Fifth Third Bancorp is laying the groundwork for distributing its mutual funds through third parties.
The 35-fund family, which has $12.4 billion of assets under management, currently is sold only through the Cincinnati company's branches. Establishing outside distribution figures to take about three years, said E. Keith Wirtz, the president and chief investment officer of Fifth Third Asset Management Inc. and the parent's chief investment officer.
"We are just now drawing that up," said Mr. Wirtz, who joined the company in 2004.
Creating third-party mutual fund distribution is just the latest challenge for the Bank of America Corp. veteran, who joined Fifth Third in 2003 with a mandate to "elevate the image of the investment arm," he said.
So far he has narrowed the company's broad menu of investment strategies, and he has updated its investing approach, in part by bringing aboard a quantitative management team to appeal to institutional investors.
Fifth Third launched Fifth Third Asset Management to oversee institutional investment management accounts, separately managed accounts, and mutual funds. The unit, which managed about $20 billion in 2004, now has $21.6 billion.
Organized separately within the company are a private client group and an institutional client group that together service $13 billion of assets, a figure that has grown by about $1 billion since 2003, Mr. Wirtz said.
To broaden its mutual fund distribution, Fifth Third may have to create a new brand, he said.
"We need more recognition in the marketplace," Mr. Wirtz said. "We've given a lot of consideration about branding."
Other possible steps include creating a sales force and deciding which sorts of intermediaries make sense as distributors, he said.
Burton Greenwald, an analyst at BJ Greenwald Associates in Philadelphia, said finding markets outside Fifth Third's customer base will not be easy.
Regional bankers' fund families face a name recognition problem, as well as a lingering perception that banks are not outstanding money managers, he said. What's more, Fifth Third will be competing in a market already glutted with mutual funds, Mr. Greenwald said.
"There's very little shortage of product," he said. "Intermediaries, whether they be Merrill Lynch or an independent financial planner in Cincinnati, have lots of products to chose from, and they're going to basically choose best of breed."
The proprietary sales model, in which a financial institution sells its customers in-house investments, has become less common. Many small and midsize banking companies have gotten out of the mutual fund management business altogether in recent years.
But Fifth Third does not plan to exit the business, Mr. Wirtz said. "This is an important long-term business for us."
Mr. Greenwald said it may make sense to first attempt to line up distributors based close to Fifth Third's area of operations.
The performance of Fifth Third Asset Management's mutual funds has varied. Its large-cap value fund, for instance, returned 11.74% in the five-year period that ended April 20, ranking it in the fifth percentile, according to data from Reuters Group PLC's Lipper Inc. But the small-cap growth fund returned 6.84% over the same period, ranking it in the 64th percentile, according to Lipper's data.
Meanwhile, Fifth Third Asset Management has been busy developing products and services that Mr. Wirtz hopes will be unique enough to differentiate it among institutional investors.
Last year it launched an advisory service based on liability-driven investing, a relatively new concept in which performance is not linked to an external benchmark but to the future liabilities of, for example, a pension fund.
Fifth Third has $100 million of assets under LDI-style management from pension plans and not-for-profit clients, Mr. Wirtz said.
Early this year Fifth Third Asset Management rolled out a "strategic income fund" aimed at institutional clients who "need to juice their plain-vanilla bond portfolios in a risk-efficient way," he said. The fund has about $40 million of assets under management so far.
This quarter Fifth Third plans to introduce a quantitative structured product that uses a long-short investing approach, Mr. Wirtz said.
