Companies increasingly are using their name recognition in the mutual fund arena to go after tax-exempt assets - the flip-side of the trend toward pension fund managers vying for mutual fund business.
Their institutional asset growth is led by defined contribution plans, but business from other tax-exempt plans also is trickling in. Midsized fund companies are aggressively courting the business to stabilize and diversify their stream of revenues and earnings.
Just last month, Berger Associates Inc., Denver, named Craig D. Cloyed vice president and chief marketing officer to launch a new institutional sales effort. He formerly was a senior vice president of INVESCO Funds Group in Denver, where he spearheaded the firm's institutional marketing program.
Berger's assets have doubled to $3 billion from $1.6 billion in 1993, through direct marketing. Mr. Cloyed also will oversee that effort.
Berger's institutional effort will place a special emphasis on 401(k) plans but also will be directed at financial advisers, brokerage wrap plans, variable annuities and no-transaction-fee programs.
Another example is Bramwell Capital Management, New York, where founder Elizabeth Bramwell made her name as portfolio manager of the Gabelli Growth Fund. She left in February 1994 to start her own shop.
So far, she has attracted $100 million in separate account assets. Usually a firm doesn't have a prayer of attracting tax-exempt assets until it has a three-year track record; her star status at Gabelli Growth gave her a pass on that golden rule.
All of Bramwell's institutional accounts are new. "We didn't take business with us," Ms. Bramwell said.
A I M Advisors Inc., Houston, which hired Robert Bartkowiak from Barnett Banks Trust Co. N.A., Jacksonville, Fla., in November, attracted $100 million for its mutual funds in the past six months. The firm also might launch a separate account effort.
A I M, known for its aggressive growth and large-cap funds, is targeting investment consultants and consultant alliances to build its 401(k) business, but does not do record keeping or offer a bundled approach.
Janus Capital Corp., Denver, has grown its separate account and defined contribution mutual fund assets to $6 billion from $1 billion since 1990.
"We are primarily known for the fund side of the business. .*.*. In 1990 to 1991 real exceptional performance and strong PR catapulted us into more of an institutional audience," said Mark Shiston, chief marketing officer.
As growth investing went out of favor, Janus, which like A I M offers an investment-only product to defined contribution plans, became proactive, talking to consultants.
"Someone on a fund (board) owns a Janus fund for their IRA or for college planning. It does help you. You're not going in completely cold," he said.
"There's no question the retail name helped us dramatically in building that institutional business."
Strong Capital Management, Menomonee Falls, Wis., which has been marketing to institutions for some time but is still bigger and better known in mutual funds, just hired Michael Fisher, a well-known institutional marketer, from Equitable Life Assurance Society of the U.S., New York.
Similarly, Dreyfus Corp., New York, hired Stephen Canter, former vice chairman and chief executive officer of Kleinwort Benson Investment Management Americas, as its vice chairman and chief investment officer in May.
And, Founders Group, Denver, after hiring two marketers recently, is seeking three more executives to build the firm's institutional presence.
Public relations helps
Favorable publicity about fund performance helps lure institutions to these firms.
"Plan sponsors and consultants come to us because they've seen the performance of a fund," Mr. Canter said. Also, he noted, "we're not institutionally oriented, but we are a large multiproduct firm."
While the inroads these fund companies are making in the defined contribution area are not threatening top players, company officials believe their influence will grow.
"Institutional is definitely the fastest growing part of our business," said Greg Contillo, vice president and director-institutional marketing and sales of Founders Group.
A year ago, Founders divided its institutional effort into three departments: Founders Advisory Services, which focuses on fee-based financial planners and no-load wrap-fee programs; the traditional institutional area, which markets Founders mutual funds through consultants and 401(k) consultant alliances; and Subadvisory, through which Founders manages money for variable annuities and other fund companies.
Founders was 95% retail-oriented when Mr. Contillo joined the firm 31/2 years ago. Now, one-third of its $2.8 billion is what it calls "institutional" assets, incorporating the three departments, and $500 million of that is in separate accounts and subadvisory mandates.
Of its $80 billion in assets, Dreyfus runs $1 billion in defined benefit separate accounts and $15 billion in "retirement" accounts, including defined contribution plans, individual retirement accounts and Keoghs.
"We see our separate account business growing at Dreyfus. We have seen an increase on the part of various plan sponsors in some of our investment capabilities for similar (accounts) or clones of one of our mutual fund products, especially small cap," Mr. Canter said.
He also sees interest among midsized plan sponsors in balanced management.
"We will be pursuing a much more focused business strategy to the separate account business based on the market segments we're targeting but also on the products we offer to these markets. For instance, one of (our) new managers likely will run a conservative large-cap value fund," which might be cloned as a separate account, he said.
Smaller plans most interested
While small to midsized funds are embracing these fund companies, consultants to large tax-exempt plans don't see them shifting to these mutual fund managers.
"I just haven't seen smaller mutual fund mangers appearing more often (in searches). There's no special appetite on the part of plan sponsors to go after smaller firms or lesser known firms," said Doug Patejunas, principal of Ennis, Knupp & Associates, Chicago.
Often, defined contribution plans are "looking to package things up and get all things from the same family. If they're going with a single group, they go with a group that offers the broadest array possible," Mr. Patejunas said.
"Companies that are thinking of getting into it may be making their move too late. Fidelity is huge. Vanguard and T. Rowe Price are significant. Other companies may find it rough going, even funds with some presence," said Paul Reis, mutual fund analyst at Morningstar Inc., Chicago.
For instance, Scudder, Stevens & Clark, New York, is moving aggressively, yet it still doesn't show up in the top 10 among 401(k) plan managers "even though they're a huge complex."
"A small fund-only complex would have an even harder time unless it has an outstanding niche," like Twentieth Century Funds, Kansas City, Mo., in growth stock investing, he said.
Michael Beasley, managing director of Strategic Investment Solutions, San Francisco, agreed. "It's changing but it's a slow process. We're in the early stages of a conversion from defined benefit to defined contribution plans, which has raised the visibility of fund companies and allowed them to diversify their revenue base away from 'hot money investors,'*" Mr. Beasley said.
"There are still a lot of defined benefit and 457 plans that have not added the defined contribution side. There's still room to go."
