New Funds from NBD Invigorate First Chicago

At First Chicago NBD Corp.'s mutual fund complex, one plus one equals more than two.

In 1996, the banking company cobbled together First Chicago's low- profile Prairie Funds with NBD's equally quiet Woodward Funds. The result: the $14.5 billion Pegasus Funds, which First Chicago NBD is marketing with newfound zeal.

"We're not quite Fidelity yet, but we are a second-tier fund family," said Marco Hanig, First Chicago's managing director for mutual funds.

After the 1995 First Chicago-NBD merger, "we wanted to reposition our funds as a real mutual fund family," he said.

To that end, First Chicago borrowed a page from the marketing manuals of financial giants like Merrill Lynch & Co. and Dreyfus, and gave the funds a four-legged logo - Pegasus, the winged horse of Greek mythology.

"The most memorable logos are animals," said Mr. Hanig, a former management consultant who helped First Chicago to launch its investment management operation in 1990.

The bank also came up with a new slogan for its funds, "Strength in Investing." And it began heavily promoting the Pegasus portfolios with newspaper and television ads in Detroit, Minneapolis, and Chicago.

The effort has borne fruit. According to Mr. Hanig, the Pegasus funds are on pace to amass about $2 billion in new assets this year, with about half pouring into long-term stock and bond funds. The family's assets under management have grown to $14.5 billion from $12 billion over the past year - enough to rank it among the nation's top 50 fund management companies.

Earlier this month, First Chicago launched a program to market the funds through outside distributors, including Charles Schwab & Co.'s OneSource and small regional brokers. The revamping of the Prairie and Woodward funds involved a lot of what Mr. Hanig referred to as "basic blocking and tackling." But the makeover was more than cosmetic.

For one thing, the bank overhauled the way its predecessor institutions marketed their proprietary portfolios through their own broker-dealer units. First Chicago, for instance, had relied on a third-party firm to wholesale its Prairie funds to its brokerage unit, Mr. Hanig explained. And the Woodward funds lacked 12b-1 fees, which are used to compensate brokers for selling the funds.

So the bank moved quickly to bring Prairie's wholesaling operation in house and to add loads to the Woodward portfolios. "The other thing we did to emphasize our position in the broker-dealer was to say the segment we want to own is asset allocation," Mr. Hanig said.

The Pegasus product line includes an asset allocation fund of funds; a proprietary wrap known as Architect; and a variable annuity.

Before the fund merger, the Prairie funds represented only 6% of sales at First Chicago's broker-dealer, Mr. Hanig said. NBD's Woodward funds represented 13% of its brokerage's fund sales.

Today, 25%, or $250 million worth, of Pegasus' new long-term assets come from the bank's broker-dealer, and the Pegasus portfolios represent about 40% of the brokerage unit's fund sales. Three other in-house sales channels: the 401(k) retirement business; the private banking and trust unit; and institutional sales, each account for another one-quarter of Pegasus' long-term sales.

From where Mr. Hanig sees it, the biggest difference between the Pegasus funds and its predecessor Prairie funds is in what the family lacks. "Three years ago at First Chicago we had a lot more distribution than product. Our product offering was not up to snuff.

"Today, our product capability is actually stronger than our distribution," he said.

For that reason, First Chicago, unlike many of its competitors, is not on the fund acquisition trail. Instead, it is pouring resources into marketing its existing funds, both through the bank and elsewhere.

Observers say the Pegasus funds could use the support.

"The Pegasus funds are more visible than the old funds, but that's not that visible," said Richard B. Ross, a partner with 50-Plus Communications Consulting in Glencoe, Ill. "Other than the ads they run, it's difficult for them to pop up on the radar screen."

But according to Mr. Hanig, that is about to change.This year, for the first time, the bank's investment product line is "buying out" First Chicago's Illinois branches - meaning all outlets in the state are pushing investments. It is also piloting in Southeast Michigan a platform sales program, which, if enacted systemwide, could double the bank's distribution.

A broader media campaign is also in the works. It will include advertisements in regional editions of the Wall Street Journal and new radio ads. The spots are designed to reach the one-quarter of the population of Michigan, Minnesota, and Illinois that banks at First Chicago NBD.

'If we get high awareness in that market, we can reach our customers far cheaper than someone like Fidelity can," Mr. Hanig explained. Reasoning that the bank's market represents 8% of the U.S. population, Mr. Hanig figures that $1 million spent by First Chicago in its region is the equivalent of $12 million spent by Fidelity Investments in a national campaign.

For the future, Mr. Hanig said growing First Chicago's distribution is key. But he declined to set an asset goal for the firm.

"The real issue is how much can we gain in revenues," he said. "We need to generate $10 billion (in revenue) every year. It's not going to happen overnight, but in seven to 10 years, it's achievable, if we put our mind to it."

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