Since the emergence of “Modern Portfolio Theory” and the “Capital Asset Pricing Model” in the late 1960s, institutional investors have taken a quantitatively driven approach to portfolio construction, looking to create portfolio diversification and obtain better risk-adjusted returns by balancing their asset-class exposures. This journey has seen several important advancements in thinking about how to optimally achieve desired results.
Funds that want to take the total portfolio approach first need to get the total portfolio view. To do that they not only need data – and lots of it – but a rock-solid understanding of exactly how they’re going to use it.
Managed accounts awards: hats off to Morgan Stanley and Infinity
The Institute of Managed Account Professionals has announced the 2020 award winners across its seven categories. Unless you understand the dynamics of the managed accounts segment of the investment industry, the results may surprise. The main drivers of growth in managed accounts are the licensees and the multi-asset managers.
The awards presentations were held, virtually, late last month (on August 27). Toby Potter, the founder and chair of IMAP, who has previously been involved in some of the largest managed accounts programs in Australia, including the IOOF service, said there was a record number of entries this year.
Congratulating the seven winners, Potter also said: “In particular, the strength of the ‘Licensee Category’ recognises the breadth of use of managed accounts. Evaluation this year was enhanced with analysis of each portfolio using the BlackRock Aladdin risk and factor tools.”
The two most important categories, in terms of driving the growth of managed accounts, are the ‘Licensee Category’ and the ‘Multi-Asset Category’. The providers in each tend to overlap. They were won by Morgan Stanley Wealth Management Australia and Infinity Asset Management respectively. Four of the other five categories represent manager single asset classes and the fifth is for ‘innovation’. The full list is here….. download and link to PDF…….
Potter, who started the $2 billion Shadforths managed accounts business in 2011, which was acquired by IOOF in 2013, left that firm in 2016 to concentrate on building IMAP, whose mission statement is “Education, Information and Representation for Managed Account Professionals”. In the 12 months to June, almost 5,000 people attended an IMAP education event, he said, which were all online for the last three months of the period.
In the single-asset class categories, the two big ones, in terms of managed accounts’ demand from both underlying investors and their advisors and service providers, are: Australian equities, won by Blackmore Capital; and, International equities, won by Franklin Templeton.
Potter is a champion for the managed accounts sector, which he likes to point out is larger, in terms of assets under management, than the ETF sector (albeit with some overlap). A lot of managed account investors also retain managed funds and traditional unlisted and listed trusts as underlying investments for their account. “I don’t think there would be many, or any, advice business with more than five authorised reps which don’t have a managed accounts license… Licensees of managed accounts are the creation of the advice profession,” he said.
With respect to Morgan Stanley Wealth Management, he said the firm had a substantial private client base in Australia and could bring the expertise of many analysts around the world to assemble portfolios. Larger firms will also have an investment committee that can think about all aspects of a portfolio, such as capital gains tax which can pose a fairness issue for trusts which are growing in assets under management. Smaller licensees will often outsource this role to a consultant or non-aligned firm.
Potter said that, in contrast, traditional managed funds were a creation of the product and sales business. “Managed accounts are a different business. They are like the Aldi of retailing, whereby they first think about doing a good job for the customer and then what they can put on the shelves for them.”
– Greg Bright
