SMA (Separately Managed Account) has taken center stage. It’s not exactly a new concept, yet it has become almost a standard talking point for both institutional investors and fund managers. Everyone wants in—as if failing to adopt SMA means losing ground before the race even starts.
Simply put, the difference between an SMA and a traditional pooled fund is akin to flying private versus flying economy: both get you there, but the experience and level of control are on a completely different scale. In a traditional structure, your capital is commingled with others, and you wait passively for quarterly reports. With an SMA, you hold a dedicated account with transparent holdings and flexible redemptions—it’s a far more tailored experience.
Why SMA? And why now?
In our view, the driving force behind this SMA wave is fundamentally a war for talent.
Large multi-strategy firms, in their bid to secure top-tier portfolio managers, have begun allocating capital externally via SMAs. Goldman Sachs’ data is telling: by mid-2025, nearly 75% of multi-strategy funds were investing with external managers, with the majority channeled through SMA vehicles. This is no longer a trend—it’s a done deal.
Lower barriers to entry have also fueled this shift. The current SMA service ecosystem—covering data, risk management, and compliance—has matured to the point where even small to mid-sized funds can participate with relative ease.
Hedge funds like Millennium, Qube, and Schonfeld have mastered the SMA model, allowing portfolio managers to run firm capital under their own brand rather than joining as employees—typically structured as SMAs.
It’s not just hedge funds—proprietary trading shops have been pursuing similar paths for some time. Tower Research, for instance, has adopted a framework known as SVA (Separately Managed Account Variant). According to sources familiar with the arrangements, an SVA functions similarly to an SMA: external teams leverage Tower’s technology, infrastructure, and capital, while Tower retains control over its intellectual property and brand, sharing in the profits generated. Currently, Tower oversees more than ten SVA external trading teams.
2026: A Subtle Divergence Emerges.
I recently came across a data point that gave me pause: the proportion of allocators with a strong preference for SMAs dropped from 25% to 11%, while those favoring pooled funds increased. At first, I was surprised. But then it became clear—this reflects the deepening and stratification of the SMA market itself.
For mega-institutions managing over RMB 50 billion, the control, transparency, and capital efficiency that SMAs provide are simply irreplaceable by pooled funds. Step outside this top tier, however, and the picture shifts. Small and mid-sized family offices, endowments, and even some medium-sized pension funds are beginning to admit that the SMA model is too demanding for them.
Why? The reason is straightforward: lean teams get overwhelmed by the operational burden of handling data and reporting across multiple SMAs. The costs add up fast.
So, it’s not that SMAs are losing their edge—it’s that market structures are evolving, and allocators’ preferences are diverging accordingly.
Regional differences are also pronounced. Enthusiasm for SMAs remains strong in the Middle East and Southeast Asia, with the UAE showing a 67% preference rate—compared to just 21% in Europe. These disparities ultimately stem from differences in regulatory culture, operational sophistication, and tolerance for cost.
The Balance of Power Is Shifting.
Interestingly, as SMAs become more widespread, the bargaining power of portfolio managers has grown.
In the past, the dynamic was simply “take the capital.” Now, it’s “why should we choose you?” Especially for mid-career managers with strong track records, they are starting to be selective about capital, terms, and partners. Liquidity, exclusivity, and transparency are clearly spelled out in agreements—after all, no one wants their strategy to be exploited without fair compensation.
This brings to mind Squarepoint’s widely discussed report from this year. It highlighted a growing industry concern: some institutions may be leveraging SMA transparency to reverse-engineer strategies, effectively extracting alpha that rightfully belongs to the managers. This serves as a reminder: while SMAs bring transparency, they also open Pandora’s box—protecting intellectual property around strategy has become a pressing new challenge.
SMA Isn’t Cooling Off—It’s Finding Its Place.
In my view, SMA hasn’t lost its momentum—the market is simply becoming more rational.
It is no longer seen as a one-size-fits-all solution but is emerging as a specialized tool for a specific group. Large, sophisticated institutions with robust operational capabilities will continue to embrace SMAs, as the model aligns well with their governance structures and risk management requirements. Smaller and mid-sized allocators, by contrast, may gravitate back toward pooled funds—not because SMAs are inferior, but because traditional funds are “good enough” and come with lower operational costs and complexity.
In the coming years, we may see a more stratified hedge fund allocation landscape:
At the top: SMA-driven customized, transparent allocations.
In the middle and lower tiers: standardized, efficient partnerships via pooled funds.
This isn’t about one structure replacing another—it’s about a natural division of labor as the market matures.
This also means that both managers and allocators need to more clearly understand their own position: What exactly do you need? And what can you truly afford?
Because in the world of investing, there’s no such thing as the perfect structure—only the arrangement that fits best.
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