Principal is putting its cash hoard to work in the retail fund business. Executives at the insurer said Tuesday evening that they have acquired the fund business from Washington Mutual, one of the nation's largest savings and loans. Not only does the deal signal Principal's aggressiveness, it also underscores the continuing retreat from the fund marketplace by banks.
WaMu sold the WM Advisors, the manager of the $21 billion WM Group of funds, for $740 million in cash, according to a statement. The WM funds also claim 800,000 shareholder accounts. The price works out to 3.52 percent of assets under management, a figure within the recent pricing range of deals, albeit on the low side. Principal currently claims $28 billion in assets under management by its Principal Mutual Funds group. That figure should climb to $49 billion when the deal closes, making Principal the 43rd largest fund firm.
For Principal, the WaMu funds will provide another product for the firm's retail retirement focused business. Those efforts are driven by the insurer's defined contribution and 401(k) products and its IRA rollover efforts. The deal also brings it a number of lifecycle asset allocation funds. Those types of funds are becoming increasingly critical for providers in the 401(k) and IRA markets. The deal should make Principal the fourth largest manager of this type of fund.
Principal will also gain access to the distribution capabilities of WM Financial Services through the bank's branches. The broker-dealer arm has 1,500 securities representatives.
"This transaction adds important scale to one of our key asset accumulation businesses, it further strengthens our global asset management capability and it increases our presence with over 28,000 independent financial advisors who will play an increasingly important role in securing the retirement future for over 76 million Baby Boomers," said J. Barry Griswell, chairman and chief executive officer of The Principal.
Larry D. Zimpleman, president and chief operating officer of The Principal, explained that he expects the funds to play an integral role in capturing IRA assets. "Expanded product solutions and distribution are critical to our growth strategy of serving the financial needs of Americans transitioning into retirement.
"The acquisition, which gives us wholesale distribution resources more than 100-strong, provides an established platform to access the retail markets as well. It also expands our portfolio of high quality offerings, including their leading target-risk funds to complement our leading target-date fund offerings." Zimpleman added.
Rumors that WaMu was shopping its fund business first started in June (see: "Bank's Fund Business Up For Sale?
The bank had roughly 200 employees based primarily in Seattle and Sacramento. The firm's made no announcement on what will happen to those workers or offices. WM Advisors also claims a sales and marketing force of 107 investment professionals that work with a national, third-party distribution network of more than 28,000 financial professionals.
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