US – The separate account consultant programme industry serving affluent investors is showing tremendous growth, with assets under management (AUM) having more than quadrupled from $75bn (€85bn) to $275bn in the last six years, according to a latest industry report by Cerulli Associates, Boston-based research and consulting company.

The report suggests that while much has been made of the growth of the separate account consultancy being at the expense of mutual funds, it remains a relatively small industry by comparison, at just 7% of the size of the entire long-term mutual fund industry and though this has increased, there is still $15 going into mutual funds for every dollar invested in separate account programmes. Nonetheless they are gaining ground and consultant wraps are now growing at a faster rate than mutual funds.

The AUM of separate accounts consultancy could reach $650bn by the end of 2005, says the report, and that the pool of institutional managers tracked by Cerulli is growing as a result of shifts in traditional defined benefit (DB) and mutual fund markets and investors’ demands fro more customisation and tax efficiency. Currently there are 150 or so managers in the pool who control about 70% of the separate account consultant business.

Cerrulli believes that it is more natural for institutional managers, as opposed to retail fund managers, to get into this market, given their experience of managing, operating and selling separate accounts. Institutional managers are also considered more capable of taking care of portfolio construction and larger investment strategies than their counterparts in the retail industry.

One of the main reasons that institutional managers’ focus on consultant wraps is at an all-time high is the changing nature of the DB and defined contribution (DC) markets, the report suggests, and the expected growth in these areas should further enhance the number of consultant wraps, as institutional managers show greater interest in diversifying their assets out of DB schemes.

Quite possibly the main trend anticipated in the coming years is the increasing participation of fund companies in the separate account consultants schemes, but there will be initial stumbling blocks, such as portfolio construction and new technologies. But Cerulli thinks these will eventually be overcome.