No matter what the name, multiple-discipline accounts or products-known as MDAs or MDPs-are all the rage in separately managed accounts these days.

With the resounding success that Salomon Smith Barney (SSB) had marketing these products in 2001-more than 50% of its separately managed account (SMA) assets were in these products-it seems every firm with any SMA aspirations is studying how to get in the MDA game.

AMG, an investment company that holds significant equity in independent money managers such as Rorer and Tweedy, Browne, has announced a new affiliated product; SSB is bringing out its new proprietary program; and Merrill Lynch is burning the midnight oil developing its MDA solution. Countless other investment managers have inquired about the details of participating in or developing a multiple-discipline SMA product.

MDAs Today

A multiple-discipline product offers investors an actively managed core investment portfolio with all the benefits of traditional SMAs, which includes direct security ownership, customization, manager due diligence and enhanced reporting.

While traditional SMA mandates cover a finite piece of the investment universe, such as large-cap growth U.S. equities, MDAs provide one-stop access to a broad swath of investments. MDAs usually cover an entire capitalization or style category in one separately managed account vehicle. Most MDAs contain at least three distinct sub-portfolios, or "sleeves," covering specific investment groups.

For example, "U.S. Equity-Large Cap" is one of six strategies the SSB Consulting Group offers through its new MDA program. The strategy will cover large-cap growth, large-cap value and the large-cap blend investments. Its other MDAs follow core portfolio themes such as "Global Balanced."

With investment minimums as low as $150,000, multiple-discipline products offer the benefits of owning three or more traditional separately managed accounts with as little as $50,000 allocated to each sub-portfolio. MDAs have met one major challenge that SMAs faced in prospecting for lower-end investors: the challenge of diversification.

MDA Management

MDA management has evolved since the accounts were introduced. MDAs started as self-contained accounts in which packaging and portfolio managers came exclusively from the sponsor. In the second generation of the accounts, the sponsor still does the packaging, but for each MDA hires one external investment-management firm with multiple portfolio managers. The difference between the second and third generations is that in the latter, the sponsor works with portfolio managers from various investment-management firms for each MDA.

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