In an increasingly competitive market for investor dollars, some banks are proving to be better asset gatherers than others.
At the end of 1999 the top 10 banking companies that manage mutual funds held a hefty 64% of the $1.128 trillion of fund assets managed by banks, according to data from Lipper Inc. In a fast-growing market, that was down just a trace from 65.2% a year earlier.
To be sure, almost every bank in the top 10 has bolstered fund assets in recent years through acquisition. Now that they have arrived, they plan on staying put.
"The big will only get bigger, because they've got the momentum," said Joseph Lohrer, co-head for sales of the Smith Barney Salomon Funds, one of four fund families under the mantle of Citigroup Inc.'s SSB Citi Management unit.
Mr. Lohrer is speaking from a comfortable spot. According to Lipper, New York-based Citigroup Inc. was comfortably ahead of the rest of the field, with some $139.27 billion under management in four fund families on Dec. 31.
But to make it as a bank-run fund company, you need more than just market momentum, said Sarah Jones, president of Chase Global Asset Management.
The banks that dominate the mutual fund business will continue to do so because they have the capital behind them, Ms. Jones said. The top five bank and thrift companies managing mutual fund assets were Citigroup, Mellon Financial Corp., First Union Corp., Bank of America Corp., and Bank One Corp. (For American Banker's yearend mutual fund roundup, see tables beginning on page 8.)
"They recognize that the mutual fund business is a scale business," Ms. Jones said. "You have to be of a certain size to compete effectively."
And though Chase Manhattan Group may not ready to go toe to toe with Citigroup's asset-gathering operation, it had a very respectable $50.2 billion under management on Dec. 31, according to Lipper.
Bigger banks "have made the commitment to distribution and marketing, and that will go a long way," said David Master, a managing director with the Fairfield, Conn., consulting company Optima Group.
"A small institution doesn't necessarily have those advantages."
Banking companies that manage mutual funds and their nonbank peers both face a number of hurdles, not least of which is increased competition in what some observers contend is a maturing market for mutual funds in the United States.
"It's really competitive, more so than it's ever been," said Salomon Smith Barney's Mr. Lohrer.
Bank-run funds hit a bump on the road to asset-gathering during the third quarter of 1999 - when net new cash flowing into all mutual funds slid - and experienced their first dip on record. The dip was small, at 0.8%, and assets grew by 10%, to finish the year up 21%, according to Lipper.
But there are ways around market hurdles, according to Chase's Ms. Jones, who said she is looking to leverage existing Chase relationships to help boost asset growth.
"We had a very good quarter for money market funds," Ms. Jones said. "We spent a good deal of time focusing on leveraging our relationships with corporate clients.
Acquisitions will certainly be a vehicle, Ms. Jones said. "It may come into play again, but prices are still pretty steep."
But money will continue to flow into mutual funds, said Lee Chase, marketing and internal distribution vice president for Wells Fargo & Co.'s $60 billion fund family.
"A number of factors are working in the industry's favor," Ms. Chase said.
The aging of the baby-boom generation will spur new investments, and the media's attention on saving for retirement "has made people very much aware of the benefits of investing," Ms. Chase said.
Assets should get a boost when the Social Security Administration begins notifying people what their retirement benefits will be. People are likely to put more money in mutual funds once they learn of any shortfall between what they'd like to have and what they stand to receive, Ms. Chase said.
For more information related to this article, see the following table in our Ranking the Banks section:
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