Playing hard but fair, for now

Everyone from Wall Street to Main Street has begun to perceive the threat posed to the mutual fund industry by separately managed accounts.

But so far, mutual fund mavens have been taking the high road when addressing the developing rivalry.

The Investment Company Institute, for example, won’t address the issue of competition with separately managed accounts except to point to a mention of its most recent report on industry developments.

“SMAs typically require a large capital investment and thus are designed to manage assets of high-net-worth clients,” the Washington-based trade group for the mutual fund business notes. “As a result, inflows to these accounts have, in large part, come from direct holdings of stocks and bonds, and have had only a small effect on mutual fund flows.”

Even as an innocuous party line, that may be taking separately managed accounts too lightly, analysts say.

“If you look at SMA program assets and cash flows versus long-term mutual funds, what we’ve seen is that they are strong relative to long-term mutual fund flows,” says John Payne, a separate-accounts industry analyst at Cerulli Associates Inc. in Boston.

“And separate accounts as a product category have proven resilient over the last year in a declining market,” he adds.

Some investment executives suggest that mutual fund interests might want to enhance their competitive position against separately managed accounts in part by trying to level the regulatory playing field between their relatively closely overseen industry and the less keenly observed managed-account business.

But no such effort is under way, according to the ICI.

“We haven’t asked for nor are we aware that the SEC is actively pursuing increased regulation of SMAs,” says an ICI spokesman. “And we haven’t weighed in with the SEC on the question for years now.”

Confirms a Securities and Exchange Commission spokesman: “We’re not aware of any new proposals at this point.”