Citigroup Inc. agreed to buy Legg Mason Inc.'s private portfolio group to enhance its overall fee-based wealth management platform, but more specifically, the deal could help Citi become a stronger player in the growing unified managed account market.
Paul Hatch, Citi's head of global wealth management investments, said its managed account business increased 20% last year, to $212.7 billion, and he expects the business to grow 10% to 20% annually over the next three to five years.
"There is very strong growth in this area, and the unified managed account will be the driver of that growth," he said in an interview.
The deal, announced Tuesday, is expected to close in April. Citi Global Wealth Management would acquire Legg Mason Private Portfolio Group's overlay and implementation business, including its managed account trading and technology platform.
The group was part of Citi Group Asset Management, which Citi swapped for Legg Mason's brokerage force in 2005. The Baltimore asset manager would keep the rest of assets it acquired. Citi has maintained a close relationship with Legg Mason and decided to buy back the platform to expand its managed account business.
The acquisition would make Citi Global Wealth Management a leading implementation and overlay provider for fee-based accounts and the technology platform would make it easier for Citi to offer unified managed accounts, because it would improve the company's operating efficiencies and increase customization of client portfolios, he said.
Unified managed accounts still make up a small percentage of the managed account market, but that percentage is growing. At the end of last year unified managed accounts made up 1.83% of the $1.942 trillion managed account market, versus 0.58% two years earlier, Cerulli Associates said.
As of Dec. 31, Citi was the largest sponsor of managed accounts, with a 25% market share, according to Cerulli, but the company did not appear in Cerulli's top 10 list of UMA providers.
Jeff Strange, a senior analyst at Cerulli, said Citi does not report its unified account data separately. Citi said it plans to begin breaking out the data next quarter.
"It is still early in the process in terms of looking at UMAs, and companies are still hammering out a definition for the product and how they will count assets," Mr. Strange said. "Citi doesn't report UMAs to us yet, but we know they have UMA assets, and they are pursuing this product as much as anyone on our lists."
Mr. Hatch said unified managed accounts make up only a small portion of Citi's fee-based assets under management, which increased 27% last year to $507 billion, but the UMA percentage is "growing at a very, very fast rate."
Legg Mason would continue to serve as a subadviser in Smith Barney's fiduciary services program and in its multidisciplinary account products. Citi said as future programs are built, Legg Mason's managers may participate in its fee-based programs.
Alois Pirker, a senior analyst with the Boston research firm Aite Group LLC, said more financial services companies like Citi are moving from traditional separately managed account platform to more flexible unified offerings.
Citi uses PlaceMark Investments Inc. of Wellesley, Mass., to provide overlay management, but whether these assets will be migrated to the new platform has not been determined.
