The John Nuveen Company
The John Nuveen Company
Incorporated: 1898 as John Nuveen & Co.
Sales: $232.3 million (1996)
Stock Exchanges: New York
SICs: 6211 Security Brokers & Dealers; 6726 Investment Offices, Not Elsewhere Classified; 6282 Investment Advice
A longtime operator in the investment industry, The John Nuveen Company concentrates on the sponsorship, marketing, and management of investment products, particularly municipal and corporate investment banking services. The company began business as an underwriter of municipal bonds before the turn of the 20th century, developing a solid presence in a market that became the primary source of capital for the public works projects undertaken by the country’s cities, counties, and states. Accordingly, John Nuveen figured prominently in the massive effort to build the nation’s infrastructure during the 20th century. At the beginning of the 1960s, John Nuveen augmented its core business by moving into the retail investment market with the introduction of unit investment trusts, which enabled the company to begin serving individual investors, rather than just institutional investors. The retail municipal bond market recorded explosive growth during the 1980s, propelled by the tax-exempt status accorded to municipal bond investments. By the late 1990s, more than 1.3 million individuals had invested more than $65 billion in John Nuveen funds and trusts.
Nuveen’s First 50 Years
During the 1890s, John Nuveen was on the road with great regularity. His job as a wholesale grocer required extensive travel throughout the Midwestern United States, giving Nuveen an intimate feel for the small rural towns and burgeoning urban centers dotting the Midwest. It was reportedly during these trips when Nuveen struck upon the idea for his namesake company and the service it would provide. Nuveen could sense the pressing need for capital: The larger population centers were developing rapidly; those areas not growing by leaps and bounds soon would, he believed. Capital was the indispensable ingredient in both scenarios, and Nuveen believed he could create a company to facilitate the infusion of money into urban and rural areas in dire need of cash. In 1898, Nuveen left the wholesale grocery business behind and started his own company, John Nuveen & Co., a municipal bond firm that would pioneer numerous innovations in the investment industry for the next century.
Based in Chicago, John Nuveen & Co. guaranteed its first municipal bond—a $7,000 issue—for a water system in Bemidji, Minnesota. After the turn of the century, the company continued underwriting municipal bonds for public projects, concentrating primarily on the lesser-developed regions in the country. John Nuveen & Co. pioneered the underwriting of bonds in the territories of Oklahoma, New Mexico, Arizona, and as far away as Alaska, as the company began to build the business foundation that would support it during the 20th century. The coming decades would witness sweeping changes in the municipal bond business that would create a lucrative environment for John Nuveen & Co., and no change was bigger than the promulgation of the 16th Amendment to the Constitution, ratified shortly after John Nuveen & Co. carved a niche for itself in the western territories of the United States. The Income Tax Amendment of 1913, which gave Congress the authority to collect income tax, gave municipal bonds tax-exempt status, an obvious boon for companies like John Nuveen & Co. In the wake of the 1913 Income Tax Amendment, John Nuveen & Co. broadened its underwriting business and narrowed the geographic focus of its business activities, earning distinction in particular for its work in California and Florida.
Although recognized as a major player in California and Florida, John Nuveen & Co. did not restrict its activities to those two states. Instead, the company continued to guarantee bonds across the nation, and along the way pioneered groundbreaking achievements in the investment industry. These milestones in the company’s history included the development of a Mississippi motor-fuel tax-revenue bond financing in 1936—one of the first revenue financings in the United States—and the guarantee of equipment trust certificates to finance a municipal transit system in Detroit in 1939. By the early 1940s, the company had begun underwriting tax-exempt hospital revenue bonds, a source of financing the health care industry began to rely on heavily during World War II and, increasingly, during the postwar years. John Nuveen & Co. also became involved in the utility industry during the 1940s, serving as managing underwriter for the first public utility electric revenue bond issues for a project in Washington State and underwriting the first electric revenue bond issue for the predecessor of the Nebraska Public Power District.
Following the war, a period of extensive, nationwide development occurred, as the economy grew robustly and the number of public projects proliferated. New buildings were erected, new transit systems made their debut, utility companies expanded, and the nation’s infrastructure was modernized, creating a fertile environment for John Nuveen & Co. Municipal bonds played a significant role in the development of the United States during the postwar years, with each major project requiring the assistance of underwriters such as John Nuveen & Co. Concurrent with the beginning of this great postwar push toward development, the company opened a New York office, opening its doors in 1948, and won the bid for underwriting bonds for the Ohio Turnpike. During the 1950s, John Nuveen & Co.’s role in the spate of public projects underway during the decade was highlighted by the company’s involvement in the utility industry. John Nuveen & Co. served as the managing underwriter for a series of financings of hydroelectric dams and generating facilities along the Columbia River.
1961: A Turning Point
By the 1960s, John Nuveen & Co. had been engaged as an underwriter and trader of municipal bonds for more than a half-century, developing during that time its core business. As the 1960s began, however, the staid persona of the company would be significantly altered, invigorated by the introduction of a novel product that represented a turning point in John Nuveen & Co.’s history. In 1961, the company pioneered Unit Investment Trusts (UITs), a fixed portfolio of municipal securities selected and purchased by John Nuveen & Co. and deposited in a trust. UITs were the first tax-free packaged investment products offered by the company, and their introduction marked John Nuveen & Co.’s entrance into the retail market. From the 1960s forward, UITs and other retail packaged investment products became an intrinsic facet of the company’s business.
John Nuveen & Co.’s involvement in packaged retail municipal bond products began to pay large dividends during the mid-1970s and early 1980s, when individual investors flocked to the tax-free benefits municipal bonds yielded, but before the retail municipal bond market took off the company underwent two ownership changes. In 1969 John Nuveen & Co. was acquired by Minneapolis-based Investors Diversified Services (IDS), which controlled the company for five years. In 1974, IDS sold John Nuveen & Co. to The St. Paul Companies, an insurance company. It was during the first years of St. Paul’s ownership that John Nuveen & Co. experienced a strong surge in financial growth as the municipal bond market became a haven for individual investors.
High inflation during the latter half of the 1970s pushed a large percentage of investors into a higher tax bracket, prompting many to seek relief from higher taxes through prudent investment. At the same time there were a number of new municipal bond issues, each with their much-coveted tax-exempt status. Accordingly, investors who suddenly found themselves in a higher tax bracket looked to municipal bonds as a way to invest and avoid paying taxes they otherwise would have to pay. If an individual invested his or her money into an instrument other than a municipal bond, close to 40 percent of the profit was taken by the Internal Revenue Service. Municipal bonds, on the other hand, were subject only to state income taxes. Moreover, state income taxes were not applicable if the issuer of the bond was located in the same state as the investor, making municipal bonds an attractive investment instrument for middle-class investors looking for the highest yield.
For John Nuveen & Co., high-inflationary times meant a considerable percentage of the U.S. population could entertain the thought of investing in municipal bonds. What had once been an investment option for the country’s wealthier investors was made a viable option for those occupying the lower strata of wealth, sparking a measurable swell in the magnitude of the municipal bond market and increasing the percentage of individual investors versus institutional investors. From the mid-1970s to the end of the 1980s, the municipal bond market began a dramatic transformation that made individual investors the primary purchasers of municipal bonds. Before soaring inflation delivered its repercussive effect on the municipal bond market, 80 percent of the market comprised institutional investors, with retail investors making up the balance. By the end of the 1980s, the composition was reversed, with retail investors purchasing 80 percent of the bonds issued and institutional investors purchasing 20 percent.
We are a strong company, proud of our history and determined to continue a solid record of success. We have creative and dedicated employees who understand our central purpose and who are committed to excel. Our record of accomplishment, the capabilities of our people and the quality of our relationships with investors and their financial advisors—these are the components of a strong and vibrant company. Together, they inspire us to pursue the wealth of opportunities the marketplace presents us.
John Nuveen, which had entered the retail market through UITs in 1961, stood well-positioned to reap the rewards of the massive influx of individual investors into its market. The company recorded impressive financial growth during the early 1980s, earning $32 million in 1982, or three times the record earnings figure recorded in 1981. The trend continued into the mid-1980s, when imminent tax changes aimed at eliminating many tax loopholes sparked a rush of new municipal offerings prior to the changes made in tax laws. When those changes arrived with the Tax Reform Act of 1986, the benefits of investing in municipal bonds were amplified by alterations that distinguished municipal bonds as the only tax-exempt investment option for a large percentage of the investing public. The transition from a predominantly institutional market to a retail market accelerated in the wake of the mid-1980s tax changes, further underscoring the worth of John Nuveen’s foray into the retail market two decades earlier.
Entering the 1990s, John Nuveen was flourishing as it never had before. The company was not only a pioneer in its field, but the most aggressive as well. Municipal bonds were the rage among investors, and John Nuveen was marketing offerings with an intensity unrivaled in its industry. Between 1987 and 1994, the company offered 82 new tax-free municipal funds—averaging one new fund per month during the seven-year period—and its financial totals rose strongly, eclipsing the rate of growth recorded by the industry as a whole. Between 1990 and 1992, the company’s assets more than doubled, leaping from $13.2 billion to $27.3 billion, by far outpacing the 25 percent growth rate averaged by its competitors. Although the number of new municipal bond issues offered by the company dropped off after 1994, John Nuveen remained steadfast to the general strategy it had been following for decades. Other companies of John Nuveen’s ilk were broadening their product lines and seeking to merge with competitors in an effort to become everything to everyone, but John Nuveen bucked this industrywide trend. “We’ve positioned ourselves as a niche provider of quality secured, tax-exempt income products,” a company official noted, and John Nuveen’s management displayed no intentions to become anything other than a company focused on tax-free investment products.
As John Nuveen entered the late 1990s and charted its course for a second century of business, immediate plans called for a renewed emphasis on marketing UITs. Three new UITs—The Nuveen-Standard & Poor’s Quality Equity Portfolio Trust, The Nuveen U.S. Treasury Trust, and Nuveen Insured Corporate Trust—were launched in 1997 as part of this strategy. Also in 1997, the company acquired a smaller Midwest rival named Flagship Resources Inc., which managed more than $4.2 billion in tax-exempt mutual funds and roughly $400 million in managed accounts for individual investors. Flagship was absorbed as a wholly owned subsidiary and renamed Nuveen Asset Management Inc. With this new component to its century-old business, John Nuveen moved forward, confident that its future involvement in tax-free investment products would be as lucrative as its past.
John Nuveen & Co. Incorporated.; Nuveen Advisory Corp.; Nuveen Institutional Advisory Corp.; Nuveen Asset Management Inc.
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—Jeffrey L. Covell