Specialist Banks Dominate Top-Performer Rankings

The best performing bank-managed mutual funds come from institutions that feast on investment management-not from banks where the business is a side dish.

In a ranking compiled by CDA/Wiesenberger for American Banker, only a handful of companies with large retail banking operations had proprietary portfolios that ranked among the 10 top-performing bank-managed funds in several key categories.

The trend was most striking among bank-managed equity funds ranked by total returns for the five years through 1997.

The majority of these top performers were managed by banking companies such as U.S. Trust Corp., Glenmede Corp., and State Street Corp. that concentrate on money management for the rich and institutions. (See charts on page 17.)

"It helps when senior management understands the investment management business," said an executive at one of the leaders. Many banking companies cut fund managers' track records short, he said, by changing strategies after a merger or when performance lags.

A strong five-year track record is considered important for retaining clients and marketing to prospects. The findings suggest that banking companies with smaller or younger mutual fund complexes may have trouble competing.

"It's a numbers game," said Kenneth R. Hoffman, president of Optima Group Inc., an investment management consulting firm in Fairfield, Conn.

Banks with a heavy emphasis on investment management "have a large number of funds, so they are more likely to have one that is a top performer over a period of time."

New York-based U.S. Trust, for example, garners about 68% of its revenues from the investment management business, even though it is chartered as a bank in several states. Indeed, its executives prefer the label of "investment management firm" to "bank."

Its Excelsior Value and Restructuring A, the top-ranked equity fund in the five-year category, posted an average annualized total return of 27.2%, besting the Standard & Poor's 500 by 6.93 percentage points.

Another state-chartered banking company, Philadelphia-based Glenmede Trust Co.-which has two funds in the top 10 equity ranking-makes no loans. Glenmede concentrates on money management for wealthy people and institutions.

Union Bank of California, which had the No. 10-ranked equity fund in the five-year category, credited consistent management.

"We've had a very steady, consistent, excellent performance over time," said Greg Knopf, senior vice president in charge of the mutual fund unit at Union of California, a unit of Bank of Tokyo-Mitsubishi Ltd.

The investors of the fiduciary share class of Union's Highmark Value Momentum Fund are wealthy people and such institutions as pension plans and other 401(k) plans.

California has $80 million in the fund for a employee retirement program in which Highmark is the only bank-managed fund among 17 choices.

The fund was started in 1991, seeded by a conversion of an employee benefit common trust fund. Richard Ernest, who started the original common trust version, is still the fund's manager.

When it comes to bond funds, all of the top-performing taxable portfolios are affiliated with superregional banking companies or thrifts.

"Taxable bond funds is an area where we have tremendous depth and where we've been recognized repeatedly as one of the top taxable bond houses in the country," said Marco Hanig, managing director of First Chicago NBD Corp.'s Pegasus fund family.

The Pegasus taxable bond funds are managed by a team that was formed more than seven years ago at NBD Corp. in Detroit. The specialized team invests in securities backed by mortgages and other kinds of assets.

Three of the other top 10 funds are managed by Dreyfus Corp., a Mellon Bank Corp. subsidiary with a long history as a bond house.

For reprint and licensing requests for this article, click here.
MORE FROM AMERICAN BANKER