Separately managed accounts in fundraising
The single largest ticket a manager is ever likely to be offered often comes with a condition: run it separately from everyone else's money.
A separately managed account (SMA) is an investment account held in an investor's own name, managed by a fund manager under the same strategy as their commingled fund but legally separate from it. Large allocators — particularly institutions and sizeable family offices — frequently request one instead of, or alongside, a commitment to the standard fund, and the request is often non-negotiable for the ticket size on offer.
Why investors ask for an SMA
- Full transparency. The investor sees every position, in real time, rather than relying on periodic fund-level reporting.
- Customisation. Exclusions (sector, single-name, geography), leverage limits, or liquidity terms tailored specifically to that investor's own constraints.
- Control. The investor legally owns the assets and can terminate or redirect the mandate on their own terms, rather than being subject to fund-level gates or the decisions of other investors.
- Fee negotiation. SMAs are frequently used as leverage for more favourable, individually negotiated fee terms given the size and directness of the commitment.
- Operational and tax considerations. Some investors have structural reasons — regulatory, tax, or internal policy — that make direct account ownership preferable to a fund interest.
What it actually costs a manager operationally
This is the part managers persistently underestimate. Each SMA is, in effect, a separate parallel portfolio requiring its own trading, reconciliation, reporting, and compliance oversight — while frequently generating a lower blended fee than the commingled fund, given the negotiating leverage that produced it in the first place. A manager with several SMAs alongside a main fund can find a disproportionate share of operational effort going toward a fraction of total AUM.
| Commingled fund | Separately managed account | |
|---|---|---|
| Legal ownership | Investors hold fund interests | Investor owns the assets directly |
| Transparency | Periodic reporting per fund terms | Often full, real-time position-level visibility |
| Customisation | None — same terms for all investors in that share class | Investor-specific exclusions, limits, liquidity |
| Operational load per dollar | Lower — one portfolio for all investors | Higher — a separate parallel portfolio per account |
| Fee economics | Standard fee schedule | Often individually negotiated, frequently lower |
| Minimum ticket typically required | Fund minimum | Substantially higher — SMAs rarely make sense below a meaningful size |
Deciding whether to offer one
An SMA can be exactly the right trade: it can land a large, credibility-building anchor investor, particularly for an emerging manager who benefits enormously from having an institutional name attached early. It is also a genuine operational commitment that should be priced and scoped deliberately rather than agreed to informally because the ticket size is attractive.
- Set a real minimum. Below a certain size, the operational cost of a separate account exceeds what the fee can justify. Know that number before the conversation, not during it.
- Price the customisation, not just the AUM. Exclusions and bespoke limits add ongoing operational and compliance work that should be reflected in terms.
- Protect the core fund's capacity. An SMA that consumes strategy capacity an investor in the commingled fund is also relying on needs to be accounted for in the fund's stated capacity limits, disclosed accordingly.
- Decide your ceiling in advance. How many SMAs can the operations team actually support well before quality degrades across all of them, including the main fund?
How SMAs come up in a raise
Institutions and large family offices will frequently ask directly, in a first or second meeting, whether an SMA is available — and the honest answer shapes the rest of the conversation. Being prepared with a real minimum, a rough sense of customisation limits, and an understanding of the operational trade-off signals a manager who has actually thought about scaling responsibly, which is itself a credibility signal independent of the specific terms offered.
Frequently asked questions
What is a separately managed account (SMA)?
Why do large investors ask for SMAs instead of investing in the fund?
What does an SMA cost a manager operationally?
What minimum size should an SMA require?
Does an SMA affect a fund's stated capacity?
Should an emerging manager offer an SMA to land an anchor investor?
Nothing on this page is legal, tax, or investment advice. SeRuM is not a registered broker-dealer, not a placement agent, and not an investment adviser.
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