CR: Our tax efficiency is handled by the fact that it's a three- to five-year investing time frame, so the turnover stays pretty low-anywhere from about 24% to 40%. By having good principles and applying them consistently, regardless of the circumstances, we've been able to deliver a 15.6% average 10-year performance in our U.S. Value composite.
MAQ: Thank-you for your insight.
Study Reveals Challenges, Solutions For The Industry
By Kevin Keefe
At this writing, total assets in separately managed accounts were growing faster than any other mainstream financial services product and were rapidly closing in on much more established retail financial services products such as variable annuities.
According to The Money Management Institute, the national organization for the separately managed account industry, industrywide assets in separately managed accounts approached $400 billion at the end of the first quarter of 2001. This figure represents 67% asset growth from 1997 year-end asset levels of $240 billion, and compares with 44% asset growth in the mutual fund industry over the same period.
A recent study, Best Practices in the Separately Managed Account Industry, by Financial Research Corp. shows the challenges, obstacles and solutions to running this type of business. In this segment of the study, we take a look at the business from the investment-management side. If you are an advisor doing SMA business or thinking about doing it, you'll want to increase your knowledge in all areas, including understanding what the money manager faces today in light of the explosive growth.
Capturing assets, due diligence, technology, staffing and revenue pressure are some of the challenges, but the solutions are either here, or imminent. Here are the top 10 findings taken from one chapter of the study:
1. SMA assets are a challenge to attract but much easier to retain. While the mutual fund industry continues to grapple with the challenge of average redemption rates of more than 30%, managed account sponsors have reported annual redemption rates as low as 8% to 10%. Being able to hold on to assets for an average of up to 10 years, versus roughly three years in the mutual fund world, gives separately managed account providers a huge advantage over their mutual fund brethren in the quest to grow assets.
2. The challenge to mutual funds is real. Intermediaries are diversifying their books to include a variety of alternative products, and name separately managed accounts as the No. 1 product they are considering for their clients going forward. The mutual fund industry will have its hands full battling SMAs for new assets. Particularly vulnerable are the $100,000-plus purchases of mutual funds and maybe even fund account balances in the $150,000 range and up. After more than 20 years of strong and virtually unchallenged growth for the fund industry, SMAs may present the greatest challenge to the continued growth and profitability of asset managers that remain wedded to funds alone, and many fund complexes are moving into this arena.