SMAs vs Commingled Funds: Responding to the Managed Account Renaissance

The separately managed account has moved from the periphery of hedge fund allocation to the centre of it. Large allocators increasingly open the conversation not with "tell us about your fund" but with "would you run this as a managed account", drawn by transparency, control of assets and the ability to customise terms. AIMA's 2026 work on managed accounts reflects what managers already feel in the market: the SMA has been institutionalised. For an emerging manager the offer is flattering and the cheque is real, but the economics, the operational load and the track record consequences are quite different from a commingled fund. This article sets out how to evaluate the trade, and when to decline it.

"An SMA is not a fund with one investor. It is a different business: different economics, different control, different operational surface. Managers who price it like a fund subscription usually discover the difference in their own P&L."Evan Judd, Director at CV5 Capital

Why This Matters for Funds and Managers

The managed account renaissance is allocator-driven. After a decade of fee pressure, gate frustrations and headline blow-ups, institutions want to see positions daily, hold assets in their own custody perimeter, and switch a manager off without negotiating a redemption. For the largest allocators, dedicated managed account platforms make that operationally trivial, and the average ticket that arrives with an SMA request is often several times a typical fund subscription.

For the manager, the stakes sit in three places. First, economics: SMA fee schedules are usually negotiated below fund headline terms, and the revenue may not contribute to the fund's break-even in the way commingled capital does, a calculation worth running against our analysis of hedge fund break-even revenue and what AUM makes a hedge fund profitable. Second, operations: every account added is another book to trade, reconcile and report. Third, the track record: performance in an account owned by the client does not automatically build the manager's own auditable history, an issue that goes to the heart of building an institutional track record.

The Common Misunderstanding

Managers tend to make one of two symmetrical mistakes. The first is treating an SMA request as a compliment to be accepted at any price, on the theory that a large allocator's name on the roster will pull in others. It may, but a below-cost account with unlimited transparency and instant termination rights is a fragile foundation, and the allocator's departure is as visible as its arrival. The second mistake is reflexive refusal, treating SMAs as a threat to the fund rather than a segment of demand that can be priced and bounded. The correct posture is neither: it is a written set of terms, minimum size, fee floor, strategy scope, infrastructure responsibilities, below which the answer is a polite no, and above which the account is genuinely accretive.

The Practical Reality: The Trade-Offs Side by Side

The governance consequences compound when a manager runs both. Trading the fund and one or more SMAs side by side creates allocation and sequencing questions that allocators probe hard in due diligence: how are fills allocated, are accounts traded pari passu, who checks. These policies are examinable documents, not intentions, and they connect directly to the disciplines described in our review of fund governance and ODD readiness. Transparency is also not free for the client: full daily positions from three managers require infrastructure to consume, which is why the demand concentrates among the largest allocators.

The Middle Ground: Funds of One and Platform Structures

The choice is not binary. A fund of one, a single-investor vehicle, often a segregated portfolio on an SPC platform, gives the allocator dedicated exposure, customised terms and clean segregation, while keeping the assets inside a governed fund structure with an administrator, auditor and directors, and keeping the track record inside the manager's fund family. We cover the structure in detail in our companion piece on funds of one. For many negotiations, offering a fund of one at fund-adjacent fees is the move that satisfies the allocator's control requirements without dismantling the manager's economics.

Structure also determines how much of the SMA's operational load lands on the manager. On a platform, the governance, administration and compliance perimeter already exists, so adding a dedicated vehicle is an incremental exercise rather than a second build, the same economics that drive the SPC versus standalone comparison for the flagship fund itself.

Key Considerations Before Accepting an SMA

How the CV5 Platform Model Helps

CV5 provides governance, compliance and operating infrastructure as platform manager; it does not make investment decisions for third-party strategies and is not a law firm, administrator, auditor or investment adviser. Managers retain investment discretion and their client relationships. The model is described at the hedge fund platform.

Risks and Caveats

Managed account terms vary enormously and the framework here is general. US managers must also consider adviser regulation consequences: managed accounts can change custody rule analysis, marketing rule treatment of performance, and Form ADV disclosures, all of which need specific advice. Nothing here should be read as suggesting SMAs are inherently unattractive; for managers with scalable strategies and mature operations they are a substantial and growing source of institutional capital. The point is narrower: they should be accepted on written internal terms, priced on full incremental cost, and structured, where possible, in vehicles that protect the manager's governance story and track record.

Key Takeaways

• SMA demand is structural, not cyclical: transparency, control and instant termination are what large allocators now buy.
• Price SMAs on full incremental cost, operations, reporting, compliance and capacity, not on the marginal cost of trading another book.
• Trade allocation and aggregation policies across fund and accounts are ODD documents; write them before the first order.
• A fund of one on a platform often satisfies allocator control requirements while preserving the manager's economics and track record.
• Set your minimum size, fee floor and scope in writing before the first request, and be willing to say no below them.

Frequently Asked Questions

What is the difference between an SMA and a fund of one?

In an SMA the client owns the account and the assets, and the manager holds only trading authority; in a fund of one the allocator is the sole investor in a dedicated fund vehicle, often a segregated portfolio, which owns its assets and carries its own governance, administration and audit. The fund of one preserves fund-style protections and the manager's track record while still giving the investor dedicated exposure and customised terms.

Do managed accounts count towards a hedge fund manager's track record?

Not automatically. Performance in a client-owned account belongs to that account, and using it in the manager's marketing generally requires composite construction that complies with applicable marketing rules and, in practice, the client's consent. Managers should agree track record usage in the investment management agreement at the outset rather than negotiating it retrospectively.

What minimum size makes an SMA worthwhile?

There is no universal number; the test is whether the negotiated fee on the account covers its full incremental cost, trading, reconciliation, reporting, compliance and any platform connectivity, and still contributes to firm profitability and capacity strategy. Many emerging managers set internal floors well above their fund minimum precisely because the operational burden per SMA dollar is higher than per fund dollar.

Why are allocators demanding managed accounts in 2026?

Three reasons dominate: position-level transparency for risk aggregation across their whole portfolio, control of custody so assets never sit in a structure they cannot reach, and the ability to terminate or resize a manager quickly without redemption mechanics. Institutional managed account programmes and platforms have made these benefits operationally cheap for large allocators, which is why requests increasingly arrive with the first meeting.