Overlay Portfolio Programs Offer Investors Sophisticated Research: MMI

Model, or overlay, portfolio programs, in which an asset manager hands over their investment process to a third party manager or major distributor, such as a brokerage firm or bank, so that they are no longer running money, offers advantages to both investors and asset managers, according to the Money Management Institute.

They enable investors to be served by sophisticated research from a number of asset managers in a single account and free the money managers up from serving clients to concentrating on their investment strategies, according to MMI.

As this removes the relationship between the investor and the money manager—and their direct receipt of fees—at first, some managers may not embrace this model, said MMI President Christopher L. Davis. “However, the data suggests there are broad advantages for the investors, and, ultimately, that is what is going to drive the market,” Davis said.

“Asset managers continue to create and apply sophisticated research and analytics to the investor and the industry in a model portfolio program,” added Mark Pennington, partner, global relationship management at Lord Abbett.

The number of asset managers participating in model portfolio programs has more than doubled in the last four years from 90 in 2003 to 214 today, representing 25% of the total universe of separately managed account managers. And as of the second quarter of this year, overlay programs represented 61.5%, or $78.4 billion, of total unified managed account assets.

Based upon the projections of sponsor firms, overlay management will reach nearly half, or 48.8%, of the total SMA market within five years.

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Money Management Executive
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