Scarcity Partners believes the dynamics playing out in the managed account and outsourced chief investment officer (OCIO) market are “here to stay” based on positive developments in financial advice.
Earlier this week, Betashares announced it will be merging its managed accounts business with InvestSense to form a managed account provider called Trellia Wealth Partners. This follows the merger of Evidentia with Lonsec Investment Solutions under Generation Development Group (GDG) in February.
Evidentia will have $25 billion in funds under management (FUM), while Trellia is expected to have $8 billion in FUM.
Speaking on a podcast, Justin McLaughlin, founding partner and investment director at Scarcity, said: “The long-term dynamics of the sector are still strong and it’s really predicated on changes happening in the financial planning market. Those changes are structural and they’re permanent and will be in place for the next five to 10 years.
“There are various estimates of how big the total addressable market is, but it’s hundreds of billions of dollars, so there’s a prize worth seeking. However, it is a scale game as you need to be at least $4–5 billion in size before you are really making much money because the margins are so low.”
Speaking at the time of the Evidentia deal, GDG said it expects the managed account market to grow to $474 billion by 2030.
McLaughlin flagged that firms operating in this space need to have expertise in multiple domains, which can be challenging to obtain, and firms may overestimate their knowledge.
“Managed accounts are multidomain businesses. You need to know about asset management, about asset consulting, about platform technology, about financial planning, as well as how to run a business, so it’s a complex area to operate in.
“The big problem we see is the owners have deep expertise in one, but not all of them, so that’s the challenge.”
This was echoed by Betashares’ chief executive, Alex Vynokur, who said the firm had taken its time to take a larger step into the market as it wanted to wait until it had sufficient relationships and resources to have a larger presence.
Earlier this year, Money Management covered how OCIO firms are experiencing a “perfect storm” of demand as a result of the financial advice industry evolution. These firms work with financial planning practices and larger institutions to create bespoke investment solutions typically hosted on a platform and provide services such as portfolio governance, managed research, and portfolio construction.
