Nationwide Financial Services Inc. says the deal it expects to close today to sell its active asset management business is a big step in its bid to duplicate in asset management the success it has enjoyed in the variable annuity business.
Aberdeen Asset Management Inc., a Philadelphia unit of Aberdeen Asset Management PLC of Scotland, is buying 21 mutual funds from Nationwide for an undisclosed price. Aberdeen will subadvise the funds for Nationwide, which is getting out of the business of directly managing mutual funds.
Nationwide, of Columbus, Ohio, is known for using only subadvised funds within its Best of America variable annuity and life investment programs.
"Moving mutual funds to an all-subadvised platform assures that every fund is looking at a Best of America principle when it hires subadvisers," said John H. Grady, the president and chief executive officer of the distribution arm Nationwide Funds Group.
Mr. Grady said Nationwide expects the approach to resonate in the institutional world, with pension plans, for example, attracted to the well-regarded names of the funds' subadvisers.
Burt Greenwald, a mutual fund consultant in Philadelphia, said: "Today the subadvised approach in variable annuities is considered the norm.Nationwide thinks they can reproduce that success in the mutual fund world."
Including the funds moving to Aberdeen, Nationwide will have 90 funds subadvised by about 20 managers. It will monitor all the funds' performance and add and subtract funds and managers when appropriate, Mr. Grady said.
"We'll probably go down a bunch and add a number of new funds around perceived need," he said. "We won't get substantially larger, although we might go over 100."
He said "there are maybe 25 firms in this country that are wonderfully managed, focused asset managers we can put in our funds and be confident of great performance, with no operational or compliance headaches and setbacks. We will focus on that 25."
Nationwide lacks the resources needed to oversee a large group of subadvisers, Mr. Grady said.
"The freedom to go wherever you want as a fund company has to be tempered by the cost of overseeing a complex menu of subadvisers," he said. "You need to staff up the oversight piece as you are scaling back head count."
In all, 45 of Nationwide's portfolio managers, traders, analysts, and sales personnel are joining Aberdeen, though they will continue to work in West Conshohocken, Pa.
The deal was announced Sept. 18, but Mr. Grady said Nationwide and Aberdeen started negotiations early in the year. "We really allowed the corporate process to stop a while for Aberdeen and our individuals to discuss direction, opportunities, management style, and the approach to how do the job," he said. "Once there was a consensus that this was the right fit, we restarted discussions around how to make it happen."
Aberdeen Asset Management PLC is among the United Kingdom's largest independent fund managers; at midyear it was managing nearly $180 billion.
Other foreign firms that have bought U.S. asset management businesses recently include the Great-West Lifeco Inc. unit of Toronto's Power Financial Corp., which bought Putnam Investments from Marsh & McLennan Cos. in August.
"Offshore companies have been eager to get into the U.S. marketplace," Mr. Greenwald said.
Nationwide's deal with Aberdeen continues a series of asset-management divestitures. In June it sold its stable-value asset manager, Morley Financial Services Inc., to a unit of Principal Financial Group. Morley had more than $14 billion of institutional assets under management at midyear.
A year ago Nationwide sold its Gartmore Investment Management PLC unit to a private-equity firm. And this spring it sold its retail asset management business, NWD Investment Management Inc., to Nationwide Financial Services Inc., its publicly listed unit.
