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The billion-dollar gamble vaulted Ameriprise into the mutual fund major leagues and went a long way toward redefining Ameriprise from insurance provider to asset manager.
But there's been a vexing struggle. Investors -- retail and institutional alike -- have been pulling more money from the coffers of Boston-based Columbia Management than they've been putting in for 11 straight quarters. On a yearly basis, Columbia has been in net outflows since 2006.
In fact, last year Columbia had larger total net outflows than almost any other fund manager in the country. Through the end of November, investors yanked a net $13.8 billion from Columbia's institutional and retail businesses. That put Columbia second from the bottom among long-term U.S. fund managers, according to data from Stifel, Nicolaus & Co.
Ameriprise executives say they're attacking the river of outflows on several fronts, but the withdrawals have industry analysts concerned. After all, heavy withdrawals can erode the asset base on which a company earns management fees.
Edward Shields, associate director at investment bank Sandler O'Neill, said he doesn't see Columbia's flow situation turning around until 2014.
"The fact that it's still ongoing is a little surprising," Shields said. "It certainly has factored into my hold rating on [Ameriprise]."
Columbia's outflows are coming from both its retail business in mutual funds and its institutional side, which invests in a range of assets, but not mutual funds, for clients such as foundations and corporations. A key driver on both sides, the company says, is the loss of business from Columbia's former parent companies, American Express and Bank of America. Ameriprise executives have repeatedly said they expected that migration out.
Outflows in 2012 were heaviest on the retail side. "I don't see any single issue that's the dominant factor in why they've been having outflows," said Morningstar senior fund analyst David Kathman. "They've just had a bunch of things not working out."
Columbia, which has about 150 mutual funds, is clearly suffering from the long-running shift in the mutual fund industry out of U.S. equity funds -- a segment Columbia has focused on -- as investors run to the safety of bonds -- which Columbia is lighter on.
The rest of the outflow problem Ameriprise chalks up to four events: losing New York's 529 College Savings Plan; losing funds that were options in Bank of America's 401(k) plan; the retirement of David Williams, who managed the Columbia Value and Restructuring Fund for years, and underperformance among the 17 funds managed by such subadvisers as Marsico Capital Management.
How much of the outflow has to do with performance isn't clear. The company insists that's not a driver, pointing out that 53 of the Columbia funds that Morningstar rates are four and five stars.
Analysts are less certain, but they don't disagree.
Performance overall has been "off and on," said Morningstar's Kathman. In the off bucket, for instance, is the Columbia Marsico 21st Century Fund. Returns at the fund, which Morningstar no longer actively follows, have lagged both the S&P 500 and its fund category by more than five percentage points for the five-year period, according to Morningstar.
Then there are such top performers as the five-star-rated Columbia Dividend Income Fund and Columbia Contrarian Core Fund. And Columbia's flagship Acorn Fund, its largest by assets, has been doing well.
By Ameriprise's own measures, using Lipper numbers, 62 percent of Columbia's funds were above the median for their peer groups for 12-month total returns at the end of September. That rises to 64 percent at the three-year mark and 72 at the five-year mark.
"That's decent," said Kathman. "It's not like they're totally blowing away the competition."
Despite investors yanking out money, Columbia still manages about $340 billion, off just 4 percent from $355 billion at the end of 2010, because investment gains have offset the outflows. Columbia remains the eighth-largest long-term mutual fund adviser.
A number of Columbia's equity funds have seen significant net inflows this year, said Avi Nachmany of Strategic Insight in New York, calling Columbia "a solid manager but in a weak segment."
Ameriprise CEO James Cracchiolo and Columbia executives have been assuring analysts they're tackling the problem head-on.
"Clearly, everyone here is focused on moving into net inflows," Columbia Management's senior vice president, Chris Thompson, said. "I feel very good about the core of the business. Investment performance is strong, more key decisionmakers in the industry are recommending Columbia products, and we're broadening our product lines to capture flows in key growth areas, such as multi-asset class and global."
In addition to repositioning some funds, Ameriprise has been broadening its lineup by adding more-popular products. It's expanding into the market for exchange-traded funds -- index-tracking mutual funds that trade like stocks -- albeit in the niche for actively traded ETFs. Last year it acquired Grail Advisors, a pioneer of actively managed exchange traded funds. It's still awaiting SEC approval to market 17 new actively managed exchange traded funds, which include 10 fixed-income funds.
It also plans to merge away another 15 Columbia mutual funds, including several that investors have been ditching.
Perhaps even more important, the company says, is getting Columbia's full range of funds out in front of more people. It's upping the advertising, and marketing more aggressively to what it calls "platform gatekeepers" -- key decision makers at the home offices of major distribution firms such as Wells Fargo and Merrill Lynch who create the recommended lists of funds.
Thompson said he's optimistic about 2013.
"The building blocks are in place."
Jennifer Bjorhus • 612-673-4683