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Principal Funds Comes of Age


There are a few mutual fund companies that have been around for over a century-like Legg Mason or Old Mutual Asset Management. Principal Funds is another, launching its first fund in May 1939 and now offering several dozen products including target-date and target-risk, equity and fixed-income funds.

So how does a 134-year-old company cut it in the modern mutual fund era? Brand recognition certainly continues to pose a challenge for the company, even after making a splash in 2006 when it acquired Washington Mutual's mutual fund management arm WM Advisors (now Edge Asset Management) for $740 million. Just last year, the company made several expansions to its retirement business, banking on outcome-focused strategies to manage risk and generate retirement income for investors.

Now with $276.2 billion in assets under management, Principal has no plans on slowing down. National sales director Tim Hill spoke to Money Management Executive about what's next in 2013 for the mutual fund shop.

What was 2012 like for your firm?

We had a record year in 2012 for our fund distribution group. We expanded the Defined Contribution Investment Only and Registerd Investment Advisor team, creating a standalone RIA channel there. The national broker-dealer channel now has up to 50 wholesalers. It's been a path that we really laid out back in 2007. We had 37 wholesalers total at that point in time. So we've had good growth from a sales and wholesaler perspective.

How do you differentiate yourself from other mutual fund firms in the market?

Part of why we've been able to be successful with a relatively new brand name from a retail standpoint is focusing on the asset management, second on our asset allocation capabilities, and finally leadership around our 401(k) and related retirement businesses. Most competitors are asset managers first, but Principal was a bit of both, an asset manager and a 401(k) firm. The evolution of baby boomers had us starting down this path.

What we also bring to the table is we hire outside managers. We went out and acquired ownership interests in a number of asset managers that essentially operate as wholly owned subsidiaries or boutiques. We also have subadvisors.

If you think about our collection of hedge strategies-Global Diversified Income Strategy, Principal Preferred Securities and Principal MidCap Blend Fund-it's a veritable who's-who between them, and that resonates with advisors who build their portfolios with multiple managers. It's very attractive that we use 17 outside managers in total for the three strategies.

What's your approach to constructing and managing funds?

If you think about the three product strategy suites-Global Diversified Income, Diversified Real Asset and Global Multi-Strategy-what's unique there is instead of the more tactical approach that a lot of funds operate with, these are really meant to be core holdings focused on a particular outcome: income, volatility, and inflation.

For advisors, that's a strategy that really resonates with them because institutions like to think about how to invest so they don't get it wrong. Individuals like to think about how to invest so they get it right, which exposes them to risk.

What are your plans for growth in 2013?

One piece would be from a channel perspective, and where do we see growth. We've seen rapid expansion in the DCIO bank trust and RIA group. That team did not exist prior to 2007. We're now up to eight wholesalers in that group and seeing very rapid growth as the product strategies seem to resonate both from a retirement background and from creative product strategies that we've put together.

The second piece would be around what we're seeing in broker-dealer channels. Some are channelized between wired and independents. Some are all channelized. We want to channelize the Midwest marketplace.

What's your philosophy on approaching the DCIO space?

The benefit inside a DCIO or 401(k) platform is they're generally trying to simplify the lineups. The idea around investing for outcomes is really resonating with consultants and plan sponsors, because if you think of the types of investments that do well when inflation kicks in, that's why they're gravitating to these strategies that combine all those and focus on how to generate that outcome.

Can you elaborate on your expansions to distribution?

One of the things that the organization really brings to the marketplace for advisors is really the breadth of capabilities. We also have a very large presence in terms of working with advisors.

We're really convinced that the portfolio construction strategies are exactly what advisors are looking for, but there's a lack of awareness of Principal Funds. That's why we've boiled down to focusing on outcomes.

So no advertising?

Correct. We've seen continued positive movement in terms of brand awareness. It's probably best defined by the number of new advisors we have working with us versus six-plus years ago.

We've had significant expansion in terms of the number that are working with us. There's no better proof point than having those people refer us to other advisors. 2013 has had a very fast start for us and we expect that to continue going forward.

 


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