CHICAGO - First Chicago NBD Investment Management Co. will develop index mutual funds for the 401(k) market under its ANB Investment Management Co. unit and replace ANB's president and longtime leader, Stephen P. Manus.
J. Stephen Baine, president of First Chicago NBD Investment Management and non-executive chairman of ANB, said the goal is to capture more business from 401(k) plans and financial planners.
"I wish we would have done this two years ago," he said, referring to the boom in the 401(k) market.
ANB was a pioneer in developing index funds more than 20 years ago, but more restrained in marketing them. It manages a total of $25 billion, the vast amount in index funds, he noted. But less than $2 billion of that is from 401(k) plans, he added. ANB is one of the largest managers of index funds for defined benefit pension plans.
As of Dec. 1, ANB managed $22.87 billion in total index assets, including $21.86 billion for pension and other tax-exempt clients, according to the company.
First Chicago NBD, excluding ANB's assets, manages $55 billion, with only $3 billion of that from 401(k) plans, he added.
First Chicago NBD considered several options, including the sale of the index business. "But we decided we want to keep it and grow it more robustly," he said.
Key people at ANB will take the lead in developing the index mutual funds, including Neil R. Wright, chief investment officer; Paul Daley, head-passive equity; and Kenneth M. Sobolewski, national sales manager. They couldn't be reached for comment.
Mr. Baine said Mr. Manus is exploring other opportunities, although he declined to say what they are or how soon he will leave. He likely will leave in a few weeks.
"We parted way on the views of the business strategy," Mr. Baine said, declining to elaborate. Mr. Manus declined to comment.
Mr. Baine said First Chicago NBD hasn't decided on a replacement for Mr. Manus. Mr. Baine said no other changes in personnel at ANB are anticipated.
James Kartalia, who left his post as ANB managing director about a year ago, said Mr. Manus would be difficult to replace because of his experience in indexing and in the pension fund community.
Because Mr. Manus so well regarded, Mr. Kartalia said First Chicago NBD should be concerned about potential defections of ANB employees and pension clients. Mr. Kartalia noted that in 1981, when several key employees departed, there was a major loss of clients.
Although ANB has no mutual funds of its own, it manages index mutual funds for Federated Investors, Pittsburgh. Federated executives could not be reached for comment. Federated has Standard & Poor's 500, midcapitalization and small-cap index mutual funds, all managed by ANB since about 1990.
Mr. Baine said ANB's own mutual funds are still in development. But he expects ANB could begin by offering five index mutual funds, including an S&P 500 and an international portfolio.
Mr.Baine said he hopes ANB will be ready to register the new index mutual funds by midyear and begin marketing them in the second half.
He said ANB will keep its commingled index funds, which are attractive to ANB's traditional defined benefit, endowment and foundation clients.
He doubts ANB will target the retail mutual fund marketplace.
ANB pension fund clients include NYNEX Corp.'s NYNEX Asset Management Co., New York; Polaroid Corp., Cambridge, Mass.; and Peoples Energy Corp., Chicago.
These clients and others contacted either declined to comment or couldn't be reached.
First Chicago NBD Investment Management - which was formed about a year ago following the merger of parent company bank holding companies First Chicago Corp. and NBD Bancorp, Detroit - manages 26 mutual funds with $14 billion under the Pegasus label. Pegasus was created when the two banking groups merged their mutual funds.
Pegasus has one index fund, an S&P 500 fund, which was a holdover from an old NBD fund. It is managed by First Chicago NBD.
Of ANB's tax-exempt assets, $17.01 billion was in domestic equity index funds, the vast amount in an S&P 500 index fund; $5.45 billion in domestic fixed-income index funds; and $228 million in international index funds.
ANB manages only $35 million in enhanced index funds for tax-exempt clients, which is included in the tax-exempt total.
As of Dec. 1 ANB ranked eighth with a 2.6% market share among index fund managers in terms of total index assets managed for tax-exempt clients (see table on page 24).
ANB's ranking has fallen in Pensions & Investments' surveys. In December 1987 statistics, it ranked fifth with $10.25 billion in total tax-exempt index funds and a 5.9% market share. In December 1992 statistics, it also ranked fifth with $17.5 billion in total tax-exempt index funds and a 4.3% market share.