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TIAA-CREF Expands Mutual Fund Offerings

TIAA-CREF of New York, the $255 billion money manager, is taking steps to expand its new mutual fund business.

TIAA-CREF plans to offer seven institutional mutual funds for special state-sponsored college savings programs. The addition of the funds comes after California's state treasurer, Philip Angelides, announced April 10 that TIAA-CREF has been recommended to run a California tax-deferred college savings program which is expected to attract more than 200,000 participants. A special state board overseeing the savings program is expected to act on the TIAA-CREF nomination by this summer.

The world's largest pension system began managing a similar tax-deferred savings program for New York state in September. New York's College Savings Program already has accumulated $172 million in assets.

In addition to the state college savings programs, TIAA-CREF may offer its new institutional funds to clients of its trust business, a group the firm started in July to provide advice and estate planning services, TIAA-CREF said. The firm may add other classes of the institutional funds in the future.

The new funds "will give TIAA-CREF more flexibility to respond to future business opportunities for which institutional mutual funds, rather than TIAA-CREF's existing retail mutual funds, might be more appropriate," TIAA-CREF said in a statement.

TIAA-CREF filed a registration statement with the SEC on April 20 for the institutional funds. The company confirmed key points in the filing in a statement but declined to comment further about the institutional funds, citing federal securities laws limitations while the funds' registration statement is pending before the SEC.

The seven funds include an international equity, growth, growth and income, equity index, social choice, bond and money market fund. Each of the funds is similar to existing TIAA-CREF mutual funds or variable annuities.

TIAA-CREF, which stands for the Teachers Insurance & Annuity Association-College Retirement Equities Fund, serves approximately two million pension system participants. Historically, TIAA-CREF investors had been employees of education and research institutions who have purchased annuities and life insurance.

The company began offering retail mutual funds to its educational and research base in September, 1997 and expanded fund sales to the general public in February, 1998. TIAA-CREF mutual funds had nearly $1.4 billion in assets under management as of March 31, said Claire Sheahan, a spokesperson for TIAA-CREF.

TIAA-CREF's retail sales came after Congress repealed TIAA-CREF's tax exempt status, effective in 1998. Despite the loss of its tax exemption, TIAA-CREF has continued to keep expenses low, operating like a non-profit in the fees it charges.

"We view low expenses as a cornerstone," Sheahan said.

In that respect, TIAA-CREF resembles the Vanguard Group of Valley Forge, Pa., said Geoffrey Bobroff, a mutual fund company consultant in East Greenwich, R.I. Vanguard is a mutual company owned by its funds. It passes along the benefit of decreased expenses to investors. TIAA-CREF is taking much the same tack by keeping its expenses low, said Bobroff.

"In some regards, they're becoming Vanguard II," Bobroff said.

Industry executives have watched TIAA-CREF's moves closely because of its low-cost products, size and investor base. Executives have been curious to see if the firm can expand its distribution to become a force in the sale of retail funds.