Long the unsung heroes of institutional asset management, money managers at banks say they are turning the corner by upgrading and expanding their business.
At the core of most of their augmented methods are technological improvements, according to investment executives speaking here last week at the American Bankers Association private banking and trust conference.
The demand for high performance from institutional investors has led to a ratings race that banks "need to respond to with an arsenal of technology-driven solutions," according to Young D. Chin, managing director and chief investment officer of PNC Asset Management Group.
Mr. Chin added that investment decisions must still be made on a customer-by-customer basis, "but technology does provide a strong assist."
Most agreed that keeping up with nonbanks in marketing has become more difficult than in past years when they were limited from participating in corporate finance. Now they say they are coming out competitively.
"Banks are starting to step up to the plate and are in a position to take share back," said Stephen E. Doty, senior investment executive for global asset management and private banking at Chase Manhattan Bank.
"The banks found themselves at a disadvantage for a long time because of bureaucracy and regulations that competitors did not have on the nonbank side," Mr. Doty said.
As regulatory barriers are lowered, banks are filling out business lines that appeal to institutional clients in order to compete better with Goldman, Sachs & Co. and other bulge-bracket firms. For instance, Chase announced plans last week to build up equity underwriting.
"To the extent we can do that, we can hook clients in better," Mr. Doty said.
Audience members said another boost is that banks are losing their reputation for being cheap on professional staffing.
"Banks are becoming much more like their nonbank competitors culturally (because of) the people they hire and the way they pay them," said William A. McNickle, vice president of Harris Bank, Chicago.
Some banks are hiring specialist analysts to put checks on risky investments so the ultimate fiduciary responsibility-not blowing clients' assets-is upheld.
"Banc One is a very conservative shop," said Scott Grimshaw, derivatives manager, fixed-income research, at Banc One Corp., Columbus, Ohio. "They brought me in to build policies and prohibit these sort of things."
Another speaker said fallout from Bankers Trust New York Corp.'s derivatives scandal had dissipated and the use of futures, options, and structured notes has regained favor with bank clients.
"People have moved away from using derivatives to make money," said Townsend Walker, senior vice president of BankAmerica Corp., who works in fixed-income portfolio management for the bank's leasing and capital group. "It got removed from the hedge arena and went into the gaining arena."
Although they cannot advertise much of their investment performance- billions of dollars managed by banks are in common trust funds that cannot publish returns-marketing by banks has been emboldened by acquisitions of niche managers.
KeyCorp acquired a New York money manager, Spears, Benzak, Salomon & Farrell Inc., in 1995. A former principal of the wholly owned yet separately managed firm, William G. Spears, is now group executive for asset management at the parent company.
Several bankers have decided, in effect, if you can't beat them, buy them-with the associated image.
"There are clients who don't want their money managed by a bank; they want their money managed by a boutique," said Daniel E. Klimas, KeyCorp's executive vice president for private banking and investing. "It's not necessarily a quantitative decision; it's an emotional one."