CHICAGO - First Chicago Corp. re-established an investment management subsidiary and is looking to buy a mutual fund company for a retail thrust, said Stephen Baine, president of the new unit, First Chicago Investment Management Co.
The unit began operations last week and has $27 billion under management. About $16 billion of that is managed by ANB Investment Management, the investment unit of First Chicago subsidiary American National Bank, Chicago.
Mr. Baine said FCIMCO is focusing on five areas: retail mutual funds; defined contribution; defined benefit; trust and high net worth individuals; and corporate cash management.
First Chicago's move back into money management follows the expiration last year of a non-compete clause with Brinson Partners Inc., which was spun off from First Chicago in 1989.
Coincidentally, Chicago-based Brinson was purchased last year by Swiss Bank Corp., Basle, Switzerland.
While the new unit has an established presence in defined benefit management through ANB and in trust investment with $9 billion in assets, FCIMCO will need to grow significantly in the retail mutual fund and defined contribution markets, industry experts said.
First Chicago's existing mutual funds, sold under the First Prairie banner, were all money market or cash management vehicles, with only about $2 billion in assets, mostly from institutions.
Given that, it's not surprising First Chicago is looking to buy a mutual fund company, they said.
Ken Hoffman, president of the Optima Group, a Milford, Conn., consultant, said if First Chicago is serious about getting into the retail market, an acquisition "is advisable." Given Illinois' historically unfavorably environment for retail banking, none of Chicago's banks is in a strong position to build a retail mutual fund franchise, he said.
Brad Hearsh, managing director in investment banking for PaineWebber Inc., New York, said it's not too late for a bank like First Chicago to play a major role in the mutual fund arena.
Mr. Baine declined to name any of the mutual fund firms FCIMCO is considering.
Regarding FCIMCO's planned defined contribution offerings, FCIMCO hired Putnam Investments to provide record-keeping and transfer agent services. Plus, FCIMCO will offer potential defined contribution clients both Putnam's and its own family of mutual funds.
FCIMCO plans on boosting the number of its funds, renamed the Prairie Funds, to 16 from six now, he said.
FCIMCO has the following types of retail funds in registration with the Securities and Exchange Commission: two asset allocation funds, three U.S. equity funds, a U.S. bond fund, an international equity fund, an international bond fund, an intermediate municipal bond fund, and three money market funds. The money market funds will come from existing First Chicago funds, as will FCIMCO's four institutional cash funds.
Concord Financial Group, New York, will act as distributor of the funds, according to registration materials.
ANB, First Chicago's existing link to institutional management, will continue in its role as First Chicago's manager of defined benefit assets.
Stephen Manus, president of ANB, said changes at ANB from the creation of FCIMCO should be minimal. "We're telling people it's business as usual," he said.
While ownership of ANB was transferred to FCIMCO from American National Bank, a bank wholly owned by First Chicago, no major changes are anticipated because of the move.
One change, however, is that ANB will manage the Prairie Funds' active international equity mutual fund, an area in which ANB just introduced a product and now manages $20 million to $30 million in assets.
Mr. Manus said future interaction between ANB and its parent is likely to be similar in that ANB will manage assets in which it already has experience, such as indexed funds management.
First Chicago has about $9 billion in trust assets under management, and about $1 billion in corporate cash.
Late last year, First Chicago closed its futures management unit, First Chicago Trading Consultants, in the process ending a joint venture with Millburn Ridgefield, New York, to offer currency overlay to institutional investors.