Rumors of Eli Broad’s retirement have proved premature. But he’s getting into the retirement business in a big way. The chairman, president, and CEO of insurance company SunAmerica has zeroed in on the annuities market, capitalizing on the desire of baby boomers to prepare for life after full-time employment.
Demographics portend continued growth and profitability for the Los Angeles-based company: Boomers in the 45-65 age group, already 45 million strong, will reach 61 million by the year 2001. What’s more, the overall annuity market is growing at 15 percent annually, and SunAmerica’s annuity sales are running a healthy $100 million a month. Riding the strong demand for retirement products and Broad’s knack for turning around underperforming acquisitions, SunAmerica posted net income of $91.5 million in the nine months ended June 30, up a crackling 78.7 percent from the year before.
“I think you’re going to have a massive shifting of wealth from one generation to another,” says Broad, citing
Broad, 60, has positioned SunAmerica to capture a portion of that windfall, partly by building the company through acquisitions. Assets owned or under management jumped from $7 billion in 1990 to $17 billion currently. Broad has a passion for picking up the assets of failing companies at fire sale prices and bringing in experienced portfolio managers to lift their performance. In the process, he’s gained a reputation as one of the toughest bargainers in the business.
Among his prizes are $550 million worth of variable annuities from financially troubled Capitol Life Insurance, acquired for just $16 million; $685 million of mutual funds for $19 million from bankrupt asset managers Equitec Financial Group; and another $4 billion in assets under management for only $95 million from Integrated Resources, the failed financial services company. Broad also has used bargain hunting to create a fund family separate from his annuity business. “We’re more a mutual fund company than an insurance company,” he says.
All told, the CEO has raised more than $800 million in spending money, prompting speculation that his shopping spree isn’t yet complete. “Now our challenge is to keep it from burning a hole in our pocket,” he quips.
That’s not the only difficulty he faces. Much of the current mutual fund boom, and growing annuity business, is being fueled by millions of individuals fleeing inadequate returns on CDs and money market funds. And there is mounting concern among professionals about how these investors, many of them first-timers, will react when markets turn sour. Any uptick in rates, now at 20-year lows, could depress prices and plug the investment spigot. At least for now, however, conditions appear to be favorable, with inflation expected to remain modest through 1994.
Broad is especially keen on variable annuities, a tax-deferred retirement product that allows investors to shift their money among several subaccounts, essentially stock and bond funds. These investments are looking even better, he says, in the wake of the Clinton Administration’s hike in the top stated tax rates to 36 percent and even 39.6 percent for those with taxable incomes above $250,000. Broad is touting his recent entry, Polaris, a variable annuity that offers savers a choice of 13 funds run by respected money managers such as
Broad grouses that an overaggressive business press seldom misses a chance to attack the high fees of annuities, giving the product a hum rap. According to Morningstar’s Variable Annuity/Life Performance Report, the average variable product carries a 2.01 percent annual charge, plus an additional $25 record and maintenance fee.
Broad’s ability to anticipate a demographic trend has paid off before. Just as the post-war housing boom was taking off, he co-founded home builder Kaufman & Broad in 1957 at age 23 and built it into a billion dollar company. Now, with SunAmerica, which he spun off from Kaufman & Broad’s insurance unit in 1989, he intends to repeat the success.
Even though Broad is busy building SunAmerica, he says, “I do not expect to be CEO five years from now when I turn 65.” But he vows the milestone won’t mean retirement. “Something always comes along quickly,” he says. “I like to have a vision, apply my entrepreneurial skills and whatever capital I can muster, and make something out of it.”