Separately managed accounts have become emerging managers’ favoured capital-raising tool. Managers who underestimate the operational weight do so at their peril.
The separately managed account has never been more in demand. What began as a transparency-driven preference among the world’s largest pension funds has broadened into something closer to a structural shift, drawing in sovereign wealth funds, endowments, family offices, and smaller institutions that would not have entertained an SMA conversation five years ago.
For emerging managers, the opportunity is tangible. But so is the operational burden that arrives with it, and the gap between the two deserves an honest reckoning.
Why the moment has arrived
The drivers behind SMA adoption are well-documented, but the combination of forces is sharper than usual. Transparency, customisation, and capital efficiency remain the primary pull factors. According to the Hedgeweek® 2026 research in collaboration with SS&C, nearly two-thirds of allocators cited customisation as their top priority when assessing SMA access, followed by transparency and then capital efficiency.
That last point has become particularly compelling in the current environment. As Danielle Terrazzino, global head of platform management at Innocap, describes it, an allocator investing $100m into an SMA can effectively achieve the exposure of $200m by deploying excess cash elsewhere – a meaningful lever when capital efficiency increasingly shapes portfolio construction decisions.
Meanwhile, the risk argument is gaining force from an unexpected direction. Current stress visible in parts of the private credit interval fund market is serving as a reminder of what commingled vehicle exposure actually means in practice. Ethan Powell, CIO and principal at Brookmont Capital Management – a $1.2 billion manager with roughly $900 million of its assets distributed through SMAs – is direct about the distinction. “If you’re an allocator and you’re doing an SMA,” he says, “instead of having to diligence the manager as to how they might treat those risks, you can actually cook that into your investment policy statement and feel confident that those risk parameters will be kept in line.”
The regulatory tailwind is also beginning to bite in Europe, where incoming compliance requirements are making commingled structures less attractive. Jason Costa, who heads hedge fund services in North America for SS&C, expects this to push European allocation patterns closer to what North America has already normalised over the past decade.
A route in for emerging managers
For managers in the early stages of building a track record, the SMA wrapper offers something the commingled fund cannot easily replicate: a lower-cost route to incubating strategies alongside institutional partners with real skin in the game.
Powell makes the economics plain. Launching a market strategy inside a private fund could run to hundreds of thousands of dollars. The equivalent SMA build costs a fraction of that and can still be placed on institutional clearinghouse platforms. “The barrier to entry on SMAs isn’t quite as ominous as a private fund or a registered fund,” he says.
For allocators evaluating less-established names, the structure also provides a comfort layer that a commingled fund does not. Custody sits with them. Investment policy constraints are contractually embedded. Daily position visibility is available as standard. Some allocators are consequently more willing to back a manager with a shorter track record, precisely because the oversight tools are more powerful.
What managers actually need to have in place
The case for SMAs as a capital-raising tool is robust. What is less often discussed is the operational infrastructure required to run them, particularly as volume builds.
Costa puts it plainly: the complexity is frequently underestimated. A manager may be well set up to handle one SMA. Five is a meaningfully different proposition. Daily trade files across multiple custodians, reconciliations with multiple prime brokers, different counterparty relationships – all of it compounds quickly.
“I think some of these managers haven’t deployed the infrastructure internally to handle the volumes,” he says. “Now that they’re at five, that introduces complexity and scale that most emerging managers are not ready for.”
The practical advice from the panel for managers building an SMA capability clusters around three principles.
First, know what you can deliver before you commit. Going into allocator negotiations with an established administrator relationship and clarity on how your trade file architecture runs gives you the credibility to say yes to the right things, and no to the unrealistic ones. The temptation to over-commit to get a cheque in the door is a trap.
Second, protect your value proposition. It is tempting to modify strategy, process, or philosophy to accommodate every allocator’s bespoke request. As volume scales, this becomes progressively harder to manage. Managers who run SMA books successfully tend to be those with clear parameters around what they will and will not customise.
Third, lean on external infrastructure. Leading fund administrators and platform providers have built the operational capacity that most emerging managers cannot justify building in-house. Terrazzino notes that some of the world’s largest global investment banks have concluded that outsourcing their DMA programmes to a platform makes more sense than building internally. “Clients can run these DMA platforms with fewer internal experts by leveraging platform service providers,” she says. The logic applies equally to managers.
“I’m less sympathetic to the allocators – it’s kind of a pain on our side too”
The operational question runs in both directions, and Powell, who runs $900 million of Brookmont’s $1.2 billion book through SMAs, does not soften it. When asked how allocators are coping with the data volumes that SMAs generate, he is unsparing: “To be perfectly blunt, I’m less sympathetic to the allocators because it’s kind of a pain on our side also. I don’t want to hear them complaining.”
The underlying point is serious. Hedgeweek®’s 2026 research found that only around a quarter of allocators felt adequately resourced to manage all the data flowing from their SMA programmes. The volume is considerable: daily positions, multiple managers, multiple strategies, multiple custodians.
Terrazzino describes this as a “buy versus build” inflection point. Running a DMA programme successfully requires scale across people, technology, processes, and counterparty relationships. For allocators newer to the structure, this is worth absorbing before the first commitment is made. The transparency that makes SMAs so attractive also requires someone to actually act on what the transparency reveals – every day, in something approaching real time.
The direction of travel
Despite some survey data suggesting a small number of allocators are revisiting commingled structures, the panel was unanimous that this reflects operational friction rather than any structural retreat. Commingled funds will retain a role for strategies genuinely difficult to replicate in SMA form, or for managers unlikely to offer them. But not one respondent in Hedgeweek®’s research indicated they expected SMA demand to decline.
The SMA is not going away. The question for managers entering the space is whether they do so with clear eyes about what it takes to run one at scale – and whether the allocators building these programmes understand what they are committing to receive.
Watch the full webinar on SMAs here:
