Separately managed accounts (SMAs) have moved well beyond their origins as a niche structure for private wealth. Today, the full spectrum of investors — from high-net-worth individuals through to pension funds and sovereign wealth funds — are pushing for the greater control, transparency, and customisation that SMAs offer.
LSEG Data & Analytics, a provider of financial markets data and infrastructure, recently delved into how to capture growth without drowning in complexity.
For asset managers and hedge funds, the trend represents a genuine growth opportunity. The catch? The very flexibility that makes SMAs so attractive to investors is the same force that threatens to overwhelm the legacy operating models built around traditional pooled funds, LSEG explained.
The core problem is not portfolio construction. It is the challenge of managing many distinct pools of capital within a single operating model — pools that were never designed to coexist within one infrastructure.
Investors are driving this shift with clear intent. They want personalised strategies that reflect their values, whether that means ESG or socially responsible investing mandates. They want direct ownership of underlying securities for greater transparency. And they want sophisticated tax management capabilities tailored to their circumstances. Each of these demands is reasonable on its own. Together, they create a paradox that is quietly breaking conventional operating models across the industry.
When customisation becomes a compliance headache
The benefits SMAs deliver to investors translate directly into operational pain for the managers servicing them. Unlike a traditional fund governed by a single rulebook, a firm running multiple SMAs must navigate an environment where trading and fiduciary responsibility increasingly diverge.
Compliance fragmentation sits at the heart of the problem. One SMA investor may prohibit exposure to certain industries entirely. Another might apply tighter concentration limits on individual stocks. A third could maintain a bespoke restricted securities list. Attempting to manage dozens of such rule sets through spreadsheets and manual checks is not merely inefficient — it is a direct route to compliance breaches, it said.
Ecosystem silos compound the challenge. Each SMA may operate through its own designated prime broker, custodian, or fund administrator. What was once a clean, centralised workflow becomes a fragmented exercise in portal-hopping, manual data retrieval, and time-consuming reconciliation. Operations teams bear the brunt, spending hours piecing together a coherent picture of the firm’s aggregate position.
The reporting burden adds further strain. The transparency that SMAs promise must actually be delivered — meaning bespoke, granular reports for each individual account covering performance, holdings, and transaction activity. This is an entirely different undertaking to producing a single standardised report for a pooled fund, and it places considerable pressure on both operations and client service functions.
The allocation tightrope
Nowhere do these pressures converge more sharply than in the daily trading and allocation workflow. Consider a portfolio manager identifying a compelling opportunity and placing a single block order across a main fund and several SMAs. The trade itself is straightforward. The post-trade allocation is anything but.
A simple pro-rata split is rarely viable, LSEG said. The allocation engine must work through a web of interlocking questions in real time.
This exposes a critical structural need: the ability to operate multiple pools of capital as a cohesive whole for trading purposes, while keeping them evidentially segregated for compliance, accounting, and reporting.
Building the infrastructure to compete
Thriving in an SMA-driven market is not a matter of hiring more staff to manage more spreadsheets. It requires building a modern technology infrastructure around three core capabilities, it said.
First, a sophisticated, rules-based allocation engine — one that can configure and automate complex, multi-tiered allocation logic well beyond basic pro-rata calculations, handling account-specific restrictions seamlessly and at scale.
Second, a unified compliance framework capable of housing, monitoring, and enforcing countless different rule sets across all pools of capital at once — providing both pre-trade warnings and post-trade verification without requiring manual intervention.
Third, an open, API-centric architecture that enables real-time connectivity with the diverse ecosystem of third-party prime brokers, administrators, and risk platforms that inevitably accompany SMAs. Integration is no longer a secondary consideration — it is foundational.
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