After a false start in the retail mutual fund business, Bankers Trust New York Corp., the quintessential corporate bank, is now claiming success.
Its proprietary portfolios, the BT Funds, have seen their assets swell 38%, to $13 billion, during the 12 months ended March 31. The average bank- managed mutual fund complex grew only 22% during this period, according to Lipper Analytical Services, Princeton, N.J.
Executives at Bankers Trust attributed the growth to a decision last fall to distribute its retail funds through no-transaction-fee "fund marts" like the ones at Charles Schwab & Co. and Fidelity.
The move was an about-face of sorts. When the banking company entered the retail fund market in March 1996, its BT Advisor funds carried a "load"-an up-front fee to cover sales commissions. Bankers Trust planned to sell the portfolios through broker-dealers and other traditional retail sales channels.
But a few months later, it determined that the strategy was too expensive, said Virginia Sirusas, managing director in charge of mutual funds. It gave investors in BT Advisor funds the option of converting their shares to the no-load BT Funds or of cashing them in.
"We want to do what we know how to do best, which is manage money," said Ms. Sirusas. "We don't have strong distribution channels and decided we didn't want to build that."
Instead, the bank is taking advantage of companies with well-established distribution channels like Schwab and Fidelity.
The BT Funds are now sold by eight no-transaction-fee companies and are part of 14 "wrap-fee" programs. They are also hawked by regional banks that put their own names on them, Ms. Sirusas said.
This summer BT also plans to roll out funds created specifically for variable annuities to extend its reach to the retail market.
The 14 BT Funds have three share classes. The investment class, for retail investors, requires a minimum investment of $2,500; the institutional class has three minimums-$10 million, $50 million, or $100 million. The new insurance class is designed to wrap the BT Funds into variable annuity products.
Insurance companies and their large sales forces are ideal vehicles for selling mutual funds, Ms. Sirusas said.
Several insurance companies have signed up to offer the five new BT Insurance Trusts through variable annuities, she said.
These mutual funds, which will have relatively low expense ratios, will begin gathering assets in July, Ms. Sirusas said.
The variable annuity market is already crowded, and offering the funds with low expenses might be the only way to break in, said David Shapiro, a variable annuity consultant in Los Gatos, Calif. Yet variable annuities are such hot products that the market is worth trying to crack, he said.
"If you're coming into the market with 'me too'-type products, it will be difficult to break in," Mr. Shapiro said. With expenses as high as 300 basis points, or 3% of assets for some esoteric products, a fund with low expenses could succeed, he said.