A publicly traded insurer is preparing to exit the mutual fund business, with most of that business being taken over by another insurer's subadvised fund firm.

Edward Blake Moore, Jr. Touchstone Investments CEO

Today Blake Moore, president and CEO of Touchstone Investments [profile] (a subsidiary of Western & Southern Financial Group), and Kevin Hogan, executive vice president and CEO of AIG's life and retirement division, confirm that Cincinnati-based Touchstone has agreed to acquire the bulk of New York City-based AIG's retail mutual fund business. The rest of that AIG retail mutual fund business will be wound down.

AIG's retail mutual fund business included 18 funds managed by the life and retirement division's SunAmerica Asset Management, LLC (SAAMCo) unit, and those held $7.8 billion in AUM as of December. The Touchstone deal covers a dozen of those funds (with about $7.5 billion in combined AUM), eight of which will be merged into seven existing Touchstone funds and four of which will be transformed into a pair of new Touchstone funds, subadvised by Western & Southern's primary asset management arm, Fort Washington Investment Advisors, which had $69.4 billion in AUM as of December 31. The deal is expected to boost Touchstone's AUM by about a third to more than $30 billion, with 33 funds in total.

Meanwhile, the six AIG retail mutual funds not covered by the Touchstone deal will be wound down.

J.P. Morgan Securities LLC advised Touchstone and Western & Southern on the deal, and Piper Sandler advised AIG. On the legal side, K&L Gates LLP advised Touchstone and Western & South on the deal, while Willkie Farr & Gallagher LLP advised AIG. The deal, pricing and terms of which were not disclosed, is expected to close mid-year.

The Touchstone deal does not include AIG's fund management platform for its variable annuity business, which is staying with AIG Life and Retirement. And AIG's Hogan also clarified that the Touchstone deal is independent from a bigger strategic move still in the works at AIG.

"The decision to sell this business is not related to AIG's decision to separate the Life & Retirement business, rather we determined that it was no longer core to our offering," Hogan states.

As for the Touchstone deals, Hogan describes the AIG fund business as "a pioneer in rules-based investing," and he lauds Touchstone's "experienced management, strong distribution platform, scale and service."

"We are committed to providing a seamless transition for AIG funds' shareholders to our Touchstone funds," Touchstone's Moore states. "In addition to significantly increasing our assets under management, we will be offering two new funds that we believe will be important to investors and Touchstone going forward."

The biggest fund involved in the deal is the $4.769-billion AIG Focused Dividend Strategy Fund. It and the $37-million AIG Select Dividend Growth Fund will merge into the newly created, Fort Washington-powered Touchstone Dividend Equity Fund. The $378-million AIG Strategic Bond Fund and the $247-million AIG Flexible Credit Fund will merge into the newly created, Fort Washington-powered Touchstone Strategic Income Opportunities Fund.

In terms of merging into existing Touchstone funds: the $739-million AIG Focused Growth Fund will merge into the Touchstone Sands Capital Select Growth Fund; the $707-million AIG Focused Alpha Large-Cap Fund will merge into the Touchstone Large Cap Focused Fund; the $213-million AIG Multi-Asset Allocation Fund and the $123-million AIG Active Allocation Fund will merge into the Touchstone Balanced Fund; the $176-million AIG Strategic Value Fund will merge into the Touchstone Value Fund; the $150-million AIG Senior Floating Rate Fund will merge into the Touchstone Credit Opportunities Fund; the $130-million AIG U.S. Government Securities Fund will merge into the Touchstone Active Bond Fund; and the $56-million AIG International Dividend Strategy Fund will merge into the Touchstone International Equity Fund.

The six winding down AIG funds are: the AIG Commodity Strategy Fund, the AIG ESG Dividend Fund, the AIG Government Money Market Fund, the AIG Income Explorer Fund, the AIG Japan Fund, and the AIG Small-Cap Fund. 

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