A growing number of hedge fund startups are choosing to launch with just one investor, typically through separately managed accounts (SMAs), as access to diversified capital becomes increasingly difficult in an industry dominated by multi-strategy giants, according to a report by Bloomberg.
The trend marks a shift in how new managers establish themselves, prioritising stability and scale from large institutional or platform backers over the independence of a traditional commingled fund. While the SMA model offers a faster route to market and ready infrastructure, it also leaves fledgling firms vulnerable if their sole client withdraws capital.
The model was pioneered by managers such as Arnaud de Lasteyrie, who launched Machina Capital in 2017 with funding from Schonfeld Strategic Advisors. Although Schonfeld later redeemed, the experience allowed de Lasteyrie to build a $1.1bn firm – proof that SMA beginnings can lead to lasting independence.
The appeal has since grown sharply. Nearly half of US hedge fund launches in 2024 began with an SMA, up from a quarter a year earlier, according to Goldman Sachs. SMA assets reached a record $315bn by the end of that year, representing more than 7% of hedge fund industry assets—double their share in 2010.
Initially driven by investor demand for control and transparency after the 2008 financial crisis, the SMA boom is now powered by efficiency and flexibility. “It’s a superior way to access the asset class,” said Innocap President Joshua Kestler, whose platform recently surpassed $100bn in assets following minority investments by ADIA and Bain Capital. SMAs allow investors to employ leverage, negotiate lower fees, and retain liquidity – features that have proven especially attractive in a higher-rate environment.
The structure has become a key gateway for multi-strategy platforms such as Millennium Management and Qube Research & Technologies, which have ramped up external allocations via SMAs in their competition for talent. Roughly three-quarters of multi-strategy firms now allocate to external traders, Goldman data shows, with 90% of such deals initiated since 2022. Millennium, managing $79bn, now has over 330 investment teams, while Qube, which runs $36bn, has funded dozens of external managers.
Recent SMA-backed launches include former Point72 manager Moni Sternbach’s Haverstock Capital, starting with about $300 million across three accounts, and ex-Tudor trader Dharmesh Maniyar’s new macro firm, which will also offer a daily-liquidity swap to complement managed accounts.
Yet dependence on a single allocator carries risks. Multi-strategy firms enforce strict performance limits and can withdraw capital abruptly. Millennium and Balyasny Asset Management have both pulled allocations from external managers within a year of launch. Some founders are now demanding contractual safeguards to protect their intellectual property when partnering with hedge fund platforms.
