Race for Great Western's Sierra Funds Narrows

Seven of the initial 12 bidders for Great Western Financial Corp.'s mutual fund complex have dropped out, industry insiders said this week.

Though the identities of the five finalists could not be learned, companies that have looked at the offering for Sierra Capital Management include Putnam Investments, Oppenheimer Funds Inc., and Van Kampen American Capital Management, sources said.

Final offers for the fund complex, which now has $3.4 billion in assets under management, are likely to range from $72 million to $75 million, said one bidder who is no longer in the running.

Chatsworth, Calif.-based Great Western in October asked Goldman Sachs & Co. to find either a buyer or a joint venture partner for its high-profile Sierra Capital unit. A company spokesman said the move was part of a larger strategy to concentrate on lines of business that will add value to the thrift's franchise.

The list of companies that have expressed some interest in buying Sierra Capital includes other banks in the mutual fund business.

R. Gregory Knopf, managing director of Union Bank of California's Stepstone Funds, said he had asked Goldman for a copy of the offering, known as a "book," but was told that Great Western had asked that companies doing business in its market be excluded.

He added that the request was an unusual one.

"Usually, you're given consideration for future deals," said Mr. Knopf, whose bank is owned by Bank of Tokyo-Mitsubishi Ltd. "But that wasn't the case this time."

The $72 million to $75 million price estimate assumes the buyer would fire all of Sierra Capital's subadvisers. Such a move could increase the fund family's annual profit to about $12 million from $3 million.

Great Western's funds have higher expenses than most because it outsources the management of its 15 funds to subadvisers, including J.P. Morgan Investment Management and Scudder Stevens & Clark. The company splits management fees with the subadvisers.

Some industry observers and insiders have speculated that for Great Western, the sale of its funds is part of a larger strategy to sell the entire thrift. But Great Western's spokesman denied that.

"It is not our agenda to sell the company," the spokesman said.

Great Western's search for a buyer or partner for Sierra Capital took many by surprise, as the funds are not plagued with problems typical of bank-run funds. These include sparse distribution and higher-than-average concentration in money market funds.

The Sierra Funds have a wide third-party distribution, accounting for 40% of all sales, and have only 9% of assets in money market funds.

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