Separately managed accounts (SMAs) are rapidly reshaping the hedge fund landscape, emerging as a crucial tool for investors and managers alike. Once considered a niche investment structure, SMAs have now gained significant traction across the globe. This shift reflects changing investor priorities, driven by factors like increased demand for transparency, customization and operational efficiency. We explored this topic in our "Separate Ways: Behind the Evolution of Managed Accounts" survey, conducted in partnership with Hedgeweek, in which we asked 100 hedge fund managers about their experiences with SMAs.
SMAs Are Here to Stay
SMAs have evolved from being an optional add-on to becoming a standard offering for many hedge fund managers. According to our report, nearly 47% of surveyed managers currently offer SMAs, and an additional 10% plan to launch SMA capabilities within the next 12 months. The trend is particularly strong among younger funds, with 41% of managers running funds less than five years old planning SMA implementations.
Why the accelerated adoption? Several factors are at play, including investor demand for greater control, regulatory pressures and advancements in operational infrastructure. For newer hedge fund managers, offering SMAs has become a key differentiator that helps attract institutional capital, even in a competitive fundraising environment.
Key Drivers of SMA Adoption
- Customizability—Investors increasingly prioritize tailored solutions that align with their unique investment needs, from specific risk appetites to custom asset limits. SMAs provide the flexibility to accommodate these requirements, making them especially appealing.
- Transparency—Gone are the days of the "black box" approach to investing, where portfolio details were hidden from investors. SMAs offer enhanced visibility into underlying investments, strengthening trust between managers and clients.
- Capital Efficiency—Unlike traditional fund structures that require full funding upfront, SMAs allow smarter financing techniques, such as notional funding and cross-margining. These strategies reduce idle capital, improve returns and provide a structural advantage, particularly in challenging market conditions.
- Enhanced Infrastructure Accessibility—Improved technology and platforms have made launching SMAs more feasible for both established managers and newer entrants. This democratization of infrastructure has significantly lowered barriers to SMA adoption, even for funds with assets under management (AUM) of less than $100 million.
The Strategies Driving SMA Growth
Certain investment strategies are leading the move toward SMA adoption. Multi-strategy approaches top the list, with 73% of managers offering SMAs for these purposes. Other high-demand strategies include macro (71%), credit (67%), and relative value (67%). These strategies benefit from the customized, granular view that SMAs provide, allowing both managers and investors to make informed, dynamic decisions.
Investor preferences for control and transparency are essential drivers behind this trend. Advances in technology have reduced operational burdens, making SMAs equally relevant for large and small funds.
The Institutional Shift Toward SMAs
Institutional investors have played a crucial role in normalizing SMAs, with family offices and high-net-worth individuals following suit. Larger funds with over $10 billion in AUM now universally offer SMAs, underscoring their importance in today’s hedge fund environment. Interestingly, while institutional investors demand control and transparency, smaller managers are leaning on SMAs to raise capital amid increasingly complex fundraising landscapes.
Regional differences in SMA adoption remain noteworthy, however. North American managers are more likely to offer SMAs (63%) compared to their European counterparts (54%), with significantly higher growth projections in the US. This disparity is often attributed to regulatory environments and operational infrastructure differences, with US markets generally more conducive to SMA implementation.
The Key Takeaways for Hedge Fund Managers
For hedge fund managers, the message is clear. SMAs are no longer a luxury—they are an expectation. Managers who cannot meet this evolving standard risk falling behind competitors when appealing to institutional investors. The combination of transparency, customized solutions and operational efficiency positions SMAs as a critical component in attracting and retaining capital.
But while SMAs bring significant opportunities, they also introduce added layers of complexity. Selecting the right service provider and building robust operational infrastructure are critical steps to overcoming these challenges. Managers must balance the increasing demands for customization with the internal efficiency required to scale.
A Future Powered by SMAs
The growing adoption of SMAs represents a broader shift in hedge fund investing, characterized by greater accountability and collaboration between managers and investors. SMAs not only empower investors with control and transparency but also provide managers with new avenues for innovation and differentiation.
For the hedge fund industry, the evolution of SMAs is just the beginning. With advances in technology and ongoing regulatory shifts, SMAs are well-positioned to remain at the forefront of the investment world, changing the dynamic between funds and allocators for years to come.
By keeping pace with these trends and investing in the right tools and strategies, hedge fund managers can thrive in an increasingly competitive and collaborative market. Download the full "Separate Ways: Behind the Evolution of Managed Accounts" report to learn more.
