BB&T’s Mutual Fund Arm Sees An Opportunity to Bounce Back

BB&T Corp. is hoping some well-performing mutual funds can help its fund family recoup the assets it lost in the past year.

"Our performance has given us a leg up on our competitors, small as well as large," said Tony DeLucia, director of distribution at BB&T Asset Management, which had $2.2 billion of long-term mutual fund assets under management as of March 31.

Classes of two BB&T funds recently received Lipper Fund Awards. The Virginia Intermediate Tax-Free Fund's institutional share class was honored for its performance in the three and five years that ended Dec. 31, beating out more than 120 rivals for each period. And the BB&T Equity Income Fund's B share class got the nod for its three-year performance, besting 229 other candidates.

Such accolades are opening doors as BB&T looks to increase third-party distribution of its funds, DeLucia said.

The goals are to increase assets under management in its funds by 20% this year and to double the asset level over the next three to five years, he said. "We're getting more at-bats than ever."

Institutions that previously would not consider BB&T funds are doing so, and several large organizations may add the funds to their product shelves, DeLucia said.

It does not hurt that the fund family outperformed in terms of average returns last year. The total average decline of BB&T's 22 long-term funds was 22.4%, compared with a 26.8% loss for similar funds from rivals, according to Morningstar Inc.

Still, according to Burton Greenwald of BJ Greenwald Associates in Philadelphia, the small asset size of BB&T's fund family will make it difficult for the Winston-Salem, N.C., company to make headway. "They've got a real challenge to successfully build that asset base," he said.

DeLucia said one hurdle is that the distribution budget is not growing, especially given his company's asset decline last year. BB&T's long-term fund assets fell 25.8% from a year earlier, to $2.3 billion as of Dec. 31, according to Morningstar.

Since fund management fees rise and fall with asset levels, the decline hurts "on lots of different levels," including distribution abilities, DeLucia said.

But advisory firms are re-evaluating their product offerings in the wake of the market crash, he said, and the way investment management selection is evolving could play in BB&T's favor. Much of the process is being pushed "from the broker level to the back-office level."

Banks, wire houses, registered investment advisers and other investment firms are increasingly relying on due diligence teams to screen and select funds to be made available to advisers on fee-based platforms, he said.

In the past large fund companies could increase distribution and marketing budgets or deploy huge wholesaling forces to raise assets, DeLucia said, but much of that has changed over the past three years. The new landscape "really gives organizations of our size the ability to play in a sandbox that we couldn't necessarily play in before."

Greenwald agreed that "gatekeepers" are more prevalent. But he said the large mutual fund companies, like Fidelity Investments or Putnam Investments, still can afford more sophisticated efforts to woo top producers.

"And then when they get on the platform, they have infrastructure that allows them to reach the individual producers as well," he said. "The small and medium-size players are always operating at a great disadvantage to the largest players, who can marshal more resources on the distribution end."

DeLucia said BB&T has proven that it can add distribution; it has signed 50 selling agreements within the past year and a half with a range of distributors.

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