Nuveen Investments

Nuveen Investments

Nuveen Investments is a Chicago based private company in the asset management industry. Nuveen was founded in Chicago, Illinois in 1898 and was previously named The John Nuveen Co., after founder John Nuveen.

Nuveen started in the municipal bond underwriting business and remains active in municipal bond market. Nuveen sells services including separately managed accounts, retail mutual funds and close-end funds. As of June 30, 2008, Nuveen Investments had $152 billion in assets under management[1].

Nuveen has been highly criticized for its participation in the Auction Rate Securities Scandal, due to their refusal to return investor money when the Auction Rate Securities scheme collapsed. Details are given below.


Nuveen Investments History

Founded in 1898, Nuveen Investments began as John Nuveen & Company, when founder John Nuveen, Sr. created the firm as an investment banking company specializing in the underwriting and distribution of municipal bonds. Throughout the early part of the firm’s history, it built upon its expertise in the municipal bond sector to finance a number of public works across the United States and U.S. Territories, as well to develop new investment products.

Early Foundation:

  • 1898: John Nuveen, Sr. forms Nuveen
  • 1898: Underwrites first bond — a $7,000 issue of Bemidji, Minnesota waterworks bonds
  • Early 1900s: Nuveen pioneers the underwriting of bonds in the territories of Oklahoma, New Mexico, Arizona, Alaska and Puerto Rico.
  • 1922: John Nuveen, Jr. enters into partnership with his father.
  • 1928: Underwrites New Mexico highway debentures – one of the first ever revenue bonds
  • 1936: Works with Mississippi legislature to pioneer motor-fuel tax-revenue bond financing—one of the nation’s first revenue financings.
  • 1948: Nuveen plays leading role in U.S. post-World War II building and infrastructure development.
  • 1948: John Nuveen, Jr. helps administer the Marshall Plan in Europe.
  • 1950s: Nuveen is instrumental in the financing of the U.S. state highway system.
  • 1954: Underwrites $90 million in innovative equipment trust certificates to finance modernization of the Chicago transit system
  • 1961: Introduces municipal bond Unit Investment Trusts—the first tax-free packaged investment.
  • 1962: Pioneers tax-free unit investment trusts
  • 1969: Minneapolis-based Investors Diversified Service (IDS) buys Nuveen.
  • 1971: Nuveen underwrites the nation’s first insured municipal bond issue.
  • 1974: The St. Paul Companies buy Nuveen.
  • 1976: Introduces tax-free mutual funds.
  • 1986: Offers Municipal Bond Trust, the first open-end municipal fund with each issue individually insured.
  • 1987: Breaks the New York Stock Exchange’s IPO record, with $1.5 billion offering of the Nuveen Municipal Value Fund (NUV), the industry’s first investment-grade, municipal Closed-End Fund.
  • 1988: Sponsors and launches first leveraged exchange-traded closed-end municipal bond fund; issuing both common shares and MuniPreferred, a short-term cash management investment.
  • 1992: Becomes a publicly owned company, trading on the NYSE under the symbol JNC.

Growth and Change:

  • 1996: Nuveen acquires Dayton-based Flagship Resources, Inc., and merges its tax-free open-end funds with Nuveen’s family of funds.
  • 1996: Nuveen offers its first equity mutual funds in affiliation with Chicago-based Institutional Capital Corporation (ICAP).
  • 1997: Nuveen acquires growth equities manager, Rittenhouse Financial Services, Inc. which at the time managed approximately $10 billion in Separately Managed Accounts.
  • 1998: Nuveen celebrates its 100th birthday.
  • 1999: Nuveen sets new course when it sells municipal investment banking unit to U.S. Bancorp, and increases its focus on asset management.
  • 2001: Nuveen expands capabilities with acquisition of San Francisco-based, Symphony Asset Management, an institutional alternative investments money manager.
  • 2002: Acquires NWQ Investment Management, providing value equity management to investors.
  • 2005: Acquires Santa Barbara Asset Management, adding to the firm's growth equity capabilities.
  • 2006: Creates Tradewinds Global Investors, LLC—a spin-off of NWQ—to focus exclusively on international and global investing.
  • 2007: Acquires HydePark and Richards & Tierney, adding enhanced equity investment strategies options for institutional investors.
  • 2008: Nuveen Closed-End Fund complex sets out to refinance its $15 billion in Auction Rate Preferred Shares which froze amidst the global credit crunch and volatile market downturn of 2008.
  • 2008: Nuveen creates Variable-Rate Demand Preferred shares (VRDP) a new investment product that addresses the ARPS issue, and aids in the redemption of Nuveen closed-end fund investors’ ARPS.
  • 2008: Nuveen testifies before Congress on potential solutions to the ARPS crisis.
  • 2008: Acquires large cap growth equity manager, Winslow Capital.
  • 2010: Acquires FAF Advisors’ family of mutual funds, adding taxable fixed income, equity and specialty investment capabilities to Nuveen Investments’ Nuveen Asset Management affiliate.
  • 2011: As of June 30, 2011, Nuveen Investments managed $72 billion in Institutional Separate Accounts, $40 billion in more than 100 Mutual Funds, $45 billion across 133 Closed-End Funds, and $43 billion in Retail Managed Accounts.
  • 2011: Nuveen Closed-End Funds complete redemption of Auction Rate Preferred Shares.

The company is also known for a commercial it aired in 2000 during the Super Bowl which, through the aid of computer animation, featured the late Christopher Reeve "walking" along with several other sufferers of spinal paralysis.

Auction Rate Securities

Nuveen came under criticism during 2008 for its involvement in the Auction Rate Securities auction failures [4], during which investors' assets of $15 Billion became illiquid (many investors have no idea when or if they will ever receive their money).[5]. While the auction rate securities that Nuveen sells always exposed investors to the risks of not being able to sell at the time of their choosing or receive a particular guaranteed long-term yield, these risks were ignored by many. Some have argued that Nuveen did not adequately inform investors of the liquidity risk inherent in these securities, while others have suggested that investors in auction rate securities should have been more diligent or that the fault lies with broker-dealers who sold the securities to their clients without adequate risk disclosure.

Nuveen's exposure to ARS

Nuveen operates closed-end funds that sell two share classes in order to acquire capital for investment: auction-rate preferred shares that hold first claim on the underlying assets (most often municipal bonds) and pay income at rates set in weekly auctions, and common shares that typically pay higher income in exchange for greater risk of loss of principal. The preferred shares provide leverage for the common shareholders, much like debt provides leverage to common shareholders in a corporation. The two classes of shares trade differently: the common stock is NYSE-listed, initially priced at $15 per share, and free to trade at a premium or discount to NAV based on the buying and selling decisions of investors, while the preferred is not traded on a major exchange, initially priced at $25,000 per share, and set to always trade at par value in a broker-dealer network.

This system protects the preferred shareholders from daily price fluctuations, but it also limits liquidity - if no one wants to purchase the security at $25,000 or if broker-dealers fail to support the weekly auction of the shares, it can be impossible for holders to liquidate their position in a timely fashion. At the same time, there is little risk of permanent loss of principal because the shares were collateralized by assets worth at least 200% of their face value and had first claim on any income from those securities. Furthermore, in the event of an auction failure Nuveen is required to pay punitively high interest rates [6] to preferred shareholders that reduce or eliminate the yield advantage previously held by the common shareholders.

The collapse of ARS in 2008

The source of troubles for Nuveen and its investors was the collapse of the market for auction rate securities in February 2008, when broker-dealers such as UBS declined to continue to participate in dutch auctions that determined the rate of interest for the securities. Up to this point, brokers and issuers had propped up the auctions by acting as a bidder of last resort; without their participation the market quickly folded. Investors were left with "frozen" accounts that in the short term were worth less than expected since they could not be redeemed and the investment houses that created them refused to close them out or return the money. However, Nuveen has continued to pay required rates of interest on the shares [6] and maintain collateral to support them [7]. Common shareholders were also hurt, due to a decline in net interest income and the increased discounting of their shares in the market following fears that Nuveen would be unable to refinance or reauction the preferred shares at lower interest rates. As the above link shows, in late September many of Nuveen's funds were paying 11% interest in order to invest in municipal bonds paying 4% coupons. Since late September 2008, however, interest rates have declined in many instances to less than 50 basis points (0.5%). Common shareholders suffered worse than preferred shareholders in terms of principal losses, although common shareholders were able to sell their shares on the NYSE while preferred shareholders had no market in which to sell.

Legal action soon followed, though not against Nuveen. New York Attorney General Andrew M. Cuomo filed a multi-billion dollar securities fraud lawsuit against UBS, a major broker of auction rate securities on July 28, 2008.[8] Since the lawsuit was filed, Merrill Lynch, Citigroup, and UBS have agreed to repurchase $30 Billion of auction rate securities at face value from retail clients. [9] Following these interventions, Nuveen's auction-rate securities have reset to more affordable interest rates [10], indicating that market players are once more willing to hold the securities at their customary money-market-level or lower interest rates, at least for now.

Nonetheless, some investors have blamed Nuveen for deceptive marketing [11], although no enforcement action has been taken by the SEC or other authorities, in spite of Auction rate securities#The SEC Cease-and-Desist Order of 2006 serious sanctions handed out to other firms involved with auction-rate securities. In particular, Nuveen claimed that the preferred shares were short-term investments.[12] In fact they were not necessarily so, because they had no fixed maturity date date and the issuer has no obligation to immediately pay back money it has borrowed from the investor, who can only cash out by selling his investment to someone else.[4] The holder of an illiquid preferred share is essentially in the position of a creditor who cannot find a buyer for his debt - he or she continues to receive income and will receive his or her principal back in the event of a liquidation of the debtor, but in the short term his asset is not exchangeable for cash. This situation violated the expectation of many shareholders, built on the auction mechanism that Nuveen marketed.

Nuveen's Response

In response, Nuveen has posted a "Nuveen Auction Rate Preferred Resource Center" to inform its investors of its plans to borrow money to pay them back. Nevertheless, Nuveen has not yet identified any plans to pay back millions of dollars of investments. [13] Nuveen has since set refinancing for $2.7 Billion in taxable auction-rate preferred shares and has placed $500 Million of VRDP refinancing for its municipal auction rate preferred shares.[14][15]

On September 19, 2008, Nuveen Executive VP William Adams IV was asked to testify in front of the House Finance Committee, where he stated that "One hundred of our closed-end funds had more than $15 billion of auction rate preferred shares - or ARPS - at the time this market failed in February." Adams said that Nuveen had come up with a new financial instrument called Variable Rate Demand Preferred, or VRDP. He urged that further approval of this new type of stock would allow Nuveen to pay back investors who had lost access to their money invested in Nuveen's preferred shares.[16]

Nuveen continues to post limited information about the auction rate securities it sold. Some investors have accused Nuveen of manipulating the calculation of federally mandated asset ratios to prevent deleveraging the closed end funds by selling preferred shares. [17]


  1. ^
  2. ^ Announcement of private takeover
  3. ^ Forbes: Nuveen Agrees To $5.4B Buyout
  4. ^ a b New York Times: As Good as Cash, Until It's Not
  5. ^ Auction-rate securities a struggle for Nuveen Firm works to liquefy $15 billion worth of shares issued to boost fund yields
  6. ^ a b
  7. ^
  8. ^ WNBC: Cuomo files suite against UBS
  9. ^
  10. ^
  11. ^
  12. ^ Closed End fund - Preferred Share Basics - formerly posted on Nuveens site at the address
  13. ^
  14. ^
  15. ^
  16. ^ [1] Testimony of William Adams IV, Executive Vice President, Nuveen Investments, Inc. Before the Committee on Financial Services, U.S. House of Representatives
  17. ^

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