The SMA paradox: How to capture growth without drowning in complexity

Separately Managed Accounts (SMAs) are no longer a niche structure for private wealth. Today, a broad spectrum of investors - from high-net-worth individuals to large institutions like pension funds and sovereign wealth funds - are demanding the greater control, transparency, and customisation that SMAs provide. This trend is accelerating globally across asset managers and hedge funds, as investors seek tailored exposure to specific strategies and markets.

The problem is not portfolio construction, it’s managing many pools of capital within a single operating model while previously, they were treated independently.

This shift presents a significant opportunity for asset managers. The drivers are clear: investors want personalised strategies aligned with their values (such as ESG or SRI), direct ownership of securities for greater transparency, and sophisticated tax management capabilities. However, this opportunity comes with a paradox: the very flexibility that makes SMAs so attractive is the same force that threatens to break legacy, single-fund-oriented operating models. For managers, the challenge is clear: how do you capture this growth without drowning in a sea of operational complexity and allocation accountability?

The benefits SMAs offer investors directly translate into significant operational challenges for the fund managers who service them. While a traditional fund operates under a single set of rules, a firm managing multiple SMAs must contend with an environment where trading and fiduciary responsibility diverge.

Compliance fragmentation: An SMA investor may impose a unique and stricter set of compliance rules. One account may forbid investment in certain industries, another may have tighter single-stock concentration limits, and a third may have a list of entirely restricted securities. Managing dozens of disparate rule sets with spreadsheets and manual checks is not just inefficient; it’s a direct path to compliance breaches.

Ecosystem silos: Each SMA may come with its own designated Prime Broker (PB), custodian, or fund administrator. This shatters the clean, centralised workflow managers are used to. Instead, operations teams are forced to spend valuable time logging into multiple portals, manually retrieving data, and painstakingly reconciling information to build a single, cohesive view of the firm’s overall position.

The reporting burden: The promise of SMA transparency must be delivered. This means producing bespoke, granular reports for each individual account, detailing performance, holdings, and transaction activity. This is a world away from generating one standardised report for a pooled fund and places an immense strain on operations and client service teams.

Nowhere are these challenges more acute than in the daily trading and allocation workflow. This is where the operational tightrope must be walked with precision.

Imagine a portfolio manager identifies a compelling investment opportunity and, for efficiency and best execution, wants to place a single block order across the main fund and several SMAs. The trade itself is simple. The post-trade allocation, however, is a minefield of complexity.

A simple pro-rata allocation is rarely possible. The allocation engine must navigate a web of interlocking questions in real-time: Does SMA ‘A’ have sufficient cash? Is the security on the restricted list for SMA ‘B’? Will this allocation breach the sector exposure limit in SMA ‘C’, even if it’s fine for the main fund?

This exposes the critical need for compartmentalisation. Managers must be able to operate multiple pools of capital as a cohesive whole for trading, yet keep them evidentially segregated for compliance, accounting, and reporting. How can you provide the necessary transparency to one SMA investor without exposing the proprietary activity of the main fund or other clients? Solving this requires a system that can see both the forest and the individual trees.

Thriving in the age of the SMA is not about hiring more people to manage more spreadsheets. It’s about building a modern, resilient technology infrastructure founded on three core capabilities:

A sophisticated, rules-based allocation engine: Firms need the ability to configure and automate complex, multi-tiered allocation logic that goes far beyond basic pro-rata calculations, handling account-specific rules and restrictions seamlessly.

A unified and granular compliance framework: The solution is a single platform that can house, monitor, and enforce countless different rule sets across all pools of capital simultaneously, providing both pre-trade warnings and post-trade verification.

An open and API-centric architecture: To break down ecosystem silos, the system must be built for integration. Real-time, API-driven connectivity with the diverse ecosystem of third-party PBs, administrators, and risk platforms that SMAs bring is no longer a “nice-to-have”. It’s essential.

SMAs represent a fundamental and permanent shift toward mass personalisation in asset management. The firms that attempt to manage this evolution with outdated technology will inevitably be held back by operational risk, spiralling costs, and an inability to scale.

Conversely, those that invest in a flexible, scalable, and integrated technology foundation will be perfectly positioned to meet this growing demand. By doing so, they can transform the operational challenges of SMAs into a powerful and lasting competitive advantage, delivering the customised mandates with defensible execution and scalable oversight.