Mutual fund company T. Rowe Price Associates Inc. is stepping up its efforts to manage the portfolios of bank-run mutual funds.
The Baltimore-based fund company, which currently manages some of the funds of three regional banks, has launched an advertising campaign in trade publications.
In addition, fund company salespeople have held talks with 20 banks this year about its services.
Because T. Rowe Price sells its funds without sales charges, it has never attempted to promote itself to bank brokers. But the firm, which manages $71 billion in fund assets, sees an opportunity in selling its experience as an investment adviser to banks that need managers for their own funds.
Currently, T. Rowe Price is managing portfolios for KeyCorp, Commerce Bancshares, and H.F. Ahmanson & Co.
"Banks are expanding their mutual fund families into new asset classes that they don't have the resources to manage themselves," said Hannes van Wagenberg, vice president, T. Rowe Price's financial institutions division.
In particular, banks are adding aggressive growth and international stock and bond funds to their families, he said. But many banks simply can't afford the huge costs associated with running some funds, particularly international portfolios.
For instance, mutual fund company Scudder, Stevens & Clark - which is also increasing its efforts to manage bank-run portfolios - spent $10 million for the first nine months of last year to manage its own international fund.
The expenses included salaries for portfolio managers and their airfare to research various countries. Other expenses a bank has to consider are marketing the funds and hiring securities traders.
"We have the resources in place," said E. Michael Brown, who heads Scudder's financial institutions group. "We can manage Latin American equity money or specialized bond investment money," he said.
In return for providing investment advice, mutual fund companies like T. Rowe Price and Scudder receive as much as 70% of a fund's management fee.
The investment subadvisers, as they are called, limit their role to managing the portfolios, and sometimes help market them. Banks maintain control over the portfolios' pricing, costs, and board of directors.
But hiring someone else to manage a fund has one disadvantage. The bank doesn't control the fund's performance.
"If the quality of the fund deteriorates, that will impact the whole relationship a bank has with a customer," said Rolland Johannsen, president of Furash & Co., a Washington-based consulting firm.
T. Rowe Price and Scudder are among several firms competing for this business. Morgan Stanley & Co., Wellington Management Co., and even J.P. Morgan & Co. also perform investment advisory services for banks.
Competition among these firms has "picked up momentum" recently, Mr. Brown said.
