KeyCorp is planning to launch several proprietary mutual funds but leaving the managerial headaches to an outside firm.
R. Christopher Maxwell, the executive vice president who oversees the banking company's fund program, said KeyCorp was considering a hub-and- spoke structure for the new funds.
The uncommon arrangement - in which an outside "hub" firm manages the pooled assets of several "spoke" institutions - has been used by a few banks to help defray management costs and to give new fund products the benefit of the hub firm's investment track record.
"We're having discussions with certain money managers now," Mr. Maxwell said in a telephone interview. "If there are product opportunities where we think our asset generation capability is too small, then we would consider spoking" into another company's funds.
Mr. Maxwell said KeyCorp is considering launching an emerging markets stock fund and portfolios for a variable annuity product. But he added that the company was not wedded to those plans, and declined to name the managers KeyCorp is considering.
In many cases, the hub-and-spoke approach has not taken off, but some observers said the approach is getting serious consideration from banks that want to expand proprietary investment offerings without hiring additional portfolio management talent.
"It's very hard for one advisory firm to have the expertise residing within the company for everything they want to do," said Avi Nachmany, a partner with the New York consulting firm Strategic Insight. "Often they will go outside to achieve scale, or for investment strategies that are considered riskier."
As of Dec. 31, hub-and-spoke structures accounted for $26.8 billion of the $390 billion in bank-run funds, up 44% from 1994, according to Lipper Analytical Services.
Mr. Maxwell said the new funds are meant to make KeyCorp's 401(k) retirement plans more competitive by broadening its investment offerings, and added that the funds would have extra appeal to outside brokerages.
James E. Hoolahan, a senior vice president for Signature Financial Group, a Boston-based mutual fund administrator that markets the hub-and- spoke fund structure, said the arrangement "is a way to get into different distribution channels very easily, and it lets you reach different target audiences with a single fund."
He added that the structures are often used by banks and investment companies to set up offshore funds that feed assets into an existing portfolio in the U.S, or to price funds differently without setting up different classes of shares.
