Two years ago, Richard J. Buoncore, president and chief operating officer of KeyCorp's asset management unit, set lofty goals for the Cleveland banking company's Victory Funds.

Mr. Buoncore boldly said he wanted to increase the value of the mutual funds under management at the bank from $11.5 billion to $50 billion in five years.

Today, with about $19 billion in its mutual fund unit, the banking company has covered about one-fifth the ground it needs to in order to meet its goal. But Mr. Buoncore and other executives at Key Asset Management, the bank's investment arm, say they're on track and aren't counting on an acquisition to get there.

"I would say that given the market values today, acquisitions will be tough," Mr. Buoncore said. Though the company would consider any deal that made economic sense, he said, "it's not one of our primary strategies."

Instead, KeyCorp will look to external distribution channels, Mr. Buoncore said. The bank is studying ways to boost sales of the Victory Funds through regional broker-dealers, especially through vehicles such as wrap products and KeyCorp's Prism 401(k) product. Prism, which supplements the Victory Funds with about 100 other portfolios, generates about 60% of Key's new fund flow into bond and equity funds, Mr. Buoncore said.

The bank is also pinning its hopes on a special no-load-share class structure for the Victory Funds. "G shares" - still sold mostly through KeyCorp's retail brokerage, McDonald Investments Inc. - pay a broker 25 basis points when the sale occurs and another 25 to 50 basis points annually depending on whether a fund invests in stocks or bonds.

The structure appeals to brokers, who get a "robust" trail payment, and to consumers who do not have to pay fees up front, said John Kutz, a director in Key's investment products group.

But the bank could face a difficult road as it squares off against fund groups with better-known brand names and greater assets and resources.

"The financial services industry is moving towards a relatively limited number of very large players taking a larger share" of assets under management, said Kevin T. Timmons, a bank analyst at First Albany Corp.

Industry consolidation means that the large players can offer a greater variety of products and also benefit from economies of scale, he said.

To be sure, KeyCorp, with $83 billion of assets, is hardly tiny. And the Victory Funds currently rank about No. 14 among bank and thrift companies that manage mutual fund assets in the United States, according to Lipper Inc., a unit of Reuters Holdings.

But as KeyCorp increases its fund assets under management, so does the competition. As of Dec. 31, the banking company ranked 49th, putting it in the middle of the top 100 mutual fund groups, according to Lipper.

The quickest route to asset growth has been acquisition.

Many banks have bolstered their investment expertise and fund distribution channels through acquisitions.

KeyCorp has also built much of its current investment expertise by buying other firms. In 1998, the company acquired Cleveland-based broker-dealer McDonald & Co. In 1995, it bought New York-based asset manager Spears, Benzak, Salomon & Farrell.

The Spears, Benzak deal brought a lot to KeyCorp, particularly in terms of talent, Mr. Buoncore, a Spears veteran, said. One reason KeyCorp has not pursued similar acquisitions is that it does not need to, he said.

In 1995, "there was not quite a full understanding of our capabilities," Mr. Buoncore said. Growth, he said, has been less a matter of "building capabilities" than "uncovering them."

Economics may have played a role as well. With a low price-to-earnings ratio relative to its peer group, KeyCorp would have a difficult time making acquisitions right now, said Diana P. Yates, a bank analyst at A.G. Edwards & Sons in St. Louis.

Key has pursued joint ventures as a less-expensive alternative. Earlier this year, Key partnered with Hedge Fund Research Inc. of Chicago to launch a hedge fund of funds to be sold to foundations and endowment clients of KeyCorp's nonprofit asset services group.

And since 1998, Indocam International Investment Services, the asset management arm of Paris-based Credit Agricole Mutuel, has acted as subadviser to the Victory International Growth Fund. Indocam also provides support on the international aspect of Key's balanced fund, Mr. Kutz said.

Indocam has a "great track record that brings credibility to the table, and from a sales perspective that's very critical when you've got people that are chasing performance," he said.

But though the Indocam relationship is not exclusive, Key is not currently pursuing similar joint ventures, he said.

But observers said it would be difficult for Key to greatly increase mutual fund assets without acquisitions.

"Most banks are hard pressed to show a lot of organic growth," said Geoffrey H. Bobroff, a mutual fund consultant in East Greenwich, R.I. "Banks are selling other peoples' products in greater abundance than their own," he said.

The problem stems, in part, from widespread information available about fund performance, said Burton J. Greenwald, a mutual fund consultant in Philadelphia.

"The old days of having a captive sales distribution channel no longer washes," Mr. Greenwald said. As banks increasingly compete with companies such as Vanguard Group of Valley Forge, Pa., a bank-owned fund has to "stand on its own merit," he said.

Mr. Buoncore rebutted those objections, pointing to KeyCorp's yet untapped external distribution plan.

"You can't look at old structures - like Citibank - and how they did it," he said. "It's a very competitive marketplace. You have to do something unique and different."

For example, he said, KeyCorp might try to raise its profile by contributing to "infomediaries," Web sites that offer investment information and advice, but not products.

And when executives do settle on an exact strategy, they have the fund performance to back it up, Mr. Buoncore said.

For instance, Chicago-based Morningstar Inc. ranked the Victory Diversified Stock Fund in the third percentile in its category with a three-year return of 20.29% as of Feb. 29, and the Victory Growth Fund had a three-year return of 22.89%, according to Morningstar.

But in the end, size does not really matter.

"Quality of assets and quality of performance are what we want to be known for," Mr. Buoncore said. "Size is a derivative of how well we do other things."

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