Who are the players in the managed account business, and what are they up to?

Analysts at Boston-based Cerulli Associates are the experts at asking those questions. Among the highlights of Cerulli's Managed Accounts 2003: Asset Managers:

* SMA assets continued to be highly concentrated. Smith Barney, Merrill Lynch, Morgan Stanley, UBS and Wachovia Securities control more than 75% of the industry's assets.

* Wirehouses are expected to lose managed account market share, falling from their current 68% to 60% by 2006. Gaining share will be independent B/Ds and third-party vendors such as Lockwood/BNY and London Pacific/SunGard.

* Asset management also is concentrated. The top 25 asset management organizations account for 64% of industry assets.

* The size of an average separately managed account has slipped from $234,667 in the fourth quarter of 2001 to $190,125 in the first quarter of this year.

* The largest SMA asset managers continue to be institutional money managers, not mutual fund managers.

Within the programs at the leading firms, however, some interesting developments are taking place, particularly regarding proprietary programs. The greatest growth in propriety programs came at UBS Financial Services, however, where UBS Global Asset Management increased assets under management by 820 percent, to $844 million.

Just as among sponsors, concentration is a fact of asset manager life. While Cerulli estimates that more than 250 managers currently manage assets in separate account consultant programs, the market share of the top 10 is 43%, and the top 25 account for 64% of industry assets.

The fastest-growing asset managers over the period from the fourth quarter of 2001 through the first quarter of this year were: MFS Investment Management (73,400%), AIM Private Asset Management (21,008%), Turner Investment Partners (3,500%), Fayez Sarofim (1,359%), Lotsoff Capital Management (573%) and Allegiance Capital (413%).

Among asset managers, Cerulli observed that many entered the separately managed accounts business from a traditional institutional or high-net-worth client background. More recent entrants have come from the mutual fund world. For both, operational issues represent some of the biggest challenges to profitability.

In fact, at a recent conference in New York on multiple-style portfolios, a member of the audience revealed that only 20% of SMA managers attain profitability.

Negatively impacting the profitability of SMA asset managers has been the steadily eroding fee structure. Increased competition among sponsors, declining equity markets and more lenient broker/dealer policies on discounting by registered reps all have contributed to the decline.

Since 1999, when average annual client fees in separately managed consultant programs stood at 212 basis points, fees have fallen to an average of 175 basis points -- a 17.5% decline.

Copyright 2003 Thomson Media Inc. All Rights Reserved.

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