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SMA Assets to Reach $718 Billion in 05: Firms Look to Solve Multi-Currency Issues


Separately managed accounts are poised to continue their growth spurt in 2005, as assets are projected to rise to $718 billion by the end of the year, according to industry trade association Money Management Institute. With assets at $535 billion as of early November 2004, that would mark a 34% increase in assets in the coming year.

Net sales improved to $59 billion during 2004, nearly double from $31 billion in 2003. The MMI is projecting sales for 2005 to eclipse $81 billion, representing a 37% year-over-year increase in sales.

"We're very big believers in the separately managed account industry growing very rapidly," said George Evans, executive vice president of business development for BISYS Investment Services. "We think it will displace some mutual fund assets and attract a new kind of investor."

Underpinning the positive growth outlook for managed accounts is the expansion of users' acceptance of the fee-based approach to building their businesses. "You're not only seeing a push from platform sponsors to broaden their client base effectively, getting more and more of their advisers using the fee-based approach, but also [an increase in] the number of sponsors themselves," said Paul Power, national sales director for third-party distribution at Invesco Managed Accounts, where he oversees the firm's internal and external sales efforts.

While still largely dominated by the major Wall Street wirehouses, non-wirehouse players are starting to scratch the surface. Power observes that it is not something that will happen overnight but exists more as a secular trend. As the education process for advisers becomes more and more comprehensive, the managed account space will develop into a more wide-open playing field, he said.

Power believes that increasing international exposure and adding alternative asset classes such as "portable alpha" will be popular plays in 2005. The winners will be the firms that can truly offer a distinctive product or discipline in the marketplace but remain flexible enough to adapt to changing conditions, he said.

Given the regulatory upheaval of the last two years, there are concerns that trouble could spill over from the mutual fund and brokerage industries. But in terms of distribution, Power indicated that while managed accounts are not entirely insulated from the problems that have pervaded their peers, they managed to steer clear of any trouble. Aside from the decision to use cash or non-cash payments, he said that the face of distribution hasn't changed dramatically.

Evans sees two key trends for the SMA industry this year. First, he expects there to be a shift in the technology providers to which firms outsource their managed account administration. Currently, the industry standard is the Checkfree APL platform, which processes more than one million accounts a day.

However, many SMA participants have grown concerned that the Checkfree application struggles with multi-currency issues and may not be capable of delivering a viable fixed-income offering. Those two areas, according to Evans, play to the strengths of Vestmark, which can support multi-style and multi-currency portfolios while maintaining support of standard industry technologies.

Having said that, he expects more and more firms to utilize the Vestmark platform, which he believes has better feature functionality, including Web-based data delivery. Not only are firms looking for a new platform that offers some of those features but they're also looking for an alternative to an internal operation, Evans noted. He anticipates a shift from in-house servicing models to a servicing model such as that at BISYS.

Evans noted that BISYS has formalized its business development process by hiring former State Street Bank executive Christian Bolanos as vice president and that Bolanos feels very strongly that the Vestmark platform is superior to the industry standard. In his new post, Bolanos will be focusing on the nation's top 50 separately managed account players, some of which are current fund and retirement customers of BISYS.

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