As other European banks establish or buy U.S. investment managers, Deutsche Bank is relying on a German import to serve the American investor market.
All but two of the bank's 10 Deutsche Funds are clones of portfolios managed by DWS, a Frankfurt-based subsidiary of Deutsche Bank that has $68 billion of assets under management and two million shareholders. The U.S. funds, which mark their first anniversary Oct. 31, have $375 million of assets under management.
By repackaging its German portfolios for the U.S. market, Deutsche Bank wants to demonstrate "our management ability as opposed to our acquisition capability," said Brian Lee, president of Deutsche Fund Management Inc. Rather than buy a U.S. fund business or build one from scratch, Deutsche Bank decided to go with "what we know is good quality," he said.
The bank is also determined to bounce back from an earlier, failed attempt to crack the U.S. retail investment market. Nine index funds it launched in 1995 - each one linked to a country's stock market - were liquidated last year after sales failed to take off. The funds, dubbed CountryBaskets, ran into tough competition from Morgan Stanley, which had a similar product line.
To offer the new portfolios, Deutsche Fund Management, New York, uses a patented hub-and-spoke accounting system from Signature Financial Group in Boston. The arrangement allows "spoke" funds to share a "hub" investment manager but to be sold with different fee structures.
Deutsche Fund Management is marketing the funds to U.S. retail investors through brokers, financial planners, and registered advisers.
The sales effort got a big boost in September 1997 when the Securities and Exchange Commission gave Deutsche Fund Management a green light to publicize in the United States track records established in another country. The Deutsche unit was the first investment company to receive such permission.
Deutsche elected to cite past performance of parent hubs in two of the new funds: Deutsche European Mid-Cap Fund and German Equity Fund, which are clones of the DWS Provesta and Investa, respectively. Provesta has a five- year annual return rate of 18.67%; Investa, 19.54%.
Two other funds are managed in New York, the Top 50 U.S. fund and the U.S. money market fund. The Top 50 U.S. fund, managed by James E. Moltz, chief investment officer of Deutsche Morgan Grenfell in New York, is one of four funds in the family that invest in a maximum of 50 stocks. The other funds have a global, Asian, or European focus.
Rounding out the menu are global bond, Japanese equity, and European bond funds.
In addition to pitching the funds to brokers and other intermediaries, Deutsche Bank is marketing them to corporations that want to add international investments to their 401(k) retirement plans.
"Given the fact that we were from a foreign institution, we want to be able to explain it more carefully to the investor and that's why we use that third-party distribution channel," Mr. Lee said.
"We know that if you walked down the street today and you asked a hundred people, first of all 'do you know the name Deutsche and secondly can you spell it?,'" the answer would be no, he said. "But to a broker, the Deutsche name is universally known."
Indeed, the funds have made their greatest inroads with brokerage firms, through which half of Deutsche Fund sales are made.
In some cases, brokerage houses, including Charles Schwab & Co., offer Deutsche Funds to clients of financial planners and registered investment advisers through their mutual fund supermarkets. Deutsche Funds is set to sponsor Schwab's annual conference for registered investment advisers in Orlando in November.
"We have very few holes in our product offering," said A. Philip Nicolaou, a Philadelphia-based vice president of Schwab Institutional. "Deutsche Bank is a name you want to have on your list."
He added that the funds score highly with aggressive investment advisers hungry for new opportunities.
"They're always looking for proven styles of money management and they like to get in early," Mr. Nicolaou said.
All of the Deutsche Funds have either A-class shares with a front-end load or B-class shares with a contingent sales charge. C-class shares on the U.S. equity fund and the four European funds became available Sept. 1.
Deutsche Funds has employed a number of techniques to raise awareness of its funds with brokers. In March, it began advertising the funds in trade publications for brokers, including Financial Planning and Registered Representative. It also runs ads in The Wall Street Journal.
Deutsche Funds has seven salespeople that work across the country to set up sales agreements with brokerage firms, while four salespeople in New York field calls from brokers. They all report to Peter T. Moeller, director of sales.
The fund family also recently hosted a tennis classic, coinciding with the U.S. Open, for brokers from Charles Schwab & Co., Merrill Lynch & Co., and Goldman Sachs & Co.
Philip Anker, a former German junior national champ and now vice president of internal sales for the Deutsche Funds, arranged a tennis clinic for 20 brokers taught by professional players, including England's John Lloyd, Australia's Fred Stolle and Ken Rosewall, and Marty Riessen of the United States.