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New York Life to Buy Union Pension Fund Manager


NY Times, June 6, 2001

Joining a wave of consolidation among asset management companies, the New York Life Insurance Company's investment arm will announce today that it is buying a privately held San Francisco firm that is a leader in managing union pension funds.

Executives of both New York Life and the San Francisco company, McMorgan & Company, said they hoped the deal would permit them to capitalize on a trend in union retirement plans in which individual members, rather than trustees, make investment decisions. Union pension funds have lagged American companies in shifting to these 401(k)-style retirement plans.

McMorgan has a commanding position in the union pension market, and New York Life brings sophisticated computer systems, administrative expertise and a string of mutual funds that can now be offered through the West Coast company.

"It's a very good fit," said Alejandro Przygoda, an investment banker at Credit Suisse First Boston.

Neither company would discuss the purchase price, but analysts and investment bankers estimated it at $400 million, based on recent sales of asset management companies.

The deal adds $27 billion in assets to New York Life Investment Management Holdings, the investment arm, raising its assets under management to $145 billion.

Insurance companies, banks and large asset management companies have been buying other asset managers which manage mutual funds, foundation endowments and other money for institutions at a rapid pace. The goal is to gain economies of scale and market share as baby boomers save money for retirement.

There were a dozen deals last year, and so far this year, there have been six, up from 10 in all of 1999 and an equal number in 1998. The New York Life deal comes just two days after FleetBoston paid $900 million to buy the asset-management business of the Liberty Financial Companies, which manages $51 billion.

Last June, in one of the biggest combinations, Alliance Capital Management, the investment arm of AXA, an insurance company based in France, bought Sanford C. Bernstein for $3.5 billion. And in 1999, Allianz, a large German insurer, bought Pimco Advisors for $3.3 billion.

There have been smaller deals as well. In April, Amvescap of Britain bought Pell Rudman, a Boston company with $8 billion under management, for $200 million.

"Some of these companies are trying to get distribution access to new customers," Mr. Przygoda said. "Some are trying to get more products to offer and others are going after scale. In this deal, New York Life gets distribution and scale."

One risk when larger financial companies take over smaller asset managers, some analysts say, is that the unique strengths of the small companies become diluted as the new parent pushes for more and more assets. But Gary Wendlandt, the chief executive of the New York Life money-management unit, said McMorgan would remain a separate operation under New York Life. McMorgan has been led for the last two decades by Thomas A. Morton, one of the founders, with increasing help from his two sons.

"This company has a terrific franchise," Mr. Wendlandt said. "To disturb that would be foolish."

As a result of the combination, McMorgan will have 50 mutual funds to offer clients, up from 5 now. McMorgan will also gain the expertise that New York Life uses to manage $13 billion in individual retirement plan funds, which will help as more of McMorgan's clients shift away from trustee-managed plans.

Mr. Wendlandt said that of the $430 billion in defined-contribution retirement plans run by unions, only 10 percent are set up so members can decide how the money is invested. But increasingly, he and Mr. Morton said, members want that freedom.

"This is just the beginning of this trend," Mr. Wendlandt said.

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