Benefits of Overlay
Overlay management provides financial institutions with control, operational efficiency, superior customization and enhanced alpha.
Overlay Benefits: efficiency, customization and control
Operational efficiency + cost reduction
Overlay is the most operationally efficient means to deliver separate accounts. Overlay eliminates: sub-account opening; sub-account closing; sub-account rebalancing; separate ADV’s; reconciliation; communication with third party managers; coordination among third party managers.
Tax management & customization
Overlay provides the highest level of tax efficiency and customization. Because the overlay manager has a holistic view of the portfolio, he or she is able to combine a high level of tax management and customization with fidelity to internal and external research.
Compliance & Control
The overlay management firm has total control over every aspect of the separate account program.
Learn about Smartleaf Overlay Solutions
Improve Alpha
Deliver on the promise of separate accounts
Here’s how overlay can help clients improve alpha performance for their investors’ portfolios:
Access to third party managers = higher alpha
For firms offering proprietary (in-house) research only, overlay provides a seamless transition to open-architecture, expanding the opportunities to capture alpha through best-in-class third party investment firms.
Frictionless processes = higher alpha
Traditional separate account processes are operationally burdensome when it comes to rebalancing portfolios, changing asset allocation, or switching managers. This contributes to portfolio inertia — and lost alpha.
With overlay, portfolios can be managed without “operational friction” — portfolios can be rebalanced in a consistent, timely and efficient manner. This leads to a more responsive separately managed account program that delivers higher alpha.
Frictionless Asset Allocation = higher alpha
With overlay, financial institutions can implement asset allocation changes quickly and efficiently, in a tax- and risk-sensitive manner, and with virtually no operational burden. The result: optimal asset allocation, optimal risk — and optimal alpha.
Frictionless Product Selection = higher alpha
With overlay, changing alpha providers (model vendors) is simple and frictionless. There is no separate sub-account opening or closing process, and “tax shock” can be minimized automatically. Firms can give free reign to their due diligence process, ensuring the highest level of alpha.
Alpha-sensitive customization and tax management = higher alpha
Overlay enables “alpha-sensitive customization” that minimizes the “alpha destruction” that can be caused by customization. Compared to existing programs, this means both more customization and higher alpha.
Automated tax management = higher “tax alpha”
by systematically managing taxes throughout the entire tax year, including systematic, consistent tax-loss harvesting strategies, overlay managers can directly contribute to the maximization of after-tax returns of taxable investment portfolios.