Northwestern to buy huge pension consultant Price for Russell put at $1.2 billion


August 11, 1998|By BLOOMBERG NEWS

MILWAUKEE -- Northwestern Mutual Life Insurance Co. has agreed to acquire closely held Frank Russell Co., the world's biggest consultant to pension funds, giving its life insurance agents more investment products to sell.

Terms weren't disclosed. Analysts said the purchase price is about $1.2 billion.

Milwaukee-based Northwestern, owned by its policyholders, is the largest provider of individual life insurance and the fifth-biggest U.S. life insurer overall.

Russell advises institutions and individuals with more than $1 trillion in assets globally and compiles stock indexes such as the Russell 2,000, a benchmark for small companies. It also oversees about $42 billion in investment programs using mostly external money managers that Russell consultants find and monitor for their clients.

"This acquisition puts Northwestern in the investment management business instantly," said Phillip Maisano, chief executive of consultant Evaluation Associates Inc. in Norwalk, Conn.

Northwestern, which considered buying money-management firms in the past 15 to 20 years, had stopped short for a variety of reasons, said chief executive James Ericson, 63. Russell, by building a business around choosing the managers it uses, can deliver more consistently than can firms with investment styles that go in and out of favor, Ericson said.

The sale ends two generations of family and employee ownership at Tacoma, Wash.-based Russell, which is selling itself for estate planning reasons. Beyond the sale, Russell will continue as before, said Chairman George Russell, 65, and "will operate as a freestanding subsidiary of Northwestern Mutual."

Northwestern will pay cash for Russell and still have a "very strong surplus," Ericson said. The insurer, Ericson said, will initially provide Russell funds as "one of the pockets" in its variable life and variable annuity programs, which are insurance policies with investment products.

"Russell's the 800-pound gorilla of the pension consulting world," said Richard Lannamann, managing director at executive recruiter Russell Reynolds Associates in New York.

He said the company's strength has been in the traditional pension fund business, and the growth markets have been 401 (k) and other employee-directed investment programs and mutual funds.

Russell's money-management business contributes about 70 percent of its estimated $350 million in revenue this year, and generates a higher percentage in profits.

Some observers speculated that the only slightly profitable consulting arm wasn't viewed as an attractive business by potential buyers. Asset consulting, though, will continue to be the organization's "flagship" because it's the key to its businesses, said Russell Chief Executive Michael Phillips, 50.

The 62-year-old firm began its pension consulting business almost 30 years ago, and its influence as a consultant made it possible to expand its business in money management, analysts said.

Northwestern was formed in 1857 and has about $76 billion in assets and $13 billion in revenue.

Pub Date: 8/11/98

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