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Friday, June 28, 2002

USAA Names Eight Subadvisors

by: Sean Hanna, Editor in Chief

USAA has completed its search for subadvisors to its 15 of its equity mutual funds. The Houston-based fund firm has drafted a lineup of eight investment managers for the duty. The funds for which the firm hired subadvisors hold some $7 billion of USAA Investment Management's $27.9 billion asset base.

Nearly without exception, the firms chosen to run the mandates carry strong institutional reputations in the pension, foundation and endowment market but not retail brands with financial advisors and individual investors. The one exception may be MFS Investment Management.

The lack of a strong retail presence among the managers should leave the USAA brand undiluted with its own customer base. It may also reflect the low pricing that USAA is reported to have negotiated with the firms. Published sources have placed the management fee for these mandates in the 18 to 20 basis point range.

The outsourcing means that the firm will eliminate forty jobs.

"Moving to external management in the entire equity operation, rather than just for some portfolios, enables the company to gain broader economies of scale and accelerate our industry leadership," said Christopher Claus, president and chief executive officer of USAA Investments. He added that those affected by the decision will be provided "a generous severance package that includes transition assistance."

The subadvisors who took over their mandates today are:

  • Batterymarch Financial Management, Inc.
  • The Boston Company Asset Management, LLC
  • Dresdner RCM Global Investors, LLC
  • Eagle Asset Management, Inc.
  • Marsico Capital Management, LLC
  • MFS Investment Management
  • Wellington Management Company, LLP
  • Westwood Management Corporation

    Altogether the mandates cover 12 equity funds, three asset allocation funds and four variable annuities. The firm will continue to use its own staff to manage the USAA Precious Metals and Minerals fund and to manage the science portion of the Science and Technology fund.

    "This decision was necessary to enhance our ability to deliver consistent, above-average fund performance for our members and shareholders," said Claus, president and chief executive officer of USAA Investments, in a statement. "Exceptional service and lower-than-average total fund expenses have been a competitive advantage for USAA since its inception in 1970. For shareholders, this move adds access to some of the best investment management teams in the industry."

    "Performance in our equity mutual funds has been good to date, but USAA is a world-class company and fund performance should reflect that. We owe this to our members and shareholders," he said.

    USAA sponsors 39 mutual funds. The sub-advisory arrangements affect 12 retail equity funds, portions of three retail asset allocation funds, and four funds offered through variable insurance products sponsored by USAA Life Insurance Company. 

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