The MFWire
Manage Email Alerts | Sponsorships | About MFWire | Who We Are

Subscribe to MFWire.com's News Alerts [click]

Rating:Funds: No Longer the Life of the Party Not Rated 5.0 Email Routing List Email & Route  Print Print
Thursday, September 16, 2004

Funds: No Longer the Life of the Party

Reported by Theresa Sim

If Leonard Reinhart, president of Lockwood and one of the pioneers of the separately managed account industry, has his way, mutual funds may face a future sitting on the sidelines.

His vision: separately managed accounts will become the core of an investor's strategy, with other investments, such as mutual funds and real estate, in an ancillary role. Investors will use their SMA core investments to "communicate" with their other investments, shaping SMA holdings to balance and complement other, non-flexible products.

Among other things, this means that funds will be the investment product of choice for investors' smaller accounts or non-taxable assets -- hardly the choicest.

Sound bleak?

It very well may be, unless fund companies respond to the growing threat. If SMAs are able to capture the most profitable end of the market -- (Lockwood's "sweet spot" is accounts between $500,000 and $10 million, says Reinhart) -- fund firms will face perhaps their worst nightmare: many investors, with low account balances.

The biggest question remains: what's the best strategy for fund companies in these ever-changing times? While Vanguard and T. Rowe Price have decided to essentially become SMA providers (offering only proprietary portfolios), others are trying to figure out how to get their money managers on the larger platforms. The latter route poses additional problems: how to sell advisors on the portfolio?

Meanwhile, Reinhart is careful not to overhype SMAs: "I don't mean to say they're better than mutual funds…they're not." There are similarities between the two: both are liquid, diversified products, and they cost about the same, says Reinhart. But the key difference is that SMAs are customizable, whereas fund products "are what they are."

As people grow richer, they customize, in the same way that they might customize their home theatre systems. "It's all about customization…investing is no different," adds Reinhart.

Investors benefit from the customization in the way of taxes. While Reinhart estimates that mutual funds after-tax returns are 75 to 85 percent of total returns, he estimates that SMAs return in the 90 percent range. "If you save the client from writing a check to the IRS for $20,000…they're going to be your friend for three or four years," even if the account performs poorly, says Reinhart.

Case in point: Reinhart says November and December are the busiest months for Lockwood, citing tax loss harvest as the driver. He also says that certified public accountants are some of fastest to take to the idea of SMAs quickly.

Competitively, Reinhart compares Lockwood's positioning to the wirehouses favorably -- Lockwood doesn't have its own sales force, nor does it have proprietary products to cause conflicts of push. Lockwood relies on distributor-clients such as the Royal Bank of Canada and AXA Financial, two of its largest, says Reinhart. Law firms and CPAs are also among Lockwood's clients.

Currently, Lockwood offers 50 money managers investing in 115 styles, according to its website, and Lockwood's fees are 78 to 135 basis points.

In the long-run, Lockwood is working towards offering income-generating products for retiring baby boomers, says Reinhart. "We don't have enough income-based solutions for Boomers," he says. That strategy also implies that retirees' large rollovers will remain a holy grail for Lockwood, as well as other providers.

While Reinhart kept the lid sealed on what these boomer products might look like, he did point to hedge funds and partnerships as promising in some regards. But retirees are averse to the opacity and illiquidity of those investments, despite their income-generating attributes, says Reinhart.

In the short-term, Lockwood is continuing to add to its product array, looking to hedge funds-of-funds, commodities, and real estate. Also look for Lockwood and other SMA providers to continue moving towards a unified managed account model. 

Stay ahead of the news ... Sign up for our email alerts now

 Do You Recommend This Story?

Return to Top
 News Archives
2022: Q4Q3Q2Q1
2021: Q4Q3Q2Q1
2020: Q4Q3Q2Q1
2019: Q4Q3Q2Q1
2018: Q4Q3Q2Q1
2017: Q4Q3Q2Q1
2016: Q4Q3Q2Q1
2015: Q4Q3Q2Q1
2014: Q4Q3Q2Q1
2013: Q4Q3Q2Q1
2012: Q4Q3Q2Q1
2011: Q4Q3Q2Q1
2010: Q4Q3Q2Q1
2009: Q4Q3Q2Q1
2008: Q4Q3Q2Q1
2007: Q4Q3Q2Q1
2006: Q4Q3Q2Q1
2005: Q4Q3Q2Q1
2004: Q4Q3Q2Q1
2003: Q4Q3Q2Q1
2002: Q4Q3Q2Q1
 Subscribe via RSS:
Add to My Yahoo!
follow us in feedly

  1. Director Discussion Series - Open Forum via Zoom, September 29
  2. IMEA roundtable - Portfolio Construction, September 29
  3. MMI webinar - The Future of Marketing is Changing ... Are You Ready?, September 29
  4. IDC Speaker Series - A Conversation with Roger Ferguson, October 3
  5. IDC webinar - A Conversation with Roger Ferguson, Jr., October 3
  6. 5th annual Expect Miracles Atlantic Coast Classic, October 3
  7. Nicsa Fearless Leadership Symposium, Oct 6-7
  8. 7th Annual FUSE Forum, October 6
  9. 2022 ICI Securities Law Developments Conference - day 1, October 11
  10. MFDF Director Discussion Series - Open Forum (San Francisco), October 12
  11. 2022 ICI Securities Law Developments Conference - day 2, October 13
  12. MFDF In Focus: ESG Data Requirements - What Directors Need to Know, October 19
  13. 2022 MMI Annual Conference, Oct 19-21
  14. 2022 IDC Fund Directors Conference, Oct 24-26
  15. 18th annual Expect Miracles Wine & Spirits Event, October 27
  16. Buford Capital Securities Litigation Symposium, November 1
  17. IMEA All-Council Fall Summit, Nov 2-3
  18. Nicsa 2022 General Membership Meeting, Nov 2-3
  19. Tiburon CEO Summit XLIII, Nov 7-9
  20. 2022 ICI Tech Summit, Nov 8-9
  21. UCITS & AIFMD for U.S. Managers - New York, Nov 8-9
  22. 2022 MMI Distribution Leadership Forum, Nov 9-10
  23. MFDF Asset Management Industry Update and Director Governance Trends, November 10
  24. 3rd Annual ETFGI Global ETFs Insights Summit - United States, Nov 15-16
  25. 2022 MMI Alternative Investments Forum, November 16
  26. MFDF webinar - Mutual Fund CCO Compensation: The MPI Annual Survey Update, November 16

©All rights reserved to InvestmentWires, Inc. 1997-2022
14 Wall Street | 20th Floor | New York, NY 10005 | P: 212-331-8968 | F: 212-331-8998
Privacy Policy :: Terms of Use