The separately managed account (SMA) market has reached a new stage of maturity. After years of growth driven by demand for transparency, control and customization, SMAs are becoming an increasingly common route for institutional capital to reach hedge fund managers. We recently hosted a webinar in partnership with Alternative Fund Insight, where we presented our recent survey findings showing that 69% of managers are adding one to two new SMA mandates annually, with most expecting further moderate growth over the next three to five years.
As SMA adoption expands, the challenge is shifting from attracting capital to supporting it efficiently. Managers must accommodate growing operational demands without allowing costs and complexity to rise at the same pace.
SMAs Are Reshaping How Managers Launch and Grow
SMAs were once viewed primarily as a specialized option for large institutional allocators seeking greater transparency and control over hedge fund investments. Today, they are increasingly a starting point for managers seeking institutional capital, including emerging firms.
Some new managers are securing SMA commitments before formally launching their investment operations, reducing the upfront capital required to establish a business. This approach allows them to build around investor demand from the outset.
Perceptions of the structure have also evolved. Once associated by some managers with lower fees or less attractive allocator relationships, SMAs now offer access to valuable institutional capital. Managers are becoming more selective about the relationships they pursue, while allocators increasingly view transparency, control and customization as baseline expectations.
Operational Complexity Constrains Growth
Operational complexity is one of the leading constraints on SMA growth, followed by cost to serve and technology limitations. These challenges are closely related. Customized mandates create additional work and expense, while inadequate technology makes that work harder to manage at scale.
Each mandate can have its own investment management agreement, guidelines, reporting requirements and reconciliation processes. Across dozens or hundreds of accounts, the cumulative workload grows substantially. Reporting becomes more demanding, reconciliation volumes increase and maintaining consistent controls requires greater discipline.
Capital efficiency introduces another layer of complexity. Cross-collateralized structures can allow excess liquidity in one account to offset margin requirements in another, potentially reducing aggregate capital requirements across a multi-manager portfolio. Realizing these benefits requires expertise in margin, financing, bank economics and collateral management. Errors can have immediate financial consequences, making effective oversight essential.
Simply adding staff becomes an increasingly difficult way to accommodate this growth. Managers need operating models that support account-specific requirements while maintaining consistent processes, reliable data and appropriate controls.
Automation Supports Scale, With Human Oversight
Technology is becoming an important part of that response. Almost half of the managers in our recent survey are actively piloting AI or automation for SMA operations. Applications in use include document processing, reconciliation, net asset value (NAV) oversight and exception management.
Automating repetitive work can help managers support more mandates without increasing headcount in direct proportion to account growth. It can also improve consistency across workflows, making customized arrangements easier to manage.
Automation does not eliminate the need for experienced professionals. Risk oversight, margin management and complex financing arrangements still require judgment. Effective operating models combine technology with human review, clear escalation procedures and appropriate controls. Firms must validate outputs, investigate exceptions and respond effectively when problems arise.
The objective is not simply to automate more tasks. It is to identify where technology can reduce manual effort, where human expertise remains essential and how both can support growth.
Building for the Next Stage of SMA Growth
SMAs are likely to remain an important channel for institutional capital entering hedge fund strategies. As demand grows and competition for manager capacity intensifies, fee arrangements and investor relationships will continue to evolve. Multi-strategy platforms may also seek exclusive arrangements with managers whose investment capacity is limited.
For managers, attracting capital is only part of building a scalable SMA program. They must also support customized mandates, manage account-level requirements and maintain effective oversight as volumes increase. The strength of that infrastructure will help determine how efficiently a firm can grow.
SS&C supports hedge fund managers and allocators across the SMA lifecycle, including fund administration, reconciliation, workflow automation, AI-enabled processing and customized reporting. To learn more about the operational considerations shaping SMA growth, watch the on-demand webinar.
