Details Matter in Model-Based UMA Programs

September 22, 2011 | Share There was a great article by Tom Stabile in FundFire yesterday covering a recent panel discussion on how managers need to evolve and adapt to attract UMA assets. (FundFire subscribers can click here to read the full article.) The main thrust of the points made by the panelists had to do with how managers interact with the different groups within their sponsor clients - from the gatekeepers and central research teams to individual advisors, managers need to adjust how they communicate and promote their investment strategies in a model-based relationship.

We see this all the time working with sponsors and managers alike. What's particularly interesting to us is how sponsors and managers ensure that the managers' investment process is being implemented by the sponsor. It's one thing for a sponsor to simply receive a model portfolio - it's another thing entirely to understand and support how a manager deals with all the unique situations that surface across each and every investor account (or sleeve) that's following the model. And how these investor-specific situations are handled can vary manager by manager. For sponsors and managers interested in preserving as much of the managers investment process as possible in a model-based world, it's important to be able to deliver that experience all the way down to the end investor. The customization and tax benefits of the UMA vehicle can't be overlooked so these details matter.

We also see too many situations where the sponsors receive model updates at the end of the manager's trade rotation. This is typically because the sponsor can't turn around the resulting trades intraday in a timely fashion, and therefore can't fit into a manager's trade rotation. Even worse is where the sponsor doesn't generate the trades until a nightly batch window. It's the year 2011 and we're seeing fairly volatile markets (an understatement), yet there are still situations where trades are being generated in a nightly batch and based on previous day closing prices. I can't imagine those portfolios are performing as well as they could - if they are then all of the science and R&D that's been poured into timely trade execution for decades in the institutional world has been misguided...not likely.

Vestmark has been addressing the communication, implementation and trading requirements unique to these model-based programs for years. Sponsors can choose how much or how little input they receive from participating managers via the web-based model portal in VestmarkONE. We've also invested heavily into the speed of our trade generation engine and the workflow processes to help our clients implement model trades as quickly as possible. Ultimately these things and countless other details could affect the integrity and performance of a UMA program. That's real money for each individual investor. Details matter.