U.S. pension giant TIAA-CREF, is buying asset manager Nuveen Investments in a deal that values the firm at approximately US$6.25 billion.

TIAA-CREF is acquiring Nuveen from an investor group led by Madison Dearborn Partners, a private equity firm, for an enterprise value of US$6.25 billion, including Nuveen’s outstanding debt. Nuveen will operate as a separate subsidiary within TIAA-CREF’s asset management business. Nuveen’s current leadership and investment team will remain in place.

The combined company will have almost US$800 billion in assets under management (AUM). Nuveen, a diversified investment management company, has approximately US$221 billion in AUM and TIAA-CREF boasts US$569 billion in assets. The boards at both firms have unanimously approved the transaction, which is expected to be complete by year-end, subject to customary closing conditions.

TIAA-CREF says that the acquisition further strengthens its position as a provider of retirement and financial services, expands its product and service offerings, and diversifies its investment and distribution platform.

“The acquisition of Nuveen can generate greater returns that will benefit our customers. This transaction reinforces our position as a leading diversified financial services organization with a broad mix of product offerings to serve clients today and those in retirement for decades to come,” said Roger Ferguson Jr., president and chief executive officer, TIAA-CREF.

However, credit rating agency Moody’s Investors Service placed TIAA’s credit ratings on review for downgrade, citing the size and scope of the acquisition, and questioning the strategy. “The acquisition of the much lower-rated asset manager Nuveen, given the substantial size of the transaction, combined with the likelihood of accompanying leverage, places downward pressure on TIAA’s credit profile,” it says.

Additionally, the rating agency notes that the planned acquisition of Nuveen is outside of the core higher-education pension business of TIAA, which is the foundation of its AAA rating. Such a large acquisition outside of its core business, if completed, may not be consistent with Moody’s expectations for TIAA’s rating, it says.

“The large size of the Nuveen transaction, combined with the likelihood of accompanying leverage, places downward pressure on TIAA,” says Moody’s senior vice president, Scott Robinson. “Specifically, the transaction increases the company’s exposure to intangibles, a lower quality asset, and will likely introduce incremental debt to the company’s capital structure.”

Moody’s adds that it views the execution of a relatively large transaction to acquire an asset management platform as an indication of pressure on the highly creditworthy, but slow growth, pension business.