Los Angeles-based mutual fund manager Capital Group Cos. is set to start building a 520,000-square-foot Irvine campus that’s been years in the making.
Capital Group, which operates the American Funds Group of about 30 mutual funds, plans to start work on a five-building complex in the Irvine Spectrum in September, according to spokesman Chuck Freadhoff.
The campus is set for 35 acres of land bought from The Irvine Company.
The project stands to be among the largest office developments,and among the biggest of any kind,in Orange County this year.
It could end up being second only to chipmaker Broadcom Corp.’s 700,000-square-foot campus set to break ground in Irvine’s University Research Park later this year.
Even so, the Capital Group project isn’t as big as first envisioned. Back in 2001, Capital Group was looking to buy 52 acres for a campus of about 1 million square feet.
Capital Group initially looked at Northern Sphere, a massive Irvine Co. development that calls for some 12,000 homes as well as businesses north of the former El Toro Marine base.
Then came a legal fight with an environmental group over Northern Sphere. That prompted Capital Group to work with the Irvine Co. on the current site in the Spectrum.
“We found we could accomplish what we needed to in another area without being involved in other issues,” Freadhoff said.
(The Northern Sphere lawsuit later was thrown out of court. Last year, the Irvine Co. started developing the first neighborhoods of the project.)
The first phase of Capital Group’s Irvine campus is set to be done in 2007. Along with the five buildings, plans call for three parking garages.
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Capital Group’s Brea office: 1,700 workers |
Capital Group has plans for an additional 80,000-square-foot building at the campus if needed, Freadhoff said.
San Francisco’s Hathaway Dinwiddie Construction Co. has been tapped to build the campus. Prominent New York architectural firm Pei Cobb Freed & Partners LLP is working on the project with Irvine-based LPA Inc.
The Irvine campus could employ as many as 3,000 people a few years after opening. Initially, Capital expects to employ 2,300 people at the site, according to Freadhoff.
About 1,700 jobs are expected to move from Capital Group’s Western service center in Brea, which takes calls from mutual fund shareholders and brokers.
The company expects to hire hundreds of people for the Irvine campus to fill new positions and to replace those who may opt not to drive to Irvine, Freadhoff said.
The company has no plans to shift its Los Angeles headquarters to Irvine, according to Freadhoff.
With $600 billion in funds under management, Capital Group’s American Funds is the third-largest mutual fund operator, behind FMR Corp.’s Fidelity Investments and Vanguard Group Inc.
Capital Group also manages money for retirement plans, corporations, governments and other institutional investors. In all, the company has about $900 billion in assets under management.
The company’s mutual fund arm gets investments by way of brokers at A.G. Edwards Inc., Citigroup Global Markets Holdings Inc. and other companies.
That’s led to a low profile for Capital, which doesn’t market directly to investors as do counterparts Fidelity or Janus Capital Group Inc.
Known for its clean reputation, Capital Group came under regulatory scrutiny last month when the National Association of Securities Dealers filed a complaint against it for trading commissions paid to brokerages.
The complaint alleges that Capital Group’s American Funds’ sales arm, American Funds Distributors Inc., violated an NASD rule by directing about $100 million in commissions to brokerage firms that were among the top 50 sellers of its funds from 2001 to 2003.
The 13-page NASD complaint claims American Funds directed the trading desk of its investment adviser, Capital Research, to execute trades and give commissions based on a list of brokerages that were top sellers of American Funds’ 29 mutual funds.
American Funds “directly or indirectly offered or promised brokerage commissions to other firms as a condition to the sale or distribution of shares of American Funds,” the NASD complaint states.
The practice of directed brokerage violates the “anti-reciprocal rule” which first became effective in 1973.
Industry experts say the rule rarely has been enforced and the practice is common.
“The industry practices are so ingrained that if a fund stopped paying a brokerage firm, the brokerages would stop selling those mutual funds,” said Edward A.H. Siedle, president of the Center for Investment Management Investigations, a unit of Benchmark Cos., which investigates abuses on behalf of pension funds.
“Billions of dollars that belong to investors are being siphoned out of their savings to assist money managers in building their business,” Siedle said.
Capital Group denies NASD’s charges.
“We’ve complied fully with the spirit and the letter of the rule,” Freadhoff said.
The Securities and Exchange Commission also is looking at Capital as part of a larger look at the mutual fund industry.
American Funds has gained investors in recent years as scandals beset rivals such as Janus and Putnam Investments.
Capital Group was started in 1931 by Jonathan Bell Lovelace, who cashed out his 10% stake in a Detroit brokerage firm a month before the 1929 stock market crash.
Today, the company is run by committee, with a rotating, non-executive chairman who holds the top title for just two years.
Kate Berry of the Los Angeles Business Journal contributed to this story.
