Great Western May Sell Mutual Fund Unit

Reversing course from a strategy that was once seen as holding great promise for banking institutions, Great Western Financial Corp. said Wednesday that it is considering selling its mutual fund subsidiary.

The Chatsworth-based parent of the nation’s second-largest thrift said it will explore several options for Sierra Capital Management Corp., including a joint venture partnership with another financial institution. Great Western has hired the investment banking firm Goldman, Sachs & Co. to market the fund unit.

Sierra Capital, with $3.4 billion in assets, manages a family of 15 mutual funds. The company, founded in 1989, was one of several mutual fund subsidiaries started by banks and savings and loans hoping to capture some of the explosive growth of the fund business. But some industry observers have suggested that Sierra Capital’s results have been disappointing recently.

Ian Campbell, a Great Western spokesman, denied that Sierra Capital has under-performed. He characterized the search for a partner or buyer as a recognition of the need to either pool resources to fuel growth or get out of the fund business entirely and devote efforts to faster growing sectors.

“The mutual fund business nationally has become increasingly competitive and increasingly driven by institutions with substantial economies of scale,” Campbell said. “Our judgment is it would take a great deal longer to grow the business through internal growth than to find someone to align ourselves with.”

He noted that a similar rationale has prompted other recent mutual fund mergers. In June, the securities firm Morgan Stanley Group Inc. agreed to acquire Van Kampen American Capital Inc., a major player in the mutual fund industry. A few days later, Franklin Resources said it would buy Heine Securities, increasing its presence in the mutual fund industry.

Even so, Barry Rubens, president of California Research Corp., a Santa Monica bank-consulting firm, said he was surprised at Great Western’s decision to possibly leave the mutual fund business. “Many other companies seem to be wanting to be in it and have made a success of it,” he said.

Campbell said that a possible sale of the mutual fund subsidiary is “absolutely unrelated” to Great Western’s continuing legal problems stemming from the way the funds were marketed.

Great Western is the target of state and federal lawsuits brought by investors who say they were duped by salespeople who led them to believe the funds were federally insured.

The thrift denies the allegations and continues to fight the complaints. But the issue has generated a great deal of negative publicity, as plaintiffs have picketed Great Western’s annual meeting for the last two years.

Great Western Financial Securities Corp., the thrift’s broker-dealer subsidiary, would not be part of any sale and is the focus of internal expansion plans, Campbell said.