OppenheimerFunds versus TIAA-CREF

The next few weeks will be nerve-racking for OppenheimerFunds Inc. and TIAA-CREF on the Section 529 college savings plan front. Oppenheimer last December seemingly won a hard-fought bidding battle for the right to manage Illinois’ $2.1 billion Bright Start College Savings Program and, perhaps prematurely, let the world know it.
But the award, conferred by departing State Treasurer Judy Baar Topinka, was contingent upon a review by newly elected State Treasurer Alex Giannoulia, and sure enough, after taking office last month, Mr. Giannoulia decided that he did in fact want to review the contract and bidding process. He proceeded to set up an independent-review board, and the two New York-based financial firms had to go back to Illinois to explain their proposals and provide more information to the treasurer and the board, although TIAA-CREF was no doubt much happier to make the trip than Oppenheimer.
Raquel “Rocky” Granahan, vice president and director of 529 plans for Oppenheimer, said that while she wasn’t surprised by the review, it was “more extensive” than she thought it would be. Nonetheless, she said, she “remains optimistic” that her firm will retain the contract for the Springfield-based 529 plan.
The “real and thorough review” by the state is nearing an end, according to Martin Noven, Illinois’ Chicago-based deputy treasurer, with a winner to be announced by the end of the month.

Custodial coupling
In Boston, they’re making love, not war. Two local firms said last week that they plan to join forces in the unglamorous but lucrative back-office custody business. State Street Corp. said that it planned to buy fast-growing Investors Financial Services Corp. for $4.5 billion in stock. Word of the deal follows on the heels of another planned merger of custody giants — The Bank of New York Co. Inc. and Pittsburgh-based Mellon Financial Corp., which was announced late last year.
Staid State Street, which has more than $14 billion in assets under custody, said that it was attracted by its neighbor’s expertise and market share in providing investment services to hedge funds and their institutional and ultra-affluent clientele — as well as by the fact that those services are provided for $2.2 trillion in assets.
Investment banker Elizabeth Nesvold of New York-based Cambridge International Partners Inc. called the deal “a super pickup by State Street.”

Trading places
Complaints by large mutual funds that major brokerage firms are abusing information about upcoming big trades has gotten the attention of the Securities and Exchange Commission.
The New York Times last week reported that the SEC sent out a request for data and trading information to determine if brokers are tipping off valued customers who then use the inside information to make a trade at another company, making the paper trail difficult to detect.
Lori Richards, the SEC’s compliance head, confirmed the report and told the paper that the agency is “looking into these allegations in a systematic way. It is fact finding, and too early for conclusions.”

Ways and means
Republicans and Democrats may disagree on just about everything, but both parties appear to be targeting the wealthy to make the newly unveiled budget numbers add up. Democrats want higher taxes, while Republicans and President Bush are looking at means-testing methods such as progressive indexing to bolster entitlement programs such as Medicare and Social Security.
In fact, Michael Franc, vice president of government relations for The Heritage Foundation, a conservative think tank in Washington, told the Financial Times, the new budget signals “a shift to applying [means testing] across the board for all entitlements.”
But Democrats remain skeptical, and Sen. Max Baucus, D.-Mont., chairman of the Senate Finance Committee, already has denounced the president’s Medicare proposals.

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