BB&T Corp.'s mutual fund family has had a dramatic gain in assets over the past year, and the bank's asset management arm is laying the groundwork for more expansion.

On March 31 of last year BB&T Asset Management had $2.2 billion of long-term mutual fund assets under management; by the end of April 2010 it had $3.1 billion. Tony DeLucia, director of distribution at BB&T Asset Management, credited the improvement to both performance and to new distribution relationships.

"The new agreements that we signed last year have started to bear fruit," he said.

BB&T Asset Management distributes through advisers, brokers and banks, and it sells through institutional channels as well. In fact, the business recently created an R-share class for several of its better-performing mutual funds. Those shares, which do not have up-front sales charges but do have 12b1 fees of 50 basis points, are designed for the defined benefit and defined contribution markets.

The effort to distribute those shares through the consultative sales process that's typical of the retirement plan world is "in its infancy stages," DeLucia said.

BB&T Asset Management's head count, already low, is one challenge the business faces in increasing its distribution, he said. It has two external wholesalers and four internal wholesalers. The use of huge wholesaler forces has become less common over the past few years, but not using them to at least some extent is not a realistic approach, DeLucia said. "Much of the investment decision-making is done through the back office now," he said. "However, at the end of the day, you need people in the field who can strengthen those relationships."

In the wake of the financial crisis, budgets have been locked down throughout the industry, and BB&T is no exception, DeLucia said. But BB&T Asset Management hopes to ease back into expansion mode over the next year or so, he said. "Resources are becoming more available, but adding bodies continues to be a challenge."

Specifically, DeLucia wants to add external wholesalers and business development people in an effort to expand beyond BB&T Corp.'s footprint and into the Midwest, Northeast and West.

Denise Valentine, senior analyst at Aite Group, said that there have been inklings of asset management firms beginning to hire. But the hires she has heard of have been in technology, audit and compliance. However, a recent Aite survey found that asset managers' top priorities include sales and service.

DeLucia would not specify with whom BB&T Asset Management has added new distribution relationships, but he did say that over the past year they have included regional brokerages, banks and clearing firms.

More deals are in the works, with additional players ranging in size from regionals to wire houses, he said. And he noted that BB&T's three- and five-year performance numbers, and the 10-year performance in some disciplines, have been decisive in marketing efforts.

BB&T's fund family is built to seek above-average returns at below-average risk over the course of a market cycle. Recent performance bears out the lower-risk positioning: the long-term funds posted an average loss in 2008 of 19.9%, significantly less than the 25.2% loss posted by other funds in the same category, according to Morningstar Inc. In 2009 and 2010, the 25 equity and fixed-income funds did well, but trailed their peers by a small margin, averaging a 21% return in 2009 versus 22.8% for funds in the same categories, according to Morningstar.

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