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Cerulli: VA Subadvised Assets to Grow by 25% Through 2014

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Variable annuity assets managed by subadvisors are expected to grow by 25% by year-end 2014, according to a new report.

Cerulli Associates, Boston, published this finding in the July 2012 edition of “The Cerulli Edge: U.S. Asset Management.” The monthly publication analyses topics related to product development and strategy, distribution, pricing, and market segmentation.

Cerulli estimates that variable annuities under management with subadvisors will grow to $787 billion by year-end 2012, $849 billion at year end 2013 and $915 billion at year-end 2014.

Subadvisors are investment manager hired by Registered Investment Advisors to oversee day-to-day portfolio management of retail clients’ investments.

Long-term mutual funds and retail separate accounts managed by subadvisors are anticipated to grow over the same period to, respectively, $1.74 trillion and $326 billion (2012), $1.95 trillion and $332 billion (2013) and $2.066 trillion and $337 billion.

The total subadvisory market tallied $2.8 trillion in assets under management at year-end 2011, according to the report. Growth in the subadvisory marketplace has been flat during the past three years, accounting for between a 12.4% and 12.5% share of long-term mutual fund assets, the report says.

Long-term mutual funds accounted for $1.7 trillion of the $2.8 trillion total. Variable annuities and retail separate accounts accounted for $730 billion and $321 billion, respectively.

The percentage of total subadvised alternative mutual funds current stands at 18.3%. This compares, the report notes, with 12% to 14% for traditional mutual funds. The top subadvised alternate mutual fund assets include commodities ($14.7 billion or 20% of all commodity assets), alternative allocation ($9.3 billion and 57%, respectively), and natural resources ($5.3 billion and 18%, respectively).

The average management fee and fee paid to subadvisors by asset class in 2012 were 0.95% and 0.47%, respectively, for international equity funds; 0.78% and 0.38%, for domestic equity funds; 0.57% and 0.27% for taxable bonds; and 0.44% and 0.22% for tax-free bonds.