Models (Models-Based Approach)

Investment methodology that requires asset managers download investment strategies into a sponsor firm’s UMA platform for the sponsor to conduct the actual trades, as opposed to the SMA approach where the asset manager conducts the trades. If part of an UMA, the SMA sleeve is incorporated into the UMA. Model-based approaches are more profitable for UMA sponsors, due to wide omnibus trading, and better for clients as they allow for incorporation of an overlay methodology for tax and trading efficiency. The loss of trading revenue may make asset managers reluctant to participate in a models-based environment, resulting in the managers’ decision to participate in a sponsor’s UMA program or not. Some asset managers also fear a loss of intellectual property. Models may be updated on the UMA platform in real time or in a batch mode.

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