Trans Financial Bank is gearing up to launch its first family of mutual funds, and the Kentucky-based bank is looking beyond its branches to market them.
The $1.7 billion-asset bank asked the Securities and Exchange Commission for permission to form the proprietary Trans Adviser Funds. If the approval comes in time, bank officials say, the funds will be up and running by late September.
The bank is trying to line up selling agreements from other banks and regional brokerages to sell the Trans Adviser Funds - a strategy officials hope will give the funds an added marketing boost.
"We plan on distributing our funds in the region and as far as they'll go," said Ronald Szejner, president of Trans Financial Trust and Investment Services, a unit of the bank's holding company, Trans Financial Inc., Bowling Green.
The bank will start off with six portfolios: money market, growth/value, intermediate bond, aggressive growth, and Kentucky and Tennessee tax-free funds. The funds will be seeded with $100 million of assets, some of which will be converted from commingled trust funds, officials said.
But starting a mutual fund operation can be an expensive proposition. And for some small banks it can be difficult to cover start-up costs and pay for experienced in-house portfolio managers, experts say.
Eli Neusner, an analyst with Cerulli Associates, Boston, said Trans Financial can expect to have a tough go of it, considering the heavy competition from established mutual fund companies. He added that the tiny amount the bank is using to seed its proprietary funds may not be enough for it to turn a profit.
"What we're saying to people now is, if you aren't in the game already, don't bother," Mr. Neusner said.
The mutual fund industry he said "is overloaded, and for someone to come in now and try to get name recognition is going to be very difficult."
But bank officials said they plan to keep costs down and bring some outside experts to pitch in.
Trans Financial has hired Mastrapasqua & Associates, a Nashville-based investment company, to actively manage the bank's two proprietary equity funds. The company will also help oversee the bank's other mutual fund portfolio managers.
Frank Mastrapasqua, president of the two-year-old firm, is an old hand at mutual fund management. He started his career 25 years ago as an economist for the mutual fund division of L.F. Rothschild, Unterberg & Tobin and was chief economist for Smith Barney & Co. in the 1970s.
Mr. Szejner also recently hired two experienced portfolio managers from PNC Bank Corp.'s mutual fund unit. The new team of T. Radford Hazelip and Mary Dennis, will manage the tax-free, money market, and bond portfolios.
The funds will be sold by the bank's 50 investment sales representatives through its 55 branches in Kentucky and Tennessee. Mr. Szejner said he hopes to sign on some local brokerage firms to sell the funds as soon as the bank receives the go-ahead from federal regulators.
The bank and brokers selling the funds will be paid from some hefty sales charges. Bank officials are expecting to charge investors an up-front fee of up to 4.5% - in the upper ranges for a bank-run fund.
Forum Financial Group will distribute and administer the Trans Adviser Funds. The Portland, Maine-based company will also handle shareholder services, and act as transfer agent.
