Outsourcing SMA Operations

In an effort to boost its market presence, Vontobel Asset Management, the New York-based subsidiary of Swiss financial group Vontobel Holding AG, has outsourced operations support for its separately managed accounts business to Citigroup Global Transactions Services. Vontobel has operated an SMA program for three years but previously supported its operations internally, says Fredy Nyffeler, the firm's VP and CFO. "We need to do this to grow," he relates.

Vontobel currently has $120 million in assets in its SMA program and aims to increase that to $500 million to $1 billion within a year, according to Nyffeler. With a manual operation, Vontobel would struggle to get into the programs run by the major SMA sponsors, but by outsourcing to Citigroup GTS, the asset manager will be able to absorb thousands of accounts, explains Nyffeler. "It solves our limitations," he says.

Citigroup GTS will provide a suite of middle- and back-office services to support Vontobel's SMA business, as well as tools to enhance the efficiency of its front-office activities, says Andrew Clipper, director and product manager for asset manager solutions with Citigroup GTS. Services will range from account opening and maintenance to valuations, compliance, archiving and settlement.

"We provide an integrated Web-based workflow tool," says Clipper. "We then provide an automated portfolio management tool that allows them to manage accounts simultaneously, so they can create orders and block trades across multiple styles and sponsors in minutes. That also enables them to deliver on best-execution requirements."

Meanwhile, access to the Citigroup trade routing network allows clients to use institutional trade routing capabilities, such as FIX, rather than having to connect to each individual sponsor manually, notes Clipper. Citigroup also will handle allocations, reconciliations, performance reporting and ancillary services such as corporate actions processing and fulfillment activities, he adds.

Focus on Core Business

As a result of the deal, Vontobel will be able to focus on asset allocation and client relationships, says Nyffeler. The investment manager will continue to use its current Charles River Development system for trading and then will access Citigroup's services via the Internet. "We valued that infrastructural capability," explains Nyffeler.

According to Tim Lind, director, securities and investments, with TowerGroup, administering SMAs is challenging. "If you are an asset manager wanting to attract assets into separately managed accounts programs, you must have the back-office facility to deal with the sponsors. It is a very convoluted process ... with a lot of connectivity pieces," he says.

As a result, outsourcing service providers are positioning their middle- and back-office capabilities to support the SMA space. "The standards to communicate between sponsors and managers are nascent at best," says Lind. "An asset manager that wants money from a sponsor - the big retail outfits that do not manage money but collect and pass it on to asset managers to manage - has to be able to communicate in that sponsor's protocol, and a lot of that is proprietary. That is quite an administrative and technical burden operationally, and the outsource providers sense a market opportunity to buffer that challenge and provide the connectivity," he continues. "I think you will see most of the global custodians offering services around the SMA business."