After spending a year building an alternative investment platform, BB&T Corp. of Winston-Salem, N.C., is set to begin marketing its broad array of products like hedge funds, private equity, and structured notes to clients.
The platform, which gathered $400 million in its first year, has been screening and selecting outside managers since its inception a year ago. Shawn Gibson, the director of alternative investments for BB&T Asset Management, the unit that oversees the platform, said customers are interested in such investments because they want better returns.
"We want to help our clients reach their investment goals," he said. "We have to remain competitive, too; that's a big part of it."
Burton Greenwald, a Philadelphia analyst with B.J. Greenwald Associates, said the $400 million that the platform has accumulated is a respectable total for its first year.
"It's reasonable progress," he said. "It certainly doesn't knock the socks off anybody."
Mr. Gibson said he expects the platform's assets to rise to around $600 million in the coming year. BB&T Asset Management has nearly $16 billion of assets under management, a modest size compared to brokerages and the largest bank programs.
Mr. Greenwald said the Raleigh unit has its work cut out for it to establish an image as a place for alternative investments like hedge funds.
"I think there is always a credibility challenge for a smaller institution to establish a reputation in the alternative field," he said.
But Mr. Gibson stressed that the unit is not competing for customers interested in just alternative investment products. BB&T's 35 portfolio managers use such products within a comprehensive investment strategy for their clients, he said.
And the offerings run the gamut from aggressive products like hedge funds to conservative ones like covered call writings, in which call options are written on the stock shares that an investor owns, he said. The open architecture alternative investment platform is available to individuals with at last $2 million and institutions with at least $5 million.
The burgeoning demand for alternative investments has several origins, chief among them the perception that such products could deliver market-beating returns reliably. That perception was dented last year as benchmarks like the Standard & Poor's 500 index rose sharply.
Still, some investors are turning to alternative investments to make up ground that was lost early this decade, Mr. Gibson said.
Many individuals and institutions had planned to earn annual returns of around 8% or 9% from balanced portfolios, but returns from conventional investment vehicles more likely will be in the range of 5% or 6%, he said.
On top of that, the bear market in the first three years of the millennium set many investors back and is forcing them to play catch-up, he said. "We have a real disconnect between what people need to earn to meet liabilities and what they feel they can earn on their assets."
BB&T's platform seeks to improve returns and reduce risk by offering multiple products, Mr. Gibson said. Those products include hedge funds, pooled private equity, commodity funds, private real estate, covered call writings, and structured notes, which are securities that are hybridized to enhance their risk-return profiles.
One challenge for Mr. Gibson and his colleagues is to convince investors that alternative investments are not synonymous with volatility and ruinous management fees.
"It takes a lot of education," he said. "The press generally isn't real favorable toward hedge funds and private equity, and some of that is justified, but some is not."
Furthermore, alternative investments are a heterogeneous world, he said; covered call writing, for instance, has been done for decades and is a far cry from hedge funds.
As far as hedge funds' well-documented high management fees, the ones that BB&T recommends must offset their fees through performance, Mr. Gibson said. "Every conversation we have is about everything being net of fees."
