When Phoenix Cos. Inc., a Hartford, Conn., financial services company, bought Harris Bank's fund family in March, it appeared to be just another bank's proprietary fund arm being swallowed up by an opportunistic acquirer.
But five months later, an executive at Phoenix says the Harris Insight Funds are adding more than just scale. The 18 portfolios, renamed the Phoenix Insight Funds, are filling significant product gaps and could buoy organic growth for Phoenix, which now offers 69 funds.
"Performance Darwinism has really taken hold in the mutual fund industry," said Steve Gresham, an executive vice president of Phoenix Investment Partners and a corporate senior vice president. "We know that we can't be great at everything, so when we come along and find someone doing something great, we have to take a look at them."
Mr. Gresham said that when Phoenix bought the Harris portfolios it got a series of five quantitative-style funds and a group of strong money market funds. "Harris had funds with four- and five-star capabilities in addition to a family of strong money funds that are performing in the top 1%," he said. "We found a fund unit that was doing something unique, and we want to harness that."
William Leszinske, the president and chief investment officer of Harris Investment Management Inc., a division of the Chicago bank, said in March that the company sold its funds, with about $10.5 billion under management, in order to focus on its strength in investment management and to avoid the need to commit capital for administrative and distribution infrastructure.
Phoenix is committed to increasing these products' distribution, Mr. Gresham said. It announced this month that it had hired two executives from Harris - Bernard A. Whalen as a senior vice president of national accounts and Mary E. Genet as a senior vice president of national institutional sales - in order to bolster distribution.
Mr. Gresham said these executives would focus on doing much the same things they did at Harris but on a larger distribution platform.
He said that he believes, as consolidation continues throughout the industry, "there will be more opportunities … as people continue to look for additional products."
Phoenix, which had $43.3 billion of assets under management at June 30, will continue to face significant competition for deals from companies like Federated Investors, which has been an active buyer in recent years, analysts said.
Federated has added $376 million of mutual fund assets this year by purchase, and it had $210.5 billion under management at June 30. It has closed nine deals for equity and bond assets since 2000.
In addition to the assets added from Harris, Phoenix has made three other fund deals this year - for two Janus portfolios that are subadvised by Vontobel Asset Management, the New York investment subsidiary of Switzerland's Bank Vontobel AG, and for Turner Strategic Growth Fund from Turner Investment Partners in Berwyn, Pa.
"I'd say the opportunities for more deals are out there, but companies like these need to also look for organic growth," said Burton Greenwald, an analyst at BJ Greenwald Associates in Philadelphia. "That will only foster more deals."
Mr. Gresham agreed that strong organic growth would be an important component of Phoenix's continuing strategy. "We want to emphasize that this is a collaborative opportunity," he said. "Our future horsepower is from developing collaborations."
The Harris deal also created additional money market opportunities for Phoenix. Money market funds made up only $7 billion of Phoenix's assets before the deal, but Harris Insight Funds added three money-fund portfolios, with almost $3 billion of assets.
These money market portfolios could end up being a hidden jewel in the deal, Mr. Gresham said.
"We were attracted to Harris, but we weren't necessarily looking for money market funds," he said. "This is part of the entire opportunity with Harris. This was really the frosting on the cake."
