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Managed Accounts Broaden Offerings

A number of separate-account investment platforms have recently broadened their offerings, which, at the end of the first quarter of 2003, collectively sported $729 billion in assets under management, according to Cerulli Associates of Boston.

Program providers are anxiously adding new managers, capabilities or multi-strategy functionality to broaden their stable of non-proprietary offerings to appeal to a broader client base, most notably high-net-worth clients. All roads point to firms hoping to entice investors and bolster their coffers.

Two weeks ago, Prudential Financial announced it was enhancing its Managed Accounts Consulting Services (MACS) program by adding a dozen brand new multi-strategy portfolios. Each portfolio offers wealthy investors individually managed accounts that combine investments across different asset classes and investment management styles woven into one account. A lead portfolio manager, also called an overlay manager, will be charged with monitoring and rebalancing clients' asset allocations. Portfolio minimums range from $100,000 to $250,000.

Included in the program are individual investment managers from Eaton Vance Management, ING Managed Account Group, Phoenix Investment Partners, PIMCO Advisors and Portfolio Services Group (PSG). PSG is a division of investment manager The Burridge Group, which, in turn, is an affiliate of asset manager Affiliated Managers Group (AMG). PSG was formed early this year to distribute several of AMG's managers' separate account capabilities through broker/dealers and banks. Prudential's program also includes two portfolios managed by Jennison Associates, Prudential's equity asset management subsidiary.

While Prudential's MACS program is sold predominantly but not exclusively through Prudential's financial advisers and has been around for years offering individual separately managed accounts to clients, the addition of the multi-strategy portfolios allows clients to better diversify assets, according to Prudential. "We are always searching for ways to offer packaged solutions to advisers to help them offer solutions to investors," said Janet Mariconti, senior vice president, investment management services at Prudential.

Multiple Strategies

This past March, GE Financial's $2 billion separately managed account unit, GE Private Asset Management (GEPAM) of Sherman Oaks, Calif., also launched a new lineup of multiple strategy portfolios. Last week, the program added seven new institutional investment managers, bringing its roster to 19 managers.

GE has bragging rights to inking an exclusive arrangement with Analytic Investors of Los Angeles, which employs a high dividend yield strategy. "That strategy has been a sleeper through the bear market," said Ron Rough, vice president, director of portfolio management at GEPAM. But the investment style is poised to roar back to life because of the imminent dividend tax rate cut, he said.

GE Financial acquired GEPAM, formerly named Centurion Capital, in 2001. The unit began life in 1985 as a wealth management spin-off from broker/dealer Bateman, Eichler, Hill & Richards. Now, the firm hopes to build the business by expanding both product offerings and distribution through alliances and/or acquisitions, Rough said.

Other financial services firms are recognizing the need to provide, for the first time, managed account services, even if they dont create them internally.

Just three weeks ago, Citizens Banking Corp. of Flint, Mich., which has $7.8 billion of assets under management, announced it would offer both a mutual funds wrap program and managed account platform from SEI Investments of Oaks, Pa. Up until now, its high-net-worth Citizens Bank Wealth Management unit had been offering trust services to clients along with individual securities and mutual funds, including its proprietary Golden Oak Family of Funds.

"Citizens made a strategic decision to transform its business model and become fully competitive in the comprehensive wealth management and advisory space," said Dale Sielaff, president and CEO of the unit. The driving force was the need to provide clients with what they were looking for, namely best-of-breed investments and open architecture, Sielaff said.

SMA Scramble

At the same time some SMA programs have been partnering with outside money managers, money mangers have also been looking to get onto programs.

In mid-May, AIM Private Asset Management, the SMA division of AIM Management of Houston, announced that two of its internal investment style capabilities were being added to the managed account program of FundQuest. FundQuest is the 10-year-old Boston provider of customized mutual fund wrap and separately managed account programs for banks and insurance companies. This marked the first time AIM's capabilities were being offered within FundQuest's platforms.

Having one or more proprietary investment capabilities included within a big player's managed account platform is critical for the success of any provider's SMA program, said Mark McMeans, president of AIM Private Asset Management. But what's equally as important is having availability through a breadth of distributors, he added. The trick can be deciding what you do best, which styles will translate into the SMA universe, and what you anticipate future SMA programs' needs will be.

In 1999, AIM spent several months assessing its fund lineup and deciding what core competencies would naturally extend to the SMA market, McMeans said. From that soul searching, AIM identified six core competencies that are now seeded within SMA programs, including those of Merrill Lynch and UBS Paine Webber. AIM has found that its intrinsic value style has been the bestseller in the SMA channel, he added.

What follows is often an exhaustive, and time-consuming series of tasks that must be performed just to have your style considered for inclusion, McMeans said. SMA sponsors' research groups do a tremendous amount of due diligence in finding managers to fit their bill across investment performance, operations, compliance and other capabilities. "It can take months or even take years, if you get on the program at all," McMeans said.

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