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Thursday, July 31, 2003

Newer Entrants Gaining Share of SMAs

by: Sean Hanna, Editor in Chief

New entrants into the separately managed accounts arena are starting to make their presence more felt, according to Financial Research Corp. The research arm of Bisys says that what it calls Tier II asset management firms grabbed 5.11 points of market share during the twelve months ending on March 31.

The gain in marketshare comes as the total assets in these programs are also on the rebound. Total assets in these programs rose 15 percent during the second quarter to $442.86 billion as of June 30, according to The Money Management Institute (MMI). Assets in separately managed accounts were just $384.86 billion at the end of the first quarter, according to the trade group.

The Money Management Institute bases its estimate on figures it collects from the five largest sponsors of SMA platforms -- Merrill Lynch, Morgan Stanley, UBS, Prudential, and Smith Barney. While those five firms have long accounted for about three quarters of the SMA industry, their relative distribution power is slipping as the industry grows.

Not only did Tier II firms that run programs with between $1 billion and $5 billion in assets, so also did smaller Tier III firms, according to FRC. Those smallest firms grew their market share by 1.93 over the 12-month stretch ending in March. Large mutual fund shops with huge wholesale forces are driving growth in these segments, explained Michael Evans, vice president at FRC.

Those firms are also are now beginning to pick up significant momentum. Evans added that these fund shops have established relationships with many of the largest separate account distributors. Add it all up and the Tier I firms saw their market share of accounts drop 7.05 percent.

Evans explained that asset shift to the smaller firms is partly attributable to increased adoption of SMAs by non-wirehouse broker dealers. He notes that regional and bank broker-dealers and third-party platforms have combined to capture 1.61 percent in market share over the same period.

"The successful efforts of non-wirehouse firms to build their separate account businesses are broadening the industry's delivery base beyond the traditional wirehouse channel -- a very positive industry development," said Charles Widger, CEO and president of Brinker Capital. 

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