Joe Gudorf has some serious power at his fingertips. From his desk on the 27th floor of 801 Grand, he or any of his traders can instantaneously initiate a stock transaction on the other side of the globe with the touch of a button.

“I can route an order from here to Hong Kong, and it can get to Hong Kong before I can dial the number to tell them an order’s coming,” said Gudorf, who heads the six-person equities trading desk of Principal Global Investors LLC in Des Moines.

The speed at which Principal Global can conduct business, along with its growing depth of investment products, may be one of the reasons hundreds of institutional investors have chosen the Des Moines-based asset management company’s services in the past three years.

  A LONG-TERM VIEW

A wholly owned subsidiary of Principal Financial Group Inc., Principal Global now manages assets of eight of the 25 largest U.S. pension funds, among them the Iowa Public Employees’ Retirement System. Last year it was ranked the fifth-fastest-growing institutional money manager in the country. Principal Global now manages more than $143 billion, which includes about $100 billion in assets for Principal’s 401(k) and defined benefit plans, with the remainder third-party institutional assets.

For Jim McCaughan, who was named Principal Global’s chief executive officer just over two years ago, there’s a quiet confidence that his company is taking the actions it needs to become one of the top-tier U.S. asset managers.    “I think what we’ve managed to do in the last few years is to extend our asset management capability, but within the framework of a retirement business,” said McCaughan, who before joining Principal held top posts with Credit Suisse Asset Management Securities Inc. and Oppenheimer Capital.

“Principal’s main business is as a pension provider, and at Principal Global Investors our business is managing pension assets and retirement assets. Those assets are very important to their owners, so we manage them on a fundamental, risk-controlled basis. So it’s a long-term view.”

Three major acquisitions within the past three years have collectively given Principal Global a breadth of specialty offerings that it probably wouldn’t have reached on its own, McCaughan said. In turn, Principal’s sales muscle has significantly grown each of these operations within a short period of time.

In October 2001, Principal Global, then called Principal Capital Management LLC, purchased Spectrum Asset Management, a Connecticut-based firm specializing in preferred stock investments. Two years later, it acquired a 68 percent ownership stake in MW Post Advisory Group, which specializes in high-yield bonds, also known as junk bonds. And in October 2004, the company acquired a majority interest in Columbus Circle Investors, a Connecticut asset management firm specializing in growth equities.

“They’re all working very well, I’m glad to say,” McCaughan said. An example of the success can be found with Spectrum, whose assets under management have grown from $1 billion when it was acquired to $12 billion currently, making it the largest preferred securities manager in the United States.

With the ability to market both preferred securities and high-yield bonds to its clients, Principal Global is well positioned to meet the increasing demands from mutual funds and pension fund investors for those types of investments as the Baby Boomers move into their retirement years over the next two decades, McCaughan said.

At the same time, institutions are increasingly seeking out higher-yield assets, he said.

“One of our big public fund clients gave us a very interesting insight,” McCaughan said. “They’re a very big real estate client and they pointed out to us that real estate was about 7 percent of their assets, but 26 percent of their investment income. So real estate is very yield-biased. So they were thinking about how to bias their investments toward good-yielding assets because they could see the demographic shift happening.

“So I think the demand for yield assets is not just a defined contribution or an individual phenomenon, but something that will affect the defined benefit plans,” he said.

“So we’ve been deliberately trying to move in the direction of being a player in yield assets, because we think over time that will really help us to develop our retirement-based business.”

An example is Principal Global’s dedicated real estate group, Principal Real Estate Investors. With $28 billion of commercial real estate under management, primarily for retirement plans and other institutional clients, it’s now the fourth-largest real estate manager in the United States, based on tax-exempt assets.

INTERNATIONAL INSIGHT

Principal Global, which employs 940 people worldwide, has made a concerted effort to continually improve the research tools for its team of 380 analysts, in part by adding research and portfolio managers in London, Singapore, and Sydney.

“We believe that that has given us an advantage,” McCaughan said. “I’m a very firm believer that to be successful in investment management, one of the key things to do is to give people the tools they need to succeed, which is basically a good and thorough analysis of information. And I think the team here has built that quite well.”

Up until two years ago, Principal Global conducted all of its trading from Des Moines, but it has slowly been adding traders at its overseas offices, said Bob Baur, the company’s managing director and global head of trading.

“We started with one trader in London a little over two years ago,” said Baur, a former Madison County farmer who joined Principal’s trading desk more than 10 years ago after earning a doctorate in economics. “We added a second trader (in London) last fall. We put a trader in Singapore a little over a year ago and we’ll add a second at some point down the road.”

In the days when every trade was still executed out of Des Moines, Baur said, “we’d have someone come in early in the morning to trade on London hours, and someone stay well into the evening to trade Asia hours. But our philosophy now is, it’s much better for traders to trade in daylight. You’re much closer, the papers you see in the morning have the local news, and you know what’s going on there. And because of the electronics, it’s as though those offices were still here in Des Moines. That’s the beauty of the technology revolution that we’ve had.”

Generally, Principal Global is investing for two major groups: clients who are invested in retirement plans managed by Principal Financial Group, and institutional clients such as state retirement funds and insurance companies.

“In general, institutional clients who come to us are looking for one style (of investment),” Baur said. “For example, the IPERS mandate was for a specific style of fixed-income securities. Those clients will look at perhaps a dozen fund managers before deciding on a few finalists that would make presentation to the board of directors for a decision.”

In addition to the $1.1 billion it manages directly for IPERS, Principal Global’s M.W. Post subsidiary last year was selected by IPERS to manage $300 million in high-yield securities. Other significant additions to Principal Global’s client list in the past couple of years have included Meredith Corp.’s 401(k) retirement plan and the real estate property portfolio of the California State Teachers’ Retirement System.

Are more acquisitions in the future?

“I would think so; I would hope so,” McCaughan said. “I’m pretty happy with the range of capabilities that we have, but the capital markets are always changing and developing. I think my most likely areas for acquisition include some of the structured product areas, both in debt and real estate, and perhaps internationally to accelerate our skills in managing foreign source money. But we won’t force it unless we can find the right partner.”

McCaughan said he recognizes the importance of Principal Global maintaining control of its investment funds as the company’s growth accelerates.

“We are prepared to close some funds for a time or slow the growth of some of our investments if that’s what it takes to have control of the investments and keep the performance going,” he said. “For example, on our flagship property account, typically clients coming right now would have to wait maybe six months, because we need to make sure we can find good investments for all the others that want to come in. But I would think in a balanced business, with all the opportunity we’ve got, we can continue to be one of the fastest-growing asset managers in the U.S.

“What really matters is the clients you’ve got, not the clients you might have in the future. And the clients you’ve got deserve your best efforts and performance. That’s number one, really.”