UBS Wealth Management Americas has ramped up its emerging managers program, approving six new strategies over 2017, in an effort to offer high-net-worth clients different products to those available at rival wirehouses.
The emerging managers program has been in the works since spring of 2016, and began in earnest last summer, with one manager added that year.
In 2017 the wirehouse redefined the criteria to get on the program to include emerging strategies at more established shops. It previously focused solely on smaller, less well-known shops.
The program now has two tracks:
- Emerging firms – employee-owned shops with less than $2 billion in assets under management, often offering one product, typically with a track record of less than 10 years.
- Emerging strategies – nascent products from established shops, typically run by managers who may have a proven track record on a slightly different offering. These strategies will typically have $100 million or less in assets and managers with a one-year track record on the new strategy.
Ray Joseph, head of portfolio management and model solutions at the firm, said the program had been driven by the desire to capture the early alpha often generated in strategies first few years, and to offer to clients, specifically of the wirehouse’s 400-strong Private Wealth Group, managers they would not get elsewhere.
‘Firms do have an alpha life cycle and as they take on more assets it becomes more difficult to outperform. To the extent you can find nascent firms and strategies, that are still skillful and have an edge, we have the opportunity to participate in their alpha life cycle for a long period of time,’ he said.
‘The idea behind this was really driven by our Private Wealth Group. It is keenly interested in finding managers that are different to what is found on other platforms, so we are hopeful that by looking at these emerging managers and emerging strategies, our advisors have a unique set of offerings relative to what’s available at Morgan, Merrill and some of the other firms.’
The Private Wealth Group consists of 400 advisors whose individual clients must have more than $10 million in assets.
The emerging managers program is made up entirely of separately managed accounts (SMAs). Due to their emerging nature strategies do not need to meet the minimum requirements needed to get on the manager research team’s highest conviction Select list. These are: a five-year track record and at least $2 billion of assets under management, as well requirements regarding parent firm infrastructure.
Joseph (pictured above) said the hope was that the emerging firm’s would one day reach these standards.
‘We are not simply looking for small firms,’ he said. ‘We are looking for small firms which we think could be much larger firms and have a distinctive investment edge. They don’t meet the normal requirements of the Select list in terms of size or maybe track record but there is something from their history and our own evaluation that we think they can be very large, successful, Select list type firms in five to 10 years.’
He said the firm redefined the criteria, adding the emerging strategies track, as it had proven difficult to find and approve enough emerging firms.
‘We have found it incredibly difficult to locate these small firms,’ he said. ‘Most small firms are small, we think, for a reason. They are not distinctive. Many of them don’t have the likelihood of being large or successful firms. Finding these was more difficult than we initially thought.’
He said an emerging strategy could be a manager at a large shop, such as Wellington Management or Loomis Sayles, who had a strong track record running US large cap growth, with a 20% allocation internationally, but who planned to run a purely global strategy.
‘Most of those products we require five years to look, $500 million in the composite, and a certain number of fee-paying accounts,’ he said. ‘We are now saying we are willing to take more leaps of faith that that manager with a only a year track record and a limited amount of assets, let’s say $100 million or less... might be successful.’
Joseph said there was no final figure for the number of strategies on the emerging manager program, but that UBS might pause at around 20, to ensure those added had proved successful, before adding more.
There are currently five strategies available on the program, with two more approved and set to be added.
‘This year we’ve redefined it and are more aggressively adding managers to it the platform,’ he said.
He added that the target this year was to populate it with five to 10 managers. 'We are well on our way to getting there,' he said.