It's separately managed account mania. In the past month alone, three different studies examining managed acount products and prognosticating their impact on the fund world were issued by industry consultants.

Last month, Cerulli Associates released the inaugural issue of its quarterly newsletter, The Cerulli Edge, Managed Accounts Edition. Also last month, Forrester Research released a report called The End of Mutual Fund Dominance, which examines separately managed accounts and, as is obvious from its title, anticipates future trends. Then last week, Financial Research Corp. released Best Practices in the Separately Managed Account Industry, a 210-page "practical guide to separate accounts."

Why the sudden rush to provide countless facts and figures on separately managed accounts? Simple. "It's what everyone is asking about," said Kevin Keefe, VP and senior consultant at FRC and author of the firm's new report. "We have regular client interactions twice a year and this spring, it was by far the number one topic that people had questions about. Everyone was asking, What's going on with separate accounts? How do I get into that business?'"

John Bogle, the founder and former chairman of Vanguard, recently said that he does not believe that separately managed accounts pose a great threat to mutual funds. Managed accounts are just another form of brokerage account, he said, and should not attract the typical long-term mutual fund investor because, in the managed account area, there is too much emphasis on marketing, which raises fees.

A Bright Future?

However, Bogle may be in the minority in that regard. Asset management firms believe that assets under management in separately managed accounts will increase 300% by 2004, while the same firms anticipate mutual fund growth of only 36%, according to Forrester. Those numbers are even more divergent for firms that have at least $50 billion in assets, with projections of 400% and 26%, respectively.

Naturally, just because managed accounts are growing does not necessarily mean that they are stealing assets from mutual funds. Many high-net-worth investors already have assets in vehicles other than mutual funds, and so managed account growth might not hurt mutual funds much, said Don Cassidy, a senior analyst at Lipper.

While that may be the case, mutual fund firms are still putting separately managed accounts as a priority on their new business initiative agendas, said Keefe. Firms that do not yet provide managed accounts are looking to do so, and those that already offer them are expanding that area of business, he said. And there does not seem to be a concentration of a particular size firm that is exploring managed accounts.

"It really hasn't mattered how many assets under management the companies have. Maybe a larger firm already had managed accounts in there, but they didn't think it could be a standalone business, and now they've changed their minds."

Not surprisingly, as firms increase their managed account business, investment company service providers are beginning to respond as well. Three-quarters of the firms investigated by Forrester use CheckFree's APL to run their separately managed account platform, through more than half of them said they were dissatisfied with it. DST Systems just launched Managed Account Platform (MAP), which the firm adapted from existing systems to service institutional and high-net-worth clients.

"Many of [our mutual fund clients] have asked us to provide managed account solutions, like we do with mutual funds," said Jim Horan, director of international technology at DST, when the company announced plans to launch the new product.

"In the long term, separately managed accounts could become even bigger than mutual funds and a lot of firms have started to say, Wow. We need to take another look at our business strategy here,'" said Keefe.

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