ING’s Pilgrim Funds Unit Puts Focus on Bank Sales

Since January, ING Americas, the Atlanta investments and insurance subsidiary of Amsterdam’s ING Group, has focused on its ING Pilgrim Funds arm as the means for building bank distribution of its mutual funds.

“We see banks as a fertile area. Banks are looking to offer more third-party funds,” said Bob Boulware, president of the Scottsdale, Ariz., unit. “The key is to find the right products for the banking environment.”

ING Pilgrim Funds emerged from the combination of ING Funds and Pilgrim Funds after ING bought ReliaStar Financial Corp. in May 2000. Pilgrim Capital Group, a fund company in Phoenix, had been bought by ReliaStar in October 1999.

In the past six months, the $18.9 billion unit has hired five wholesalers to work exclusively through banks and has developed relationships with 12 new eastern and southern banks, including Pittsburgh’s PNC Financial Services Group Inc.; Bank of New York; Webster Bank of Waterbury, Conn.; and SouthTrust Corp. and Compass Bancshares, both of Birmingham, Ala.

And though it already has 39 funds, all of which are available to its bank partners, it has been creating new, more sophisticated products for its bank customers.

The Pilgrim Senior Income Fund, launched in April, invests in private senior corporate loans. Such loans, typically, are available only to large institutional funds, not to funds for retail investors.

In July, the unit plans to introduce a second product: a principal-protected mutual fund. The fund, the Pilgrim Principal Protection Fund, will invest in both equities and bonds, with a $1,000 minimum investment. ING Pilgrim has a contract with MBIA Inc., an Armonk, N.Y., financial guarantor and financial services provider, to guarantee customers’ principal as long as the money stays in the fund for five years.

The fund will be subadvised by ING Aeltus Investment Management Inc., ING’s institutional investment management arm. ING Aeltus was formed last week when ING merged two units — Aeltus Investment Management, which had been the adviser for Aetna Funds, and ING Furman Selz Asset Management.

This will be ING Pilgrim’s first product with guaranteed principal, but Aeltus already manages five funds offering the guarantee with the five-year proviso.

Henry Schilling, a mutual fund analyst at Moody’s Fund Management Group, said that, historically, principal-protection products have not been popular with American investors. He pointed to the lukewarm showing by a New York Life fund created 10 years ago.

“This product type is very popular outside of the U.S. — in Germany or other countries with risk-averse investors,” Mr. Schilling said. “If customers want less risky products, they will purchase a money market fund. If they want to ride the market, they will buy a mutual fund.”

Geoffrey Bobroff, a mutual fund consultant in Providence, R.I., said ING is taking the right approach by letting banking customers slowly adjust to its brand.

He said too many multifaceted international fund companies “crush brands together” rather than present themselves as a group of companies under one umbrella, as ING has done. “By co-branding its product, at least for the near term, ING doesn’t have to answer banking customers’ questions about who they are, and rather can focus on what they do,” Mr. Bobroff said.

While ING brings a commitment to its bank channel distribution, Mr. Schilling said, “it’s not clear they will be more successful through banks than they were through other areas.”

Mr. Boulware said that thus far this year, ING Pilgrim has taken advantage of ING’s strong track record to make its way into more and more banks.

“We are still very early in this process, and it is really a long-term strategy,” Mr. Boulware said. ING Pilgrim “wants to be the premier provider of investment products through intermediaries, and achieving success through banks is part of that.”