New SMAs Must Vie With Mutual Funds
September 15, 2003
It may be getting awfully crowded on the separately managed account playing field. But if a firm has truly talented managers that offer great performance, and management is willing to focus the firm's efforts and resources on distributing to a few select sponsors, it can carve out a successful path.
That's the belief of John H. Streur, Jr., president and CEO of Portfolio Services Group (PSG) of Chicago, the not-quite one-year-old service firm created by asset management firm Affiliated Managers Group. AMG created PSG late last year to offer centralized SMA sales and administrative servicing to any of its affiliated investment firms interested in offering SMAs.
PSG is itself a spin-off division of The Burridge Group, an AMG affiliate. AMG, which typically acquires between a 50% and 70% equity stake in its affiliated management companies, allows those firms to operate autonomously. AMG currently has 17 affiliates with a combined $77 billion in assets under management, and as such, weighs in as the ninth-largest separate account asset management group by assets, according to Cerulli Associates of Boston.
Money Management Executive Editor-at-Large Lori Pizzani recently spoke with Streur to assess what challenges and successes PSG has seen in building an SMA capability for AMG affiliates. An edited version of their discussion follows.
MME: Why was Portfolio Services Group created?
Streur: As we looked across AMG's affiliates, we saw that although a couple of the firms in the AMG family already had a strong presence in the SMA channel, most did not. Many didn't want to offer SMAs on their own. Others were used to just dealing with institutional investors and wealthy families.
We looked at those that had no presence in the channel and found that some of their investment products could be outstanding offerings. One year ago, across all of our affiliates, we created a multi-attribute product that broadly combined various aspects of our affiliates' expertise. We partnered with Wachovia Bank for that first multi-disciplinary portfolio offering. Then we went back and discussed how other excellent investment products from our affiliates could be outstanding if offered to other sponsor companies through SMAs.
So PSG was created. AMG, as the holding company, has seen fit to support the effort and has provided us with services as well as financial support.
MME: Why was PSG spun off as a company separate and apart from The Burridge Group, instead of making it a part of Burridge?
Streur: We wanted to make it clear that this initiative was over and above the Burridge business model, and make our servicing and distribution capabilities available to other affiliates. We wanted the affiliates to be comfortable that this effort was being structured so that there were no conflicts of interest.
We let them do their excellent investment management, while we centralized everything else. We provide the electronic links, do the portfolio accounting and reconciliation, and handle all of the sponsor interfaces and distribution. We do everything except the investment management.
Initially, PSG began by offering multi-attribute portfolios. It then broadened it to include SMAs. We are now finalizing a strategy to allow affiliates to have us do the administrative work and all support for any mutual funds they also manage, if they want us to. We are asking affiliate by affiliate.
MME: Are all of AMG's affiliated investment managers participating in this effort to tap into the SMA market?
Streur: No, and they are not going to be required to participate if they don't choose to. It is up to them.
Right now we have six participating investment firms: Essex Investment Management and Frontier Capital, both of Boston, Renaissance Group of Cincinnati, Systematic Financial of Teaneck, N.J., and The Burridge Group, which includes Sound Capital Partners. For an affiliate, it's a great way for them to extend their reach. But for some, their business model may be different. We think some more of our affiliates would be excellent, but if the affiliate doesn't want to, that's fine.
MME: Has the mission changed at all since PSG first debuted late last year?
Streur: Yes. We've broadened our offerings. Also, in the early days of PSG, if you offered two investment disciplines, that was fine. But now, at the sponsor level, the research people want to be more effective. They need someone who can provide a broad perspective and a broad view. Now PSG can offer a full suite of investment management, and sponsors know that we have six excellent products, and our list is growing.
MME: Do PSG's services to affiliated asset management firms also include a sales force to work with sponsors?