(January 9, 2013) – Breaking news reports of Northwestern Mutual’s intention to sell its asset management and consulting subsidiary have become a nearly annual event.
“Northwestern Mutual Mulls Selling Russell Investments, Sources Say,” read one headline—in August, 2010. And likewise in February, 2012: “More Speculation about Northwestern Mutual Selling Russell Investments.”
According to industry insiders, this latest flare-up is only a continuation of the problems wrought by an ill-conceived buyout.
“It is a transaction that didn’t work,” said one asset management veteran. “There is no synergy at all. It has always been known that Russell would come back on the market.”
If Russell did sell in the near future—in its entirety to a single buyer—industry experts suggested that Northwestern might roughly break even on its investment. The insurer appraised its fair value holdings of Russell common stock at $1.5 billion as of the close of 2012, according to its most recent annual financial statements.
Northwestern owns 92.6% of the private firm.
By all accounts, Russell’s mature core businesses—investment consulting and asset management—are in healthy shape. Similarly, its 156-year-old parent company has earned top-notch financial strength ratings among insurers.
"Fitch’s ratings reflect Northwestern’s leading competitive position in the US individual life insurance market, extremely strong balance sheet fundamentals, and stable earnings profile,” wrote the agency, affirming its AAA grade in August 2013.
It remains unclear, however, to what extent either company has benefitted from joining forces.
“In the late 1990s, Frank Russell, in the fresh air of the Pacific Northwest, and with a restless and hard-driving chief executive in Mike Phillips, saw the future and adjusted accordingly,” aiCIO Founder Charlie Ruffel wrote in a December 2013 column, recounting the consultancy’s expansion into transition and overlay management, portfolio rebalancing, and the packaging of investment products, among other lucrative services.
“Mike Phillip’s Russell turns out to have been something of a singular creature in this regard: No other consulting firm has come even close to reinventing itself,” Ruffel argued. “Russell turned itself into a profit machine.”
The Milwaukee-based insurer purchased Frank Russell Company for an estimated $1.2 billion in 1999. At the time, Northwestern Mutual led the nation in life insurance sales, and its Tacoma-based acquisition was the world’s largest pension consultant.
Russell CEO Mike Phillips stayed on until 2004 despite the ownership change, and chaired its board until his retirement in 2008. Since Phillips stepped down, Russell has had four CEOs in nine years.
Craig Ueland (2004-2008) resigned unexpectedly in June of that year, although a spokeswoman at the time called it a mutual decision between him and the board. The months following brought public outcry over a proposed relocation to Seattle, fatal losses to its hedge fund program, and massive drawdowns in its money market funds. According to US Securities and Exchange Commission filings, Northwestern provided a $403 million capital backstop to prevent a single fund from breaking the buck.
Northwestern executive (and current CEO) John Schlifske stepped in after Ueland to head Russell during the hunt for a permanent replacement. However, Australian Andrew Doman’s tenure as CEO (2009-2011) lasted only slightly longer than the time spent searching for him. Russell looked internally for its next and current chief executive, 28-year firm veteran Len Brennan.
Reports of Northwestern shopping for a buyer for the division have popped up several times since Brennan took the helm. Neither he nor anyone else from Russell has spoken publically about the possibility.
However, when a spate of articles came out in 2010, Northwestern’s spokespeople were quoted saying that Russell Investments was not for sale. This time around, when reached by aiCIO, both organizations refused to remark either way.
“We don’t comment on rumors or speculation,” a Russell spokeswoman said.