Despite strong variable annuity sales and better than average performance, TIAA-CREF's ability to continue adding assets at this pace has analysts split.
The company had variable annuity sales in the first quarter of nearly $3.5 billion, trailing only MetLife Inc.'s $3.7 billion, according to data from Limra International. In terms of total annuity sales, TIAA-CREF ranked third.
It had $375 billion of combined assets under management at June 30, and is the leading provider of retirement services in the academic, research, medical and cultural fields. Most of the assets are in retirement plans, but some analysts said it is gaining momentum with annuities.
Scott C. Evans, an executive vice president and head of asset management for TIAA-CREF, said the New York company thinks its long-term focus coupled with the experience of its investment professionals through multiple market cycles and a consistent approach to risk management boosted its variable annuity sales. "In this time of unprecedented market volatility, clients are gravitating toward strong and stable firms," he said. "As one of those firms, we are seeing new money come in the door."
Morningstar Inc. reported that 68% of TIAA-CREF's variable annuities and mutual funds exceeded their category median during a three-year period and 64% exceeded their category median during five years. Also, 96% of TIAA-CREF's funds and variable annuity accounts rated by Morningstar had grades of three, four or five stars.
Geoffrey Bobroff, an analyst at Bobroff Consulting Inc. in East Greenwich, R.I., said he is not sure TIAA-CREF or any other investment firm is having much success with variable annuities.
"I am not sure that investors will be happy with just beating the median," he said. "CREF sells exclusively to the K-12 and higher education [segments]. The business is no different than other 401(k) program[s]. The asset decline that CREF has experienced is in line with [an industrywide decline in] other variable annuity products, so I am not sure that they have anything to crow about."
Hilary Fazzone, an analyst who covers some TIAA-CREF equity funds for Morningstar, said the company has done well with its variable annuities because the underlying funds are overseen by capable managers supported by a deep research bench.
She said in the TIAA-CREF funds she covers a common thread has been that the managers have proven capable in a variety of market conditions. "That is certainly something that would benefit the firm going forward, assuming that the firm is able to retain its talented managers and assuming that they continue to execute their strategies as successfully as they have done in the past," she said.
Evans said TIAA-CREF remains committed to offering investors competitively priced funds to help build portfolios that will support achieving long-term goals.
"Our experience shows that markets recover over time, and while we can't say when, equities remain an important way to help keep pace with inflation over the long term," he said. "In fact, this is reflected in the glide path of our life-cycle funds, which at retirement hold 50% equities, shifting down to 40% equities in the 10 years after the target date."
TIAA-CREF is expanding distribution to offer funds on platforms that are complementary to its core retirement plan business, Evans said, including those at banks, trust companies and insurance firms and on a subadviser basis or as part of variable annuities.
By offering a broader array of products through more channels, TIAA-CREF is increasing its assets under management, Evans said. Last year, 245,000 people moved their money to the firm, he said.
Phillip R. Silitschanu, a senior analyst for Boston's Aite Group, said variable annuities usually perform fairly well in down markets because they are, by their nature, conservatively managed.
"Very often in good markets, variable annuities will seem to perform quite poorly vis-a-vis their peers simply because they seek to provide stable and steady alpha," he said. "While the markets may be up 10% in a year, variable annuities will plod along with their steady return. When markets are down 10% in a year or more, variable annuities will still be ahead of the game because they are one of the few funds out there not in negative territory."
Silitschanu said TIAA-CREF's conservative approach, has benefited the company in the current market.
Ken McCarthy is a freelance writer in Pittsburgh.
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