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Friday, May 20, 2011

Why Would Hartford Sell?

Reported by Neil Anderson, Managing Editor

Last week Bloomberg broke the news that the Hartford [see profile] is looking for a buyer for its mutual fund business [see The MFWire, 5/12/2011]. Yet why would the Connecticut-based insurer put its $104-billion AUM fund unit on the block for a reported price of $1.5 billion?

Hartford spokesman Dave Snowden declined to comment on the "rumors and speculation" surrounding the reported sale.

On the one hand, perhaps Hartford is simply looking to raise some capital. The insurer's variable annuity business was huge leading up to the financial crisis in 2008, and that market has soured somewhat since then. And last week The Street noted that some analysts attributed Hartford's hunger for capital to its business in Japan in the wake of the tsunami and nuclear disaster in March.

"Perhaps this is a sign," one industry insider wondered. "Perhaps they're testing the waters to see if valuations are really better."

Yet, while Hartford was one of many financial services firms that suffered through the financial crisis, the insurer repaid its TARP money a year ago. And during Hartford's last earnings call on May 3, CEO Liam McGee addressed the crisis in Japan.

"Even at the worst of the market's reaction to the crisis in Japan, our hedging programs performed well and as designed," McGee stated. "I'm pleased with the progress the team has made on developing a more comprehensive tail hedge for Japan We remain very confident that the risk in Japan is manageable."

Other insiders put the potential sale in a strategic context.

"They're probably trying to shore up their financials and refocus on their core business," one source told The MFWire, point to Hartford's substantial retirement, life insurance and auto insurance businesses, among others.

Perhaps this is the beginning of the "barbell-ing of the industry," in the words of one fundster. The broker-dealer industry continues to shift towards small firms and independents on the one side, and a shrinking set of giant wirehouses and regional B-Ds on the other. Did Hartford executives decide that their mutual fund business, sub-advised by Wellington and by Hartford Investment Management Company (which is separate from the fund business), is big but not big enough? 

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