After a stellar year in 1996 for its Evergreen Keystone mutual funds, First Union Corp. went looking for an encore. Aided by a soaring stock market, the Charlotte, N.C.-based banking company found it in 1997.
Led by the successful consolidation of its purchase of Keystone Investments Inc. of Boston, an increasing volume of sales of its mutual funds, and the addition of new funds, Evergreen Keystone grew from $27 billion in fund assets at the start of this year to $40 billion this month.
And this month, the mutual fund group opted to simplify its name in hopes of strengthening its brand. Evergreen Keystone was renamed Evergreen.
"It was not as critical 10 years ago, but today having a brand is more important than ever," said Bill Ennis, Evergreen's managing director. "That is why the simplicity of the Evergreen name is the way to go in the future."
The choice of a leaner name and a heady pace of growth in 1997 pleases even the hard-driving Mr. Ennis.
That's a pace that pleases even hard-driving Bill Ennis, Evergreen's managing director.
"It has been a truly remarkable year, our defining year as a mutual funds organization," Mr. Ennis said.
As evidence, Mr. Ennis points to the strong shareholder performance this year of a number of Evergreen funds. Nine funds are delivering returns in excess of 25%; five of those funds are topping 30% while two are exceeding 40%. A third of Evergreen's funds are rated 4- and 5-star by Morningstar.
That performance, fueled by 4,000 First Union sales representatives and an expanding network of outside brokers, helped drive sales of Evergreen funds far beyond 1997 goals. Mr. Ennis expects $2.5 billion in fund sales this year, up from $1.5 billion last year. And sales for September (1997), mostly in equity funds, appear to be at a record pace.
This year also brought some maturing to the expansion-minded mutual funds group. Evergreen this summer began merging six of its smaller funds into larger funds with similar investment objectives. The process has cut Evergreen to 66 funds. And with First Union's recent acquisition of Signet Banking Corp., the $1.6 billion in Signet's Virtus and Blanchard mutual funds will soon be folded into Evergreen's funds.
For efficiency's sake, Mr. Ennis expects Evergreen will end the year at 55 funds.
"We think 55 funds is the most appropriate way to move forward and still be well represented in all asset classes and investment spectrums," he said.
The funds group remains the third-largest bank mutual fund group after Mellon Bank Corp., which owns the Dreyfus funds, and PNC Bank Corp. Overall, Evergreen has become the 25th largest mutual fund group in the country. And, in another sign of deepening roots in the business, Evergreen early this year was one of 11 mutual fund families to win a Dalbar award - industry recognition for shareholder service.
While strengthening its stature among the top bank-run mutual funds groups, Evergreen still must confront some key questions for the future:
How will Evergreen benefit from First Union's recent $482 million purchase of the country's 17th-largest brokerage, Wheat First Butcher Singer? For now, First Union plans to operate Wheat First and its Mentor family of mutual funds separately from Evergreen.
Most significant, can Evergreen reach its goal of attaining $100 billion of assets by 2000? The asset figure, first noted by Donald A. McMullen Jr., First Union Capital Management's executive vice president is now frequently repeated by First Union's chairman and chief executive officer, Ed Crutchfield.
Such notoriety is a double-edged sword for First Union, suggests analyst Hal Schroeder at Keefe, Bruyette & Woods in New York.
"It works for and against the company. It's great to state a goal and have it help you generate growth. But on the other side, it raises the concern that First Union will overpay and do some dilutive deal just to reach that $100 billion target on time," Mr. Schroeder said. That's one reason First Union's stock is lower than it might be, he added.
The success of First Union's CAP account, its all-in-one bank-brokerage account, is a big reason for the boom in Evergreen mutual funds, the analyst said.
First Union, the nation's sixth largest banking company, so far is staying close to its mutual fund growth plan. It called for $27 billion of assets and just under a million customer accounts by yearend 1996; $42 billion and 1.7 million accounts by yearend 1997; and $100 billion and 4.2 million accounts by 2000.
"As Don (McMullen) told me, getting to $100-billion has put a lot of pressure on him," Mr. Schroeder recalled. "He said it would be a tough goal to reach strictly by internal growth, though a market that is increasing 20% or 30% would makes it easier. Still, an acquisition or two would not hurt," the analyst said.
Mr. McMullen maintains the $100-billion goal continues to make sense because investments like mutual funds are what customers are clamoring for.
"This is what speaks to the Baby Boomers and the Generation X'ers," Mr. McMullen said. "Consumers are getting interested in building portfolios for retirement. Younger folks wants to establish some investments. And mutual funds have become a key service they demand."
Mr. McMullen and Mr. Ennis both said Evergreen Keystone's decision with KeyCorp to market each other's proprietary funds was a good distribution move - a strategy likely to be pursued selectively with other banks. Nearly 18,000 brokers handled a trade of an Evergreen fund in the last 12 months.
Evergreen's strategy to also start offering Charles Schwab & Co.'s popular OneSource supermarket of mutual funds to their retail customers is another effort to maximize fund choices to customers, Mr. Ennis said.
"We think the consumer or investor wants the best possible money management they can achieve, regardless of where it comes from," the Evergreen managing director said.
Mr. McMullen declined further comment on the Schwab arrangement, saying final details on the rollout would become clear later this year.
For now, Evergreen is enjoying a momentum in fund sales and honing its marketing efforts.
This fall, for example, it unveiled an interactive PC disc that raises the fund group's visibility; it allows both sales brokers and customers to explore in depth a particular fund's investment objectives. Mr. Ennis said the disc is especially useful, given the market's recent volatility, because it includes information about the market's ups and downs over the past 60 years.
But the First Union mandate for its mutual fund group to become bigger and stronger remains a priority. The banking company in September told investors at a Merrill Lynch conference that it might consider more incremental acquisitions of companies that manage $5 billion to $15 billion of assets. Any megadeals are unlikely, especially given the rising premiums for established fund groups.
At Keefe Bruyette & Woods, Mr. Schroeder predicts Evergreen will most likely grow in the coming years not by direct acquisition of other fund groups, but indirectly - by First Union buying other banks with mutual funds.
Mr. McMullen, as he told American Banker last fall, repeated his belief that while First Union owns Evergreen, the mutual fund group's key competitors are not the funds of other banks. Evergreen instead remains focused on the giant mutual fund companies like Fidelity and Putnam.
Ahead, Mr. McMullen predicts a lot more consolidation in the industry as companies recognize the power of economies of scale and the high cost of supporting mutual fund organizations with the best technology.
With more than 8,000 mutual funds in the market, Mr. Ennis added, "there's still plenty of overcapacity."
