For investment managers, new capital is increasingly arriving through separately managed accounts (SMAs) rather than commingled flagship funds.
This article examines the driving forces behind this shift, what changes for the manager as SMAs accumulate, and whether the trend is likely to continue.
A separately managed account holds assets managed for a single allocator, often in the same strategy as a flagship fund, but in a separate account and on bespoke terms. The structure can offer more favorable fees, terms the allocator already uses and is familiar with, and control over counterparties, reporting, and risk and trading policy.
Those advantages make SMAs attractive.
What has put allocators in a position to make greater use of them is a long-running concentration of capital into a smaller set of institutions, whether through consolidation or through organic growth, resulting in fewer and larger allocators.
Those allocators are also concentrating their placements. A Bank of America survey of 280 allocators, reported in January 2026, found that the average portfolio had narrowed from 20 hedge funds in 2024 to 18 in 2025, while the average ticket had risen from $42 million to $50 million.
The effect is that allocators are, to a greater extent, able to set the terms and to make an SMA a condition of the commitment. That is especially true for emerging managers or those without a deep bench of existing relationships, who rely on large allocators to raise capital.
In isolation, an SMA can be simpler to run than a fund. The allocator provides the capital and the manager runs the strategy, without the overhead of a fund structure, a board, or a broader investor base.
In many cases, however, a manager will be running a fund, with one or more SMAs coming in addition, and this changes the overall picture.
With a fund, the manager controls the vendors and the processes. Once a first fund is in place, with its counterparties, trading relationships, and operating process, a second fund and those that follow can largely use that same playbook. Where a new fund differs, those differences remain under the manager's control.
SMAs are different. The manager will typically use the particular allocator's counterparties, existing ISDAs, prime brokers, risk and trading policies, and service providers, and will need to conform to those processes. The next allocator who wants an SMA may, in turn, request something else entirely.
Three SMAs may therefore result in the manager running several unique setups in parallel, instead of one defined process. Accounting, operations, and compliance all become more complicated. That work is entirely solvable, but can be cumbersome and time-consuming. It can mean additional staff, or more work for the external providers supporting the firm.
We would not expect these dynamics to reverse in the near term.
In a July 2026 survey of 340 investors representing $8.7 trillion in assets, Barclays Strategic Consulting found that 54 percent of those with more than $5 billion in hedge fund assets planned to increase SMA allocations.