Banc One Corp. is pushing into the booming field of high-yield bond investments by teaming up with a Cincinnati boutique.
The Columbus, Ohio, banking company said this week that it will form a partnership with Pacholder Associates Inc. that will offer high-yield investments, including a proprietary mutual fund, to institutional clients.
Pacholder, which manages about $750 million for pension funds, insurance companies, and other financial institutions, will subadvise the planned fund, the One Group High Yield Bond Fund.
Banc One will hold a majority stake in the partnership, named Banc One High Yield Partners, and buy a minority interest in a new entity, Pacholder & Company LLC.
Executives of Banc One and Pacholder said they are joining forces to compete more effectively for institutional clients seeking a range of investment strategies. The high-yield investments will not be marketed as stand-alone products, they added.
"We're not the type of organization that chases the fund of the day," said Gary J. Madich, senior managing director of fixed-income at Banc One Investment Advisors.
"This decision to enter an alternative asset class is really centered around our belief that asset allocation is the true way to manage money, whether for institutional or retail clients," he added.
Because Pacholder specializes in high-yield investments, it has found itself unable to get institutional accounts that want several fixed-income products from the same investment manager, said its president, William J. Morgan.
"Many people have gone to a 'core-plus' strategy, where they want somebody to manage all fixed-income needs," he said. "We just do not have an opportunity to get involved in searches for a core-plus strategy."
Only four U.S. banking companies have proprietary mutual funds that invest mostly in corporate high-yield bonds: First Union Corp., First Chicago NBD Corp., Fleet Financial Group Inc., and Mellon Bank Corp. First Union, Fleet, and Mellon entered the field by acquiring mutual fund companies.
First Chicago, which is to merge with Banc One in the fourth quarter, last July created its Pegasus High Yield Bond Fund, which is subadvised by Federated Investment Counseling.
The fund manages about $60.2 million of assets, primarily for institutional clients.
Mr. Madich said it is too early to say what will happen with the One Group and Pegasus high-yield bond funds when the companies' proprietary fund families are consolidated.
High-yield bond funds are experiencing tremendous investor demand.
About $7.9 billion of net new cash flowed into the 115 U.S. high-yield bond portfolios this year through April 30, compared with $3.3 billion a year earlier, according to Financial Research Corp., Boston.
The portfolios have generally done well because corporate issuers are holding up well in the strong economy.
The funds "have sold pretty well recently because they are entering great returns," said Eli Neusner, a senior consultant of Spectrem Group, San Francisco.