BB&T Corp. says it plans to expand its asset management operation deeper into the Southeast through both organic growth and strategic acquisitions.
Keith Karlawish, the president of BB&T Asset Management, said it has made three deals in the past two years that have broadened the northern portion of the unit’s footprint but that now he is looking southward.
“We are interested in getting deeper into the Southeast,” Mr. Karlawish said in an interview this week. “We want to go deeper if it is possible. Our footprint runs from Maryland through Florida, and our deals thus far have been for firms in the northern part of that range. We want to move deeper into Georgia and Florida.”
BB&T Asset Management is adding employees in those two states and will look to grow organically as it seeks more deals, Mr. Karlawish said. It had $16.3 billion of assets under management at Dec. 31.
Once he was named president of the Raleigh, N.C., asset management unit in May 2002, Mr. Karlawish closed the purchase of Virginia Investment Counselors Inc. in Norfolk. The investment advisory firm, which had $1.2 billion of client assets, managed assets for wealthy individuals and families.
In 2004, BB&T Asset Management bought de Garmo & Kelleher, a Washington investment advisory firm with $630 million under management. It catered to wealthy individuals and families mostly in Maryland, Virginia, and the District of Columbia.
Last February BB&T bought a 70% stake in Sterling Capital Management LLC in Charlotte. It had $8 billion of assets under management and provides investment management services to institutional clients and high-net-worth individuals.
Mr. Karlawish said these purchases are a template for BB&T Asset Management’s expansion strategy. It bought both Virginia Investment Counselors and de Garmo & Kelleher to heighten its local profile with high-net-worth investors. Both firms kept their names and operate independently as divisions of BB&T Asset Management.
“It makes sense for them to maintain their brand and their franchise and operate with the benefits of having a large-scale bank behind it,” he said. “They benefit from our size, and we benefit from their longstanding experience in that market.”
Sterling was kept as a sister company of BB&T. With a strong track record of managing fixed-income, small-cap value, and mid-cap value investments, it is now subadvising two BB&T mutual funds and a variable annuity product.
As his unit looks for advisers to fill out its footprint in the Deep South, Mr. Karlawish said, it also is also looking for institutional investment managers.
“That wouldn’t be such a geographically-bound search,” he said. “We want to find a firm with an expertise. We want to find firms that have the quality that Sterling offers us and are accretive to what we are already doing.”
Analysts said strategic opportunities exist for large asset managers to buy smaller investment advisers throughout the Southeast but that a bias exists against selling to a bank-owned company.
“Small investment managers enjoy their independence, and if they are going to sell, they want to partner with a larger firm that has that same type of culture,” said Burton Greenwald, an analyst at BJ Greenwald Associates in Philadelphia.
Mr. Karlawish agreed there is a bias against bank-owned asset managers but said he believes it is diminishing.
“We want to be known as a registered investment adviser,” he said. “Oftentimes, historically, there is the impression that bank-owned asset management companies are solely there to create and distribute proprietary products. We want to be a competitive asset management company. We want to be known as an asset manager that is focused on delivering differentiated products with consultative, localized sales forces delivering best-in-class products.”
BB&T has a family of proprietary mutual funds and annuities that account for $7 billion of its $16 billion under management. Mr. Karlawish said his company offers its proprietary product line as part of an open architecture approach.
“We offer funds from other fund companies and managed accounts from other managers,” he said. “We are an open architecture model.”
Since he became president, his unit’s assets under management have grown by 66.3%, from $9.8 billion in May 2002.
“BB&T has been and continues to be very public about its intention to expand this business,” Mr. Karlawish said. Organic growth in recent years has been relatively flat, he said, but should rise considerably in the next three to five years.
In addition to dealmaking, Mr. Karlawish said, his unit will look to broaden its approach from distribution through its own bank channel to distribution through institutional investors and consultants.
“We are working to establish relationships outside of the bank with consultants to engage that channel for sales opportunities,” he said. “We are aware that that takes a long lead time. … But we have competitive product, and we want to expand into new channels.”
