Bankers Trust New York Corp. has launched a mutual fund family targeted to the fast-growing variable annuity market.
While Bankers Trust will manage the funds, insurance companies will market them as variable annuities, which provide tax-deferred returns to investors.
The arrangement is a coup for Bankers Trust, which is striving to increase its share of earnings from money management.
Traditionally, insurance companies that sell variable annuities contract with mutual fund companies-not banks-to provide the underlying investment vehicles.
"Insurers (usually) go for name recognition and a long-term track record," said Richard A. Ayotte, of American Brokerage Consultants in St. Petersburg, Fla. "While banks are beginning to be in the (mutual fund) business long enough to have those kinds of things, not many do."
But bank mutual funds have generally performed well, and it makes sense for Bankers Trust to go after the annuity market, said Mr. Ayotte.
"They work through institutional clients," he said. "They understand distribution through channels other than their own retail."
Mr. Ayotte said that there's a good chance other banks would follow Bankers Trust's lead.
"Any bank with a good track record would be very smart to get into variable products," he said. "It makes a good deal of sense."
At least one other bank provides funds for an insurer's variable annuities-Chase Manhattan Corp. has a deal with insurer SunAmerica, Los Angeles.
The five funds offered by the BT Insurance Funds Trust are three index funds linked to the S&P 500, the Russell 2000, and the MSCI EAFE indexes, as well as two actively managed equity funds.
Early commitments to carry the funds have come from Travelers Life and Annuity, Hartford, Conn., and Integrity Life Insurance and National Integrity Life Insurance, subsidiaries of Louisville, Ky.-based ARM Financial Group.
"We felt it's a growing market, growing even faster than the mutual fund market," said Vinay Mendiratta, a vice president responsible for Bankers Trust's variable annuity products, "so we wanted to offer our very strong passive and active capabilities to this market."
The variable annuity market is growing fast. Sales rose from about $50 billion in 1995 to more than $70 billion last year, according to Limra, a Windsor, Conn., insurance company trade association.
And the $20 billion in sales for the first three months of this year is a quarterly record.
The funds are much like any other mutual funds, except that they are specially registered, as required, for variable annuity programs.
Mr. Mendiratta said a unique aspect of the program is the index funds, which are fairly new to the variable annuity market.
"We're hoping the trend (toward index funds) in (defined contributions) and the retail market will follow in variable annuity market," he said.
Bankers Trust manages approximately $3 billion in variable annuity assets. In all, the bank manages $16 billion in mutual fund assets.
