Technology Enables Inclusion of Alternative Assets in UMA

Technology Enables Inclusion of Alternative Assets in UMA

While UMA portfolios have traditionally included mutual funds, stocks and bonds, managers are quickly appeasing the growing appetite for alternative strategies like hedge funds, variable annuities, futures, and options.

Over the last few years, the managed account industry has made significant progress in supporting additional assets and strategies, particularly through Unified Managed Account (UMA) programs. These developments are of vital importance, as UMA programs are gaining traction with an increasing number of investors.

The growing interest in UMAs is amplified by investor demand for portfolio diversification to limit risk, enable better returns and achieve long-term household financial goals. While UMA portfolios have traditionally included mutual funds, stocks and bonds, managers are quickly appeasing the growing appetite for alternative strategies like hedge funds, variable annuities, futures, and options. As these assets are highly sought-after, their inclusion in UMA programs is helping raise awareness of the entire managed account industry.

 

The Power of the Sleeve

Sleeves are synthetic UMA partitions, which can facilitate access to the broader pool of assets in demand by investors, while providing a cost-effective and highly-efficient apparatus for managers and sponsors. Most notably, though, sleeves provide the functionality for managers to include both alternative and traditional investments in UMA portfolios.

By permitting multiple strategies and sleeves in a single account, UMA offers a natural flexibility and incentive for managers to present sponsors with a wider array of investment opportunities.

Accordingly, UMA platform providers are taking notice and enhancing their technology to allow for the trading and accounting of more assets and currencies. As this happens, the UMA structure can easily accommodate newer sources of funds with additional sleeves.

 

Industry Consequences

It is clear that investors are driving the need for multi-sleeve, multi-strategy UMA platforms. That said, managers and sponsors have an imperative to support this evolving service model.

The multi-sleeve UMA structure enables tremendous benefits for all managed account participants:

  • Managers have greater opportunities for product adoption among individual investors
  • Sponsors reserve more investment options to help clients meet their respective financial goals
  • Investors can reduce risk by diversifying assets within a single account – in lieu of opening and managing multiple accounts

In the bigger picture, we are also witnessing a subsequent evolution among large UMA providers, as many are consolidating and integrating legacy managed account systems onto a single platform. While this denotes an extensive undertaking, it will allow for the streamlined delivery of many different asset classes – particularly those in hot demand by investors.

 

UMA to UMH

Another reason for the growing relevance of a single UMA platform stems from the industry’s commitment to deliver the Unified Managed Household (UMH). Broadly defined, UMH provides a comprehensive approach to manage all assets and liabilities of a household, helping investors achieve an overriding set of household goals.

A UMA platform capable of holding a variety of asset types and investment strategies in a single account — with sleeves essentially acting as sub-accounts within a master — provides the technological infrastructure for the industry to deliver UMH. Once investors make the connection between UMA and UMH, logic tells us there will be even greater adoption in the future.     

When all is said and done, the continuous ascension of UMA is expected in the years ahead, and leveraging alternative assets in UMA portfolios will help drive this outcome.

 

 

Tirdad Shojaie, SVP Product, Marketing & Business Strategy, Investment Services, Fiserv

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