Union Bank of S.F. Aims to Play in Fund Big Leagues

When the much-heralded wave of consolidations hits bank-managed mutual funds, Union Bank of San Francisco plans to be on the buying side.

Despite predictions that only the nation's biggest banks will be able to succeed as proprietary fund managers, the chief of Union Bank's mutual fund family says the $16.8 billion-asset bank can cut it.

"Let's face it, there will be consolidation," said , managing director of Union Bank's Stepstone Funds. "But we want to be in the business long- term."

To achieve that goal, Union Bank, which is 70% owned by Bank of Tokyo Ltd., has set out to emulate the big boys, such as its neighbors Wells Fargo & Co. and BankAmerica Corp.

For example, this month Union Bank launched an international equity fund, the 14th member of its $1.8 billion asset Stepstone Funds family.

"Initially we intend (the fund) to add a vital new dimension to well- diversified asset allocation accounts and employee benefit plans," Mr. Knopf said.

The bank is also trying to boost assets under management. Specifically, it is looking to buy either trust companies, mutual fund companies, or investment managers with assets of $500 million to $2 billion, though Mr. Knopf said it would go as high as $5 billion of assets. Such companies typically command in the range of 3% of assets, suggesting a price range of $15 million to $150 million.

"We have a mandate within the bank to acquire other companies," Mr. Knopf said in an interview at American Banker's offices this month. "We haven't seen a lot available in that price range," he said, "but that may change."

Consultants say Union should raise its sights. If it wants to be a major player in the proprietary fund arena, the way to do it is through acquisitions, said Eli Neusner, a consultant with Cerulli Associates, Boston. An acquisition with about $2 billion in assets is too small for Union's needs, he said, because "it still leaves them out of the top 30" mutual fund managers.

Fortunately, Mr. Knopf said, Union can afford to buy mutual fund assets. Though the bank's own pockets aren't deep compared with those of BankAmerica and Wells, Union Bank's rich parent has assets of $272 billion.

Bank of Tokyo's backing can also come in handy in other areas, Mr. Knopf said. For example, the Japanese bank can market Union's 401(k) retirement savings plan nationwide.

"Unless you have some kind of strategic alliance (like this), it's tough" to market retirement plan services nationally, Mr. Knopf said.

The bank already has some large 401(k) clients, such as Nissan Motors. This year, Mr. Knopf said, Union will make a hard push to sell 401(k) services to large companies and smaller ones with 100 to 200 employees. Once companies land a 401(k) account, "it naturally grows," he said.

Union is also trying to sell its Stepstone Funds through other financial institutions, an effort of the sort usually made only by banking giants. After getting the National Association of Federal Credit Unions' blessing to sell its funds to the trade group's members, the bank hired a "wholesaler" last fall that is responsible for marketing the Stepstone Funds to credit unions.

In Union Bank's 206 branches, its brokerage unit sells both the Stepstone Funds and products from Putnam Investments, Franklin Resources Inc., and Van Kampen/American Capital Inc.

Mr. Knopf acknowledges that "it's often hard to compete in your branches with well-established funds." Right now, the Stepstone Funds only account for 15% of the bank's mutual fund sales, but Mr. Knopf said the goal is to boost that share to 20% to 30%.

This year, the bank is shooting to sell $300 million worth of mutual funds - the same as 1994's goal. Because shaky stock and bond markets were shaky, Union sold only about half that much last year. Still, Mr. Knopf said, redemptions were "light" and the brokerage group had "a positive year."

Mr. Knopf is optimistic.

"Obviously, we need to grow our assets, because we have some funds that are still unprofitable," he said. But in the long run, he said, Union Bank will make it as a mutual fund manager.

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