Aim Riding High on the Stock Fund Wave

Of the dozens of mutual fund companies that sell their wares through banks, Aim Management Group is suddenly the one to beat.

The Houston-based company is riding high thanks to a big shift in bank brokerage customers' investment style.

For years, bank customers exhibited a strong preference for bond funds - and that left Aim out in the cold. The majority of Aim's $41.8 billion fund business is in stock mutual funds.

But now that bank customers - like most fund investors - are embracing stock funds, Aim is reaping the benefits. Its sales through banks doubled in 1995, to $1.7 billion, with stock funds making up a whopping 82% of the total.

In the process, banks themselves have become stock-fund advocates, maintains Charles "Ted" Bauer, Aim's 76-year-old chairman, chief executive, and co-founder.

"Even banks have found out their customers are looking down the road to retirement," Mr. Bauer said in an interview in his small but elegant office. "And the only way those customers are going to get there is through appreciation of equity assets."

Rivals are taking notice of the company's progress. "We're all trying to keep up with Aim," said a sales executive at another fund company that focuses on banks.

And strong investment performance appears to be giving a big boost to a company that has long had something of an also-ran image. "They don't have anywhere near the name recognition of a Kemper or Putnam, but they are getting there," said Don Phillips, president of Morningstar Inc., the Chicago-based fund tracking firm.

To be sure, Aim's heavy emphasis on stock investing has its downside. Some fund watchers warn that the company's relationships with banks could sour if a widely anticipated downturn in the stock market materializes. One risk is that bank brokerages might downplay Aim's stock funds, particularly in more aggressive portfolios.

And the company's emphasis on the aggressive funds that dominate its product roster can be a tough sell at bank brokerages. Dime Bancorp, for instance, has entertained offers to sell Aim's products, but has consistently declined.

"It isn't like I've slammed the door and told them never to come back," said Edward Diamond, president of Dime Securities. "But we keep a fairly limited product menu, and until somewhat recently they haven't had as broad a portfolio as some of their competitors."

Mr. Bauer, however, is not worried about his firm's acceptance by banks. The company, he noted, counts such industry giants as Citicorp, Chemical Banking Corp., Chase Manhattan Corp., and NationsBank Corp. among its clients.

And what of the risk that bank brokerage clients, accustomed to more staid bond funds, will bolt if their stock funds lose money?

"I would guess the average bank customer has more fixed income investments" than stock investments, Mr. Bauer acknowledged. "But if he's been sold properly on long-term funds, he should not react that way." It helps somewhat, he added, that "banks haven't been selling our most aggressive funds."

So far, Mr. Bauer said, Aim seems to be doing just fine in keeping clients from jumping, even when the markets don't cooperate. He pointed out that Aim had a record week in the midst of a two-day plunge in stock market two weeks ago, drawing $325 million in total sales, 74% higher than the average week.

Still, Aim is leaving nothing to chance. The company is making a concerted effort to quiet possible fears among brokers.

For example, Aim is distributing a videotape to brokers that explains how its stock-picking strategy is changing. The video, which features senior portfolio manager Jonathan Schoolar, details how the company is increasing its weightings in international and large companies after much- heralded successes with small and medium-size companies' stocks.

One client - Richard "Skip" Blythe, president of Huntington Bancshares' brokerage - said he expects his brokers will stick by Aim in a market downturn, because the company's investment performance has been strong and its sales support is solid.

The man who has helped Aim build such loyalties is Michael C. Vessels, senior vice president for financial institutions.

Mr. Vessels heads a staff of 17 salespeople who focus exclusively on banks' retail brokerages. Banks - which accounted for 15% of the company's sales and 10% of its earnings last year - are one of Aim's four distribution channels, the others being nonbank brokerages, financial planners, and 401(k) plans.

Mr. Vessels' group captured 20 new "key accounts" last year, boosting its client roster to 75 and attracting the largest banking companies in the industry.

Mr. Bauer, the firm's patriarch, is clearly energized by the growth. He delights in overseeing a staff with an average age of 30; occasionally, he even pops over to a nearby watering hole for rum-and-Cokes with his young executives.

Mr. Bauer, who calls himself a "100-year-old upstart," co-founded the firm 19 years ago, after a career at American General Corp., a Houston- based insurance company. His partners were two American General portfolio managers, Bob Graham and Gary Crum. Ironically, Aim began as a fixed-income shop.

Over time, Aim added funds to its menu, and developed a reputation for high returns in its Constellation and Weingarten funds. The firm also has had "an affinity with banks for 15 years," promoting to them its institutional money market funds, Mr. Bauer said.

For all his dealings with banks, Mr. Bauer is far from convinced that they will be a major force in managing their own mutual funds.

"Banks have got purchasing power to do anything they want to," he said. "But do they have the corporate structure to build an investment management firm?"

He acknowledged that some banks with big ambitions for their mutual funds - like First Union Corp., which recently said it is aiming to build a $100 billion-asset fund family - might very well succeed.

But he maintained it is unlikely banks will ever be high-profile equity managers. "I'm saying they want to grow - but I'm not saying they're going to."

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