KeyCorp's Victory Capital Management Inc. says its April acquisition of Austin Capital Management Ltd., a Texas hedge fund manager, is part of a drive to increase its institutional assets under management.
Dave Brown, a senior managing director at Victory, which, like its banking parent, is based in Cleveland, said it wants to keep adding products.
"We have a desire to compete in an area that is highly sought after in the market," he said. "We think that we can succeed if we can add value by delivering products with a strong investment track record."
Austin brought Victory four hedge funds of funds, Mr. Brown said, including two with substantial track records: the 10-year-old All Seasons Fund, a long-short composite fund; and the 9-year-old Safe Harbor Fund, a long-short fixed-income fund.
Victory is interested in adding a team that manages international assets, but not necessarily through acquisition, Mr. Brown said.
"Asset management acquisitions are really tough," he said. "It you look at the history of the industry, I bet more acquisitions have failed than succeeded. We want to offer institutional asset management, and we may hire a team, an individual, or just build it internally."
Many banking companies are abandoning proprietary asset management and focusing instead on relationship management and offering an open architecture array of products.
Geoffrey Bobroff, an analyst with Bobroff Consulting in East Greenwich, R.I., said only a few banking companies, including Wells Fargo & Co. and Wachovia Corp., have attracted assets by acquiring a collection of money managers to create a proprietary fund family.
"Assembling an amalgam of many pieces is a difficult model to succeed with," Mr. Bobroff said. "Victory, through Key, has storefronts and an expanding network of wealthy investors. I am surprised that they are buying up asset management firms rather than focusing on that network of investors."
Mr. Brown said Victory is succeeding by focusing on institutional money management. Of its $58 billion of assets under management, 65% are institutional, and the rest are retail, he said.
"On the brokerage or retail side, banks prefer to offer best-in-class products, but that is not where we are heading," Mr. Brown said. "We continue to support the bank's retail clients, but we are pursuing institutional clients, rather than retail clients, because that is an area that we believe that we can win."
Asset management is "a great business with high margins and good trading multiples," he said. "We want to find a way to win at it, and we believe we have the recipe here to do just that."
According to Mr. Bobroff, bank-owned companies have had only "spotty success" as institutional asset managers. "It is still unknown how successful they can be long-term" in that business.
Mr. Brown said by focusing on institutional asset management Victory has increased its assets under management 16% since the end of 2004. It has added wholesalers and is developing a strong track record through institutional customers, he said.
"We are developing business with a lot of larger pension plans, endowments, and foundations," he said. "This is an important plus for us in order to generate more flows."
KeyCorp has been "unbelievably supportive" of the direction that Victory has taken, Mr. Brown said, and he is confident that the growth will continue.
"We have equity, fixed income, and a strong suite of products," he said. "We want to work to use these products to deepen relationships with our current clients and build new relationships."
