robert B. Kuppenheimer, Nuveen's national sales manager.

But the fourth quarter was a big quarter for unit trusts, he added. Nuveen finished the year with about $1.67 billion in primary sales of unit trusts, leading the industry. Nuveen's unit trusts have also helped keep money coming in to the company's fund family, since many investors roll the proceeds from maturing unit trusts into mutual funds.

"Because of the reinvestment in mutual funds, we didn't experience the severe redemptions that some of our competitors suffered," Mr. Kuppenheimer said.

To be sure, last month alone, $45 million from unit trusts was reinvested into Nuveen's mutual funds. For the year, those reinvestments pumped more than $500 million into Nuveen's funds.

Although the company plans to build more awareness about unit trusts among bank-based brokers and bank customers this year, the products are already selling well in banks, Mr. Contro said.

"The banks tend to have bigger transactions and higher production per sales rep," Mr. Contro noted.

Indeed, the average order for a unit trust is about $22,000 to $25,000, but the tickets bank-based brokers write are running in the $35,000 to $40,000 range, Mr. Contro said.

To help banks weather the slow sales cycle, Nuveen is creating advertisements designed to generate sales leads for bank-based brokers. It is also creating more product-specific marketing materials.

In addition, the company is pumping money into sponsoring sports events, "so that we can build our brand name and do broker and investor entertainment," Mr. Contro said.

Nuveen's strong emphasis on research also helps set it apart from competitors.

"In our business, the industry never focuses on research until the horse is out of the barn," Mr. Kuppenheimer said. "But we've avoided a lot of situations because of research." For example, Nuveen didn't have to shore up its funds because of the Orange County debacle, he noted.

The company has also tapped a new revenue stream by selling its research to clients. And Nuveen is the only mutual fund company that has its own public finance department, Mr. Kuppenheimer added.

Nuveen executives say they aren't worried that they will get left behind as their competitors merge to build size.

"The more they consolidate, the more our niche stands out," Mr. Contro said.

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