One dozen bank-managed mutual funds had at least $10 billion under management at the end of the third quarter, hitting the level many say is necessary to be considered a long-term mutual fund player.

A year ago, only eight banks had reached the $10 billion benchmark, according to data compiled for American Banker by Lipper Analytical Services, Summit, N.J. But as more banks reach what some would call "critical mass," the bar keeps rising.

Indeed, a Goldman, Sachs & Co. report due out next spring says a fund complex would need to manage $30 billion to $50 billion in order to be a long-term industry presence. And some banks are striving to accumulate as much as $100 billion of fund assets within a few years.

"The T. Rowe Prices and Putnams of the world will push the benchmarks higher," said Milton R. Berlinski, a partner at Goldman.

According to the Lipper data, assets in bank mutual funds grew 25.6% during the 12 months through September. Bank funds easily kept pace with the mutual fund industry as a whole, which saw 24.3% asset growth during the same period, according to the Investment Company Institute, a Washington-based trade group.

Despite the healthy growth, bankers are increasingly wondering just how much in assets they need to manage to run a profitable operation. Great Western Financial Corp.'s October announcement that it is considering a sale of its $2.9 billion Sierra Funds has fueled a long-running debate over what constitutes a successful fund complex.

For many years, $5 billion was considered the magic number for banks and other institutions in the mutual fund management business. At the end of the third quarter, 24 of the 115 U.S. banks that manage mutual funds had reached that goal, the Lipper data show.

But some industry observers are quick to say there is more to a lucrative fund operation than size.

"It is not a scale question alone," said Geoffrey H. Bobroff, an industry consultant in East Greenwich, R.I. A $3 billion fund family can make money with the right mix of assets, he said. Only one-third of a complex's fund assets should be in short-term money market funds, Mr. Bobroff said.

Money market portfolios represented a whopping 56% of bank-managed funds at the end of the third quarter, according to the Lipper data. In the mutual fund industry at large, they accounted for only 25% of assets.

One industry investment banker said critical mass has little to do with a fund business' overall success.

"Nothing says you need anything other than revenues greater than expenses" to turn a profit, said Peter L. Bain, managing principal at Berkshire Capital Corp., New York.

But some bankers said their fund businesses have improved with size. "Ten billion dollars was the magic number for us," said Mark A. Beeson, senior vice president and chief financial officer at Banc One Investment Advisers. Banc One Corp., Columbus, Ohio, had $15 billion under management at the end of the third quarter.

While that was enough to earn Banc One a No. 7 berth in the Lipper rankings, Mr. Beeson said the fund family is still too small. The company wants to amass $20 billion by the end of 1997 and hopes to increase third- party distribution to achieve this.

By 2001, Mr. Beeson said, Banc One wants at least 25% of its sales to be through third parties. Third-party distribution currently accounts for only 3% to 5% of the bank's fund sales.

R. Christopher Maxwell, executive vice president in charge of Cleveland- based KeyCorp's mutual funds, is less concerned with hitting an asset target. Economies of scale are greatly exaggerated, he said.

Mr. Maxwell conceded, however, that size is important for bank fund complexes that want to catch the eye of their parent company's top management.

"We have $50 million in excess revenues from our mutual funds, and that has gotten our management's attention," Mr. Maxwell said. "It might not get attention at other places."

Another bank fund executive, Bank of Boston Corp.'s Allen W. Croessmann, said smaller funds are susceptible to more problems than their larger brethren. A family with only small funds is liable to high expense ratios or to having the bank subsidize it indefinitely, said Mr. Croessmann, president of the company's 1784 Investor Services.

"Everybody likes a number, but a number is meaningless," added Avi Nachmany, a partner at Strategic Insight, New York. "You need strategy and resources. Success is not just a function of some magical number."

Joseph T. Grause Jr., managing director at Cypress Holding Co., Boston, tells bankers they need $4 billion to $5 billion to compete. Cypress wants to cobble together bank mutual funds that it thinks are too small to go it alone.

"The realistic number is probably north of $10 billion," Mr. Grause said. "If you tell yourself you have $3 (billion under management) and can make a go of it, the fact of the matter is you can't."

Most bank funds do not have the distribution other funds do, which puts them at a disadvantage no matter what their size, said Neil Bathon, a partner at Financial Research Corp., Chicago.

"Breaking the $10 billion mark with long-term assets puts you in the big leagues and able to compete," Mr. Bathon said. "But not many banks want to cross the entire country the way Putnam and Fidelity might."

Many bank fund complexes have benefited from acquisitions by their parent companies. Wells Fargo & Co., San Francisco, moved up a notch in the rankings from last year, thanks to its acquisition of First Interstate. Wells was No. 3 at the end of the third quarter, with $18.7 billion of fund assets.

And Chase Manhattan Corp., New York, weighed in at No. 5, up from No. 6, after its acquisition of Chemical Banking Corp.

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