Natixis Accused of Self-Dealing in New Lawsuit

The lawsuit alleges that a preference for proprietary investments led to excessive fees and the continuation of underperforming investments in Natixis’ plan lineup.

A lawsuit has been filed against Natixis Investment Managers and its retirement committee, claiming they breached their fiduciary duties and engaged in unlawful self-dealing with respect to the company’s 401(k) Savings and Retirement Plan, in violation of the Employee Retirement Income Security Act (ERISA).

The complaint says the defendants failed to administer the plan in the best interest of participants and failed to employ a prudent process for managing the plan. Instead, it says, the defendants have managed the plan in a manner that benefits Natixis, the majority owner of several boutique mutual fund companies such as Oakmark, Vaughan Nelson, Loomis Sayles and AEW, at the participants’ expense. The plaintiff claims Natixis used the plan as an opportunity to promote its mutual fund business and maximize profits.

For more stories like this, sign up for the PLANSPONSOR NEWSDash daily newsletter.

“The favoritism shown to Natixis’s proprietary investments is evident through a simple comparison to other similarly sized retirement plans,” the complaint says. “Of the 3,618 defined contribution [DC] plans with at least $250 million in assets that are not affiliated with Natixis, 83% do not own a single Natixis-affiliated mutual fund. Among the 17% of plans that offer one or more investments affiliated with Natixis, Natixis Funds make up only 3% of their plan’s assets (and 0.1% of the total assets in defined contribution plans), with no plan putting over 14% of its assets in such a fund.” However, the complaint points out that Natixis’ own plan has more than 58% of its assets in Natixis funds.

The lawsuit claims that the proclivity for proprietary mutual funds has cost plan participants millions of dollars in excess fees. “For plans with $250 million to $500 million in assets, like the plan, the average asset-weighted total plan cost is 0.43%. In contrast, the plan’s total costs were roughly 50% higher, ranging from 0.60% to 0.66% throughout the statutory period,” it says.

The complaint contends the “excessive fees are entirely due to its concentration of proprietary funds, which, on average, cost seven times more than the plan’s nonproprietary options and accounted for 90% of the plan’s expenses.”

The defendants’ alleged favoritism toward Natixis funds is attributed to the retention of overpriced funds, as well as the retention of underperforming proprietary funds, according to the lawsuit. “Since 2016, Natixis has experienced over $15 billion in outflows from its suite of affiliated mutual funds. These substantial outflows are the result of prolonged underperformance across many of Natixis’ offerings, including those included in the plan. For example, the Oakmark Investor Fund and Oakmark Select Investor Fund, two of the plan’s largest proprietary holdings, trailed their self-selected benchmark (the S&P 500 index) by 2.82% and 7.99% per year over the five-year period ending 2020. While this severe underperformance has driven the marketplace to look elsewhere, defendants have retained these and other underperforming funds to stave off the consequences of an otherwise declining asset base,” the complaint states.

In addition, the lawsuit says the defendants’ preference for proprietary investments has harmed participants through the selection of new funds for the plan. “Despite losing favor both among similarly sized defined contribution plans and the general marketplace, defendants added two Natixis funds to the plan during the statutory period. A prudent and loyal review of the marketplace would have revealed multiple superior, lower cost investment options, and would not have led to the addition of these funds to the plan. Defendants selected these funds for the plan to allow Natixis to stem the consequences of further depletion of fund assets and advance defendants’ business interests,” the lawsuit says.

The suit asserts claims for breaches of the fiduciary duties of loyalty and prudence, as well as a claim for failure to monitor fiduciaries.

In a statement to PLANSPONSOR, Natixis said, “We believe the lawsuit is entirely without merit, and Natixis will defend itself vigorously against the claims. Our retirement savings plan offers employees a diverse lineup of investment options, which are rigorously reviewed to ensure reasonable fees and solid investment returns.”

Two Private Equity Firms Will Purchase Wells Fargo Asset Management

The deal means that GTCR and Reverence Capital will also acquire Wells Fargo Bank’s North American-based business of serving as trustee to its collective investment trusts (CITs) and all related WFAM legal entities.

News emerged Tuesday that the private equity (PE) firms GTCR and Reverence Capital Partners will acquire Wells Fargo Asset Management (WFAM) in a multifaceted deal valued at $2.1 billion. 

Technically speaking, GTCR and Reverence Capital have signed a definitive agreement to acquire Wells Fargo Asset Management from the broader Wells Fargo & Co. business. The deal means that GTCR and Reverence Capital will also acquire Wells Fargo Bank’s North American-based business of serving as trustee to its collective investment trusts (CITs) and all related WFAM legal entities.

For more stories like this, sign up for the PLANSPONSOR NEWSDash daily newsletter.

According to announcements by the PE firms and Wells Fargo & Co., the transaction is expected to close in the second half of this year, subject to customary closing conditions. As part of the transaction, Wells Fargo & Co. will own a 9.9% equity interest and will continue to serve as “an important client and distribution partner.”

For its part, GTCR is a private equity firm mainly focused on leveraged buyouts, leveraged recapitalizations, growth capital and roll-up transactions. Since 1980, GTCR has invested more than $15 billion in over 200 companies. On its website, Reverence Capital Partners says its focus is on “a broad spectrum of middle-market financial services companies.” Its current portfolio already includes Russell Investments and Advisor Group.

According to various statements issued by the parties in this latest deal, Nico Marais, WFAM’s CEO since June 2019, will remain in his position. He and his leadership team will continue to oversee the daily business operations, while Joseph Sullivan, former chairman and CEO of Legg Mason, will be appointed as executive chairman of the board of the new company operating under GTCR and Reverence Capital.

Marais adds that, following the transaction, the WFAM business “will be even better positioned to execute our strategy and provide our clients with innovative products and solutions to help them reach their investment goals.”

While different in many of its most salient details, news of this transaction calls to mind last year’s acquisition of Legg Mason by Franklin Templeton, as well as the largest financial services M&A transaction of 2018—Invesco’s acquisition of OppenheimerFunds from MassMutual, which clocked in as a $5.7 billion stock deal. Important to note, MassMutual did not exit the asset management space. Instead, it became the largest shareholder in a firm managing more than $1 trillion.

As PLANSPONSOR has reported, asset manager and recordkeeper merger and acquisition (M&A) activity will very likely remain an important industry trend for plan fiduciaries to track. Though there are potentially some extra hurdles for plan sponsors coming out of these deals—such as the need to conduct extra due diligence or to enact a request for information (RFI) process—there is also an opportunity to secure better services and software, or even better fees.

«