Managed account assets fell in the third quarter, according to data released today, but industry analysts say this does not dim the product's growth prospects.
Assets in separately managed accounts declined 5.6%, to $392.57 billion at Sept. 30, compared with the second quarter, according to quarterly data from the Money Management Institute, a Washington-based trade group that tracks the accounts. The decline since Dec. 31 was just 1.8%.
Christopher L. Davis, the institute's executive director, said the third-quarter retreat was due entirely to market performance. During the quarter, the Standard & Poor's 500 index fell 9.3%. Domestic mutual fund assets dropped 8.3%, according to the Investment Company Institute.
Despite a difficult quarter in the market, Mr. Davis said, companies reported opening new accounts and closing very few; few clients even cashed out portions of their managed accounts, he said.
"Clients who are using managed accounts are sticking with their long-term objectives," he said.
Mr. Davis said that despite the third-quarter results 2002 has been a successful year for managed accounts because large financial institutions, including banks, have started programs and existing programs have grown.
"More firms are making a commitment to making managed account work," he said. "They are doing everything they can, from changing compensation payouts to drawing more advisers to sell the product."
Some of the large wirehouses, including Prudential and Merrill Lynch, have raised their payouts to financial advisers who sell managed accounts, he said.
"They are increasing awareness, they are increasing training, and they are altering compensation," Mr. Davis said. "They are holding up managed accounts as the best product their firm has to offer, and investors are responding, and institutions are offering the product."
In October, Bank of New York Co. completed its purchases of LFG Inc., a provider of individually managed account services to financial advisers. The separately managed account unit of Mellon Financial Services' Dreyfus Corp. grew 56% from Jan. 1 through May 31 as the New York-based asset manager saw asset inflows from mutual funds, annuities, and other investment vehicles.
In September, Dreyfus announced that it would buy the $590 million-asset separate accounts division of Ashland Management Inc.
The Dreyfus separate accounts unit was started in February 2000. Its assets under management have grown from $211 million at yearend 2000 to $1.6 billion by last Dec. 31 and would total $3 billion if the Ashland deal closes, as planned, by yearend.
A recent study by Cerulli & Associates said that managed accounts have a 15.6% market share among investment products, up from 5.6% in 1994.
Analysts said they expect managed accounts to reach an 18% to 20% market share by yearend.
"Mutual funds are flat. Bonds don't hold most investors' interest," said Burton Greenwald, an investment analyst in Philadelphia. "Separately managed accounts are holding steady. There has just been tremendous growth for managed accounts this year."
Mr. Davis said he expects 2002 to end about where it began, with managed accounts assets of $400 billion. The first quarter of 2003 will see managed accounts really "claw their way back," he predicted.
"If we see some market appreciation, this product will go up," he said. "We know that firms are working to get the fee-based managed account religion accepted. New accounts will be opened, and more producers are working with clients."
