Overlay manager Placemark hits $3-billion AUM mark

Thomas Coyle

11 September 2006

Milestone coincides with new venture-capital infusion for pioneer manager. Placemark Investments says its assets under management had surpassed $3 billion by the end of August 2006 -- a milestone achieved just four months after the Dallas- and Wellesley, Mass.-based overlay manager surpassed the $2-billion-in-managed-assets mark. Altogether, Placemark's assets under management have more than tripled in the 12 months through 31 August 2006.

"We are well-positioned to take advantage of the explosive growth in the unified managed account marketplace and are pleased that our investors see great opportunity in backing Placemark's expansion plans," says Placemark CEO Lee Chertavian.

Flood

This flood of assets is linked to the launch of unified managed account platforms by investment-platform sponsors that use Placemark as an overlay manager. UMAs combine investment classes, styles and vehicles in a single-registration account. In this context, overlay management is the process of reconciling redundant holdings across sub-accounts, aligning trading activity, managing cash flow and enhancing the overall tax efficiency of portfolios.

Placemark is overlay manager to PricewaterhouseCoopers' New York-based UMA platform, Cleveland, Ohio-based McDonald Investments , Atlanta-based Homrich & Berg, Philadelphia-based Janney Montgomery Scott, Piper Jaffray's retail brokerage and RBC Dain Rauscher, both of Minneapolis, Canada's BMO Nesbitt Burns and -- undoubtedly the principal source Placemark's recent growth in assets under management -- Smith Barney. Placemark also operates an all-UMA turnkey asset-management program for smaller banks, broker dealers, and registered investment advisors.

UMAs, and the closely related multiple-discipline account , are getting traction in the private-client space because they provide fairly broad asset allocation and tax oversight with lower investment-minimum hurdles than similarly diversified portfolios of stand-alone separately managed accounts . They also feature comprehensive reporting that help investors make better sense of their holdings and, at least in theory, make the advisor's job easier by streamlining the consulting process.

In an SMA market worth $646 billion at the end of September 2005, UMAs and MDAs -- let's call them "overlay accounts" for short -- accounted for 14% or $83 billion of all SMA assets, according to Westwood, Mass.-based research firm Dover Financial Research.

Active

Dover doesn't have annualized growth statistics for overlay accounts, but it pegs year-over-year MDA growth at 35%, 31% and 39% for the years 2003, 2004 and 2005 respectively. By 2010, Dover figures that overlay-account assets could reach $500 billion; if so, then MDAs alone could account for about half of all SMA assets, according to several industry projections.

For now though, not all of this growth going to active overlay managers like Placemark, Parametric, a Seattle-based affiliate of asset manager Eaton Vance, and IXIS Asset Management Advisors' Oakland, Calif.-based Managed Portfolio Advisors.

Dover estimates that active overlay -- which involves ongoing modifications to investment-management models -- touches about 36% of all UMA assets under management. Meanwhile the greater part of overlay assets are governed either by the sponsor's "passive" overlay, which focuses on wash-sale considerations and obvious tax issues, or a slightly more customized "hybrid" approach, frequently undertaken by a participating asset manager, not necessarily an overlay specialist, at the sponsor's behest.

In addition to these approaches, Placemark and other active third parties are up against overlay software providers such as Smartleaf, Tamarac and InvestEdge.

Somebody out there must view Placemark's recent successes in the overlay-account marketplace as a sign of health, however. The firm just pulled in another $10 million in venture capital to expand its operations. The funding was led by IDG Ventures Boston, a new investor, with participation also from existing investors Ascent Venture Partners, North Hill Ventures, and RBC Technology Ventures. -FWR

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