The operational demands of running a separately managed account program are well documented. What is less often discussed is the gap between managers who have built for those demands from the start and those who have tried to add SMA capability as an afterthought. As you’ll read in ourrecent report, produced in partnership with Hedgeweek, that distinction increasingly determines who wins institutional mandates and who doesn't.
The Manager's Dilemma
For managers, the top operational challenge associated with SMAs is customization, cited by 47% of survey respondents. Legal and documentation complexity follows at 37%, with reporting and data delivery to investors (30%) and staffing requirements (30%) close behind.
What makes this particularly striking is that most managers are not, in practice, running highly customized SMA portfolios. Our survey shows 55% maintain close alignment between their SMA accounts and their flagship fund, with only moderate or significant divergence in a minority of cases. The operational burden, in other words, is a function of the infrastructure required to support even modest customization at institutional reporting standards.
The lesson is that the cost of SMA readiness is fixed regardless of how much customization allocators ultimately request, which makes early investment in the right systems all the more important.
Getting the Foundation Right
The managers who operate SMA programs most effectively are those who treat infrastructure as a prerequisite rather than an afterthought. The evidence from early-stage managers who have successfully raised institutional capital through SMAs points to a consistent pattern: those who invested in building robust systems before going to market found that allocator requests, however specific, were straightforward to accommodate. Those who deferred that investment found themselves managing compounding operational complexity with every new mandate.
The principle is straightforward. Getting the portfolio management system, order management system and execution framework fully built from the ground up means that running multiple SMAs in parallel does not become an operational burden. Without that foundation in place first, each new customization request creates friction that is difficult and expensive to resolve retrospectively.
The same logic applies to customization decisions at the portfolio level. Any request from an allocator needs to be assessed against its potential impact on other investors and the integrity of the overall strategy. Technology platforms that provide flexible reporting frameworks can extend a manager's operational capacity, delivering the customization allocators expect without requiring proportional investment in in-house IT infrastructure.
What Allocators Expect from Technology
Allocator expectations around technology are rising, and the bar for what constitutes acceptable infrastructure is higher than it was even two years ago. Reporting and reconciliation capabilities top the list of what allocators expect from their managers' technology stack, cited by 64% of respondents. Automated reconciliation (48%) and API connectivity (38%) follow, reflecting a growing expectation that SMA data will integrate directly into allocators' own systems rather than arriving as a static report.
Custom risk dashboards are expected by 31% of allocators, while AI-driven analytics, though cited by only 12%, represents an area of rapid development. AI is already making a meaningful impact on the most labor-intensive elements of SMA operations, such as data normalization, exception management, reconciliation and customized reporting. The ability to identify exceptions quickly and deliver curated, real-time reporting to investors is where AI is currently extracting the most value, with further capability developing around middle office functions and investment guideline monitoring.
The Case for Partnering at Scale
For emerging managers who need to offer SMAs to compete for capital but do not yet have enterprise-scale resources, the minimum viable infrastructure includes risk and performance analytics, robust reporting engines, liquidity management tools and a tax solution. Some of these, particularly risk management, are already embedded in what managers do. Others, including performance attribution, tax reporting and customized investor reporting, are areas where a specialist service provider can add significant value relative to the cost of building internally.
What will separate leading SMA managers and service providers from the rest over the next two years is the combination of scale and AI-enhanced data quality. Firms using AI in-house face challenges around data accuracy and model reliability. Providers like SS&C GlobeOp apply AI within a software environment built on already-curated, validated data, producing faster, more accurate outputs and reducing the exception rates that consume operational resources.
Download the full report to learn more about building an effective SMA infrastructure.