Dissatisfied with the bids received by Great Western Financial Corp. for its mutual fund complex, a group of directors of the Sierra funds is making its own buyout offer, according to people familiar with the talks.

The group has secured financial backing from Affiliated Managers Group, a Boston-based holding company that invests in mutual fund companies, these people said. AMG typically buys fund companies outright, then hands over a percentage of the equity to the fund companies' managers.

Great Western has identified three finalists in the bidding for Sierra, the $3.4 billion-asset fund family it put on the block in October. One is Farmers Insurance Group, Los Angeles, which views Sierra as its possible entree into the mutual fund business, industry insiders said. The second is the directors group.

The identity of the third finalist could not be learned.

People with knowledge of the talks said those at the negotiating table have had to navigate rough terrain. One source close to the negotiations said the thrift's executives may pull the funds off the auction block if they are unhappy with the final bids.

While early estimates had priced Sierra at $50 million to $80 million, bidders have offered closer to $40 million, sources said.

Executives at the Chatsworth, Calif.-based thrift are not the only ones dissatisfied with the bidding. Sierra's board of directors, which looks after the best interests of the funds' shareholders, is represented in the auction by Putnam, Lovell & Thornton, a New York investment banking boutique.

William J. Nutt, founder of Affiliated Management Group, declined to say whether it is backing a bid by the board. But an industry observer said the funds' directors would like to do a leveraged buyout financed by Mr. Nutt's group because it would give them equity in the company.

Mr. Nutt, former president of the Boston Co., said in the three asset management deals Affiliated financed in the last two years it bought 100% of the company, then gave about 30% to management.

"We give direct equity to management so they have an incentive to continue to provide quality and the same performance they did before" the buyout, Mr. Nutt said. He said he has so far been pleased with the performance of Paradigm Capital Management, First Quadrant Corp., and Skyline Asset Management, the three asset management firms that AMG bought.

AMG, which Mr. Nutt describes as a holding company, is financed by TA Associates, a Boston-based venture capital firm, as well as by an investment division of NationsBank Corp. and ITT Hartford Insurance.

At Farmers Insurance, a spokeswoman said the company is not bidding on the Sierra Funds. However, she added, Farmers is interested in entering the mutual fund business as part of an effort to build a full-service financial services company. Merrill Lynch & Co. is representing Farmers, sources said.

A Great Western spokesman said the company is on track to decide on Sierra's future before March 31. He declined to comment further.

In October, Great Western said it was examining options to realize the maximum value of the Sierra Funds, including sale, joint venture, or keeping the fund complex as is.

Experts said Sierra's subadviser structure is too expensive for the thrift to maintain because it must split fees with the companies that lend portfolio managers to advise the funds. The costly setup has put off potential buyers, they said. Subadvisers work under contracts that can only be broken for poor performance.

Sierra's subadvisers include Janus Capital Corp. and J.P. Morgan Investment Management Inc.

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