Hedge funds are increasingly packaging their strategies into separately managed accounts (SMAs) — single-client portfolios that give large investors more say over how their money is handled. According to data from Goldman Sachs shared with Reuters, the total assets in these accounts reached $255 billion by the end of last year, growing faster than the broader hedge fund industry.
What are separately managed accounts?
Traditionally, hedge funds pool money from many investors into one fund, and the fund manager makes all the investment decisions. With an SMA, a single client — such as a pension fund, sovereign wealth fund, or wealthy family office — gets its own dedicated portfolio. The manager runs the same or similar strategies, but the client can set specific rules about what the manager can buy or sell, demand more frequent and detailed reporting, and negotiate fees on an individual basis rather than accepting a standard fee structure.
Goldman's report indicates that SMAs grew by 20% from 2024 and now represent about 7.4% of all hedge fund assets. Over the past decade, SMA assets have risen roughly 13% per year, compared with about 5.5% annual growth for the hedge fund industry as a whole. That gap shows a clear trend: big investors are increasingly choosing control and customization over the traditional pooled fund model.
Why are big investors pushing for SMAs?
The appeal for large allocators is straightforward. In a pooled fund, a pension fund with $500 million invested is just one of many voices. In an SMA, that same pension fund can dictate terms. They can restrict certain sectors, avoid specific stocks, or require that the manager adhere to environmental, social, and governance (ESG) guidelines. They also get greater transparency into exactly what they own, which helps with risk management and regulatory reporting.
Another driver is fee negotiation. Hedge funds typically charge a management fee (often 1-2% of assets) and a performance fee (often 20% of profits). With an SMA, a large client can bargain for lower fees, especially if they are committing a substantial amount of capital. This is part of a broader trend where institutional investors are using their size to demand better terms.
The shift also reflects a desire for more liquidity and control. Some investors have been burned by funds that impose gates or restrictions on withdrawals during market stress. SMAs can offer more flexibility, though that depends on the specific agreement.
What does this mean for everyday investors?
For the average person, this trend is unlikely to change how they invest directly — most people don't have the millions needed to open an SMA. But it has ripple effects. As hedge funds cater more to large clients, they may become more focused on meeting the specific needs of those clients, which could influence the strategies they run. That might mean less risk-taking or more tailored approaches, which could affect overall market dynamics.
Also, the growth of SMAs is a sign that institutional money is becoming more demanding. That pressure for transparency and lower fees has been spreading across the asset management industry, benefiting all investors. For example, the rise of low-cost index funds and ETFs is partly a response to similar demands from big investors.
For those who invest in hedge funds through funds-of-funds or other vehicles, the shift could mean better alignment of interests, but also potentially higher minimums or different fee structures. It's worth paying attention to how your own investments are structured and whether you're getting the transparency you need.
Broader context
The move toward SMAs comes at a time when hedge funds are seeing renewed interest from investors. A recent BofA survey indicated that investors are putting fresh money back into hedge funds, reversing some outflows seen in prior years. That renewed appetite, combined with the desire for more control, is likely fueling the growth of SMAs.
Goldman Sachs itself has been active in the private markets space, recently raising $11.7 billion for private equity, including a flagship fund at $9.6 billion. That shows the firm's broader push into alternative assets, and SMAs are part of that strategy.
The trend also fits with a wider pattern of investors seeking more customization and control across asset classes. For instance, some investors are using direct indexing to own individual stocks rather than index funds, and separately managed accounts are a similar concept for hedge fund strategies.
What to watch next
Investors should keep an eye on how hedge funds adapt to this shift. Will they continue to offer SMAs as a standard option, or will they limit them to only the largest clients? Also, watch for any changes in fee structures across the industry, as SMA growth could pressure traditional pooled funds to lower fees to stay competitive.
For those interested in the broader markets, the growth of SMAs is another sign that institutional investors are becoming more sophisticated and demanding. That trend is likely to continue, and it could reshape how asset managers operate for years to come.
