Like the minuteman logo that adorns its stationery, Lexington Management Corp. is preparing for battle in the bank mutual-fund revolution.
The Saddle Brook, N.J., company, which manages $2.7 billion of assets, is taking aim at fund administration for banks.
As more banks launch funds of their own, Lexington and other companies are rushing to offer such administrative services as pricing, compliance work, distribution, and shareholder servicing.
Lexington already provides administrative services for some insurance companies as well as a few bank customers, and plans to expand its customer base.
Negotiations Under Way
"We have several banks that we're negotiating with currently," said Lawrence Kantor, managing director and executive vice president. He would not reveal names.
Lexington, which manages nearly $1 billion in mutual fund assets, prides itself on its ability to provide high-quality service, according to Mr. Kantor.
"We're different from other companies in the sense that we've internalized some aspects of the business," Mr. Kantor said.
For example, Lexington acts as transfer agent and does its own shareholder servicing at its Saddle Brook, N.J., headquarters.
Trust, Retail Areas Targeted
While Lexington is going after bank's administration business, it is also trying to target their trust and retail departments to sell its funds.
"We're seeing money coming in through load an no-load funds" from banks, Mr. Kantor said. About 2% of its assets now come from banks, he said.
However the company is handicapped by its product line, which is heavily weighted toward no-load products.
Lexington has 13 mutual funds and 11 of them are no-load, meaning they charge no sales fees. Banks have traditionally favored funds that charge loads so they can compensate their brokers with these commissions.
"I don't see the banks as being a big distribution channel for us yet," Mr. Kantor said. "Right now, banks face a dilemma with no-load funds because they can't figure out how to compensate their brokers," he said.
Banks are missing out on a big part of the mutual fund business, Mr. Kantor maintained. If banks offered no-load funds, it would give them an entree into major distribution channels, he added.
Some banks do sell Lexington funds already, including big money-center players such as Citibank, New York, and Fleet Bank, Providence, R.I. The funds are also sold by discount brokers, including Charles Schwab, and fund companies such as Fidelity Investments. The funds are available directly from Lexington Fund Distributors Inc. and through financial planners.
"Financial planners are becoming an important source of mutual fund sales," Mr. Kantor said.
Smaller Player at Risk
As banks develop preferred product lists, smaller players like Lexington are going to get the short end of the deal, analysts say, unless they offer something that differentiates them from the pack.
"It's easier for small companies that have special expertise to get on banks' short lists," said Avi Nachmany, a partner at Strategic Insight, a New York consulting firm.
Lexington is developing an international expertise in both fund management and administration.
In Lipper Analytical Services' recent performance ranking of 62 global funds, Lexington Global Fund came in fifth for the first six months of 1993. Out of 55 funds tracked by the Denver-based service, Lexington's global fund ranked 10th for the 12-month period through June 30, 1993.
Lexington also offers a worldwide emerging-markets fund and plans to capitalize on its reputation in the international arena by adding a third foreign fund. "It's a general-purpose international fund designed to compliment our global and emerging-market funds," Mr. Kantor said.