BOSTON -- BankBoston Corp. chose the slow path to re-enter the institutional asset management arena. And despite claims by officials that business is booming, institutional assets under management have been stalled at $6 billion since Jan. 1, 1998.
Rather than push into national competition, BankBoston is building up the business through regional relationships.
Robert Garty, brought over last fall from the private bank division to run institutional asset management, said BankBoston is relying heavily on its banking connections with midsize corporations and municipalities to provide institutional asset management opportunities.
He said a national strategy to increase institutional assets wouldn't be in line with the bank's overall regional strategy to leverage all New England corporate relationships and secure important medium size businesses elsewhere as well.
The bank began building an internal, institutional asset management practice in 1995, after it was freed from non-compete prohibitions following the bank's 1989 sale of asset manager Dewey Square Investors, Boston.
BankBoston increased the business to $3 billion in institutional assets by 1996, then received an additional $2 billion and 13 small institutional accounts when it acquired BayBanks in 1997. It's been slow going ever since.
Mr. Garty said the unit won plenty of new business in 1998, but declined to provide a dollar figure or the number of new clients.
BankBoston, in fact, lost several clients in recent months, after a prolonged period of poor equity performance and the departure of two former BayBanks institutional asset managers.
In mid-December, the Town of Maynard (Mass.) Retirement System terminated its relationship with BankBoston. Harry Gannon, chairman of the city's retirement committee, said the board was concerned about changes in the bank's asset management organization since it bought it from BayBanks in 1997. The town's $10 million defined benefit plan went to Boston Advisors Inc.
The $55 million Everett (Mass.) Retirement System also terminated BankBoston, its only manager, and hired Freedom Capital Management, Boston, on an interim basis, until Everett can conduct a search for two new managers.
The $135 million New Bedford (Mass.) City Retirement System is searching for a domestic large-cap to midcap growth equity manager to handle $25 million to $30 million that is now managed by BankBoston. Executive Director Robert J. Allain said BankBoston was being replaced because of performance problems and manager departures.
BankBoston's institutional equity investments returned -10.71% for the third quarter, compared with the -9.95% Standard & Poor's 500 stock index. BankBoston underperformed the benchmark slightly in 1997 and 1996, but outperformed it for the three years before that.
BankBoston began reorganizing its institutional asset management division in late December, moving away from the quantitative management style used by BayBanks to a fundamental style, to include sector and industry weightings. Bank officials would not discuss the effect the change would have on current portfolio managers.
BankBoston appears to be pushing harder in areas other than institutional asset management. It paid about $800 million to BankAmerica Corp. this summer for the Robertson Stephens brokerage subsidiary in San Francisco, to strengthen BankBoston's brokerage abilities. BankBoston expanded its own investment banking functions in December 1997.
It also sold its institutional custody business this summer to Investors Financial Services Corp. for about $50 million. BankBoston had about $45 billion in institutional assets under custody. BankBoston said the bank was unwilling to commit the resources necessary to increase that operation; officials also said they did not expect the sale to affect their institutional asset management business.
BankBoston manages more than $27 billion in total assets, of which about $9 billion is in mutual funds.
A regional banking-driven strategy can produce a viable asset management operation, said Norm Lubin, chairman and chief executive officer of FMS Group Inc., Blue Bell, Pa., a sales and marketing consultant for investment management firms.
"Getting into the game late, they may have thought the cost of entry was too prohibitive to create a group with a large national focus," he said. "A regional business is a good strategy if you have good product, good relationships and a geographical network."
It's uncertain what would hold back a bank that was determined to enter the asset management business, said Rich Ranallo, consultant at Segal Advisors Inc., Cleveland.
"If you are committed to doing this, you have a competitive pay structure, bring in the right marketing and portfolio managers and hustle. It's a tough job, but there are a lot of people out there that are very good at it," Mr. Ranallo said.
Mr. Garty said the bank has provided the asset management unit with the resources to grow by supporting technology purchases and bringing on a new client services person. The bank is committed to the business, even though the two portfolio managers who departed this summer, equity manager Lawrence Kimball and fixed-income manager Todd Finkelstein, were not replaced, he said. The group's remaining 10 institutional portfolio managers have an average of 10 years' experience. He said competitive salaries are offered, but would not elaborate.
The $800 million in institutional accounts the two men managed were distributed among other managers in the group, Mr. Garty said. Messrs Kimball and Finkelstein now manage institutional assets for Boston Advisors Inc., Boston.