NEW YORK - Discretionary, separately- managed accounts have been commanding growing attention as alternatives to traditional mutual fund investing for wealthy individuals.

Mutual fund advisers, currently with $425 billion under management in separately-managed-accounts, are expanding existing managed account programs or developing new programs that offer customized investment management services to wealthy investors who characteristically have $1 million or more of investable assets.

"Five years from now, every mutual fund company will have managed accounts," said Len Reinhart, CEO and founder of Lockwood Financial Services in Malvern, Pa., speaking at a briefing held here last week sponsored by the Money Management Institute, the managed account industry trade association .

The managed account business grew 30 percent over the past year. Assets have increased 160 percent since year-end 1996, according to the Money Management Institute.

MFS Investment Management of Boston plans soon to launch a new managed account program, said David Oliveri, an MFS spokesperson. Other fund managers are considering doing the same, according to industry sources.

In May, Phoenix Investment Partners of Hartford, Conn. announced plans to focus on the managed account business - a business which as of March 31 accounted for more than $11.5 billion of Phoenix's $66 billion in assets under management. Phoenix has $14 billion in mutual fund assets under management.

"It's the fastest growing part of our business," said Jack Sharry, president of the retail division of Phoenix.

Phoenix got a jump start in the business by buying Roger Engemann & Associates of San Francisco in 1997, giving Phoenix $5.5 billion in managed account assets, said Sharon Bray, a Phoenix spokesperson. Since then, Phoenix's managed account assets have more than doubled. It now makes four of its proprietary investment managers available to financial consultants at major wirehouses and broker/dealers who offer managed account programs and act as consultants to wealthy clients.

Of the $71 billion that John Nuveen & Co. of Chicago has under management, $20 billion is in a separately managed account program run by Rittenhouse Financial Services in Philadelphia. Nuveen acquired Rittenhouse, an equity manager, in September 1997. Since then Rittenhouse's $9 billion in managed account money has more than doubled.

O'Shaughnessy Capital Management of Greenwich, Conn. announced in April that it would sell its two mutual funds with a combined $210 million to another fund adviser in order to focus its efforts on growing its managed account business.

Separately managed accounts, which first came into being in the mid-1970s at E.F. Hutton, are portfolios of stocks and bonds that are tailored to the investment needs, risk tolerance, time horizons and tax needs of wealthy individuals. Under most managed account arrangements, these investors, with the help of a financial intermediary, privately contract with two or more money managers, who often also manage mutual fund portfolios. Minimum account size is usually $100,000. But some managed account programs have lowered their minimum to reach "emerging" affluent investors.

While mutual funds can be fine for many investors, a managed account offer several advantages for wealthier investors, said Reinhart of Lockwood Financial Services, one of the first companies in the managed accounts industry.

Managed accounts offer customization of investment style as well as tax efficiency. An investor can ask his money managers to refrain from investing in particular stocks or industries or groups of firms such as the traditional "sin stocks" for socially conscious investors.

Investors can also ask that tax liabilities be managed according to their needs.

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