When Comerica Inc. sold its fund unit in late December, it appeared the Detroit company had followed the overriding industry trend toward open architecture and out of proprietary asset management.
Not so fast, said Todd B. Johnson, the president of World Asset Management, the index-based fund unit that Comerica retained after the management-led buyout of Munder Capital Management.
"Comerica is getting out of proprietary active management, but it is not getting out of passive index funds," said Mr. Johnson, who was promoted to president of the unit last week. "When I think of proprietary funds, I think of an active manager picking stocks. I don't think of indexes."
Mr. Johnson said World Asset Management has been a Comerica business unit since the mid-1970s. Now a division of the $58.5 billion banking company's wealth and institutional management division, it manages 30 index-based Comerica Collective Funds that are geared for institutional investors, but only half of its business comes from Comerica. World Asset Management also subadvises index funds for E-Trade Financial, Munder, and Calvert Group Ltd.
"Passive index funds have always been associated with banks," Mr. Johnson said. "The largest managers of these products are companies like Barclays, State Street, Mellon Capital, and Northern Trust. In the index world, it is advantageous to be associated with a major trust and custody bank. I joined here in 1986, and I can tell you that we are as successful as we are because we are affiliated with a bank."
Analysts said banks may not face the same conflicts associated with offering proprietary actively managed funds to their customers, but customers want best-of-breed.
Mr. Johnson said Comerica and other banks are divesting their actively managed funds, but most are not eliminating their passively managed products.
"If a bank has actively managed products, they can underperform or outperform the market, and that creates conflicts," he said. "But in an index shop, the goal is to match the market, and as long as we do that there are no conflicts."
Mr. Johnson, who had been a managing director and remains the unit's chief investment officer, said he expects its profits to double in the next three years. Its assets under management are up 9.7% since the end of 2005, to $17 billion.
He plans to increase the unit's revenue by expanding distribution and creating new products.
"The market is very volatile; it is constantly going up and going down," he said. "But long-term, this is a successful and growing business. When I started here in 1986, there were two employees and $1.6 billion in assets under management. We merged with Munder in 1995 and we had $5.8 billion. Now we have $17 billion."
