Kicking off a five-year mission to more than quadruple the size of its mutual fund family, Provident Bancorp. has signed an agreement to acquire a tiny fund company.
On Monday, the Cincinnati-based banking company announced plans to purchase Mathematical Investment Management. The Cleveland-based firm manages a mutual fund family with $55 million of assets spread across six portfolios.
Terms of the deal, which is to close in the third quarter, were not disclosed, but the price is believed to be about 2% of assets, or $1 million.
The deal marks Provident's first attempt at gaining new mutual fund assets through acquisition. If approved by shareholders, the acquisition would boost the Provident's Riverfront Funds family to $295 million and inch the bank closer to its goal of $2 billion by the end of the decade.
"Even if we sell $1 million a month of our own funds, that's not taking us very far," said Drew Kagan, president of Provident Securities and Investment Co. "We have to grow our assets and the most aggressive way to do that is buy a mutual fund family."
Provident's move is part of a growing trend among banks to acquire mutual fund companies - a faster way to increase assets under management than relying on a team of brokers to drum up new business.
Provident is hot on the acquisition trail for other fund families, including those owned by other banks, Mr. Kagan said. But mutual fund analysts characterized this particular transaction for the $5.5 billion- asset banking company as a dubious start.
Mr. Kagan said four of Mathematical's portfolios will be merged into existing portfolios in Provident's proprietary Riverfront Funds family.
A fifth will be merged into the company's MIM Stock Appreciation Fund, which will then go under the Riverfront moniker. That stock fund, with an unconventional stock-picking approach that has made it particularly volatile, now holds almost four-fifths of Mathematical's fund assets.
The MIM Funds use what is commonly referred to as a quantitative approach that relies on a predetermined mathematical formula to choose stocks, instead of traditional methods.
John Rekenthaler, publisher of Morningstar Mutual Funds, said that despite a strong showing four years ago, Mathematical's stock appreciation fund has dropped 10% last year, and underperformed 95% of all growth funds.
Some mutual fund analysts don't see Mathematical's investment approach appealing to traditionally conservative bank customers.
"I can't believe that the MIM Funds have the broad mass appeal of the typical equity shop," said Stephen A. Schoepke, a senior analyst at Moody's Investor Services, New York. He added that only sophisticated investors would be likely to buy the funds.
Mr. Kagan dismissed criticism, saying the funds' performance has picked up this year. To shore up investor confidence, Provident will keep the fund family's star portfolio manager, Martin Weisberg. Mr. Wesiberg, who took over the nine-year-old Stock Appreciation Fund a year ago, has raised the portfolio's total return 19% since he started.
