Glossary · Fund / vehicle structure
Separately Managed Account (SMA)
Also called: separate account
In US wealth management "SMA" also means a retail separately managed account in a wrap programme holding listed securities; this entry covers the institutional and private-markets meaning.
A separately managed account (SMA) is an arrangement in which a manager invests assets for one client under an investment management agreement, with assets held in the client's name or a vehicle it controls rather than in a pooled fund.
Instead of buying into a fund alongside other investors, a large investor hires the manager to run a portfolio just for it. The investor sets the rules, sees everything, often pays lower fees and can usually end the arrangement. The manager runs that account alongside its funds and has to decide how deals are allocated between them.
How an SMA differs from a fund of one and a commingled fund
SMA (strict sense): the client owns the assets directly or through an entity it controls; the manager acts under a management agreement with discretion defined by investment guidelines; the client can typically terminate.
Fund of one: a separate fund vehicle, usually a limited partnership controlled by the manager's GP entity, with a single LP. Legally a fund; the investor is a limited partner.
Commingled fund: a pooled fund with many investors on common terms. In private-markets usage "SMA" is often used loosely for both of the first two; the distinction matters for control, liability, tax and regulatory status.
Why investors use SMAs
Customisation (sector, ESG, leverage, geography or concentration limits); fee negotiation at scale; full transparency at asset level; control over pacing, termination and, in some mandates, individual investments; tax and regulatory fit for the investor; and access to co-investment and multiple strategies through one relationship. The costs: a high minimum size, governance and operational work, and the need to monitor allocation.
Allocation conflicts
A manager running SMAs alongside commingled funds has to decide how investment opportunities are shared between them, usually under a written allocation policy. LPs in the commingled funds want assurance that SMAs do not receive the best deals; SMA clients want assurance they are not offered only the leftovers. Allocation policies, rotation rules and pro rata methods are standard diligence items.
Jurisdiction and status (US)
In the US, an SMA client contracts with the adviser directly under its own advisory agreement, whereas a fund investor holds an interest in a vehicle that, directly or through its general partner, is party to the advisory agreement. Investors in a pooled fund have a separate protection: Rule 206(4)-8 under the Investment Advisers Act makes it fraudulent for an adviser to a pooled investment vehicle to make an untrue statement or misleading omission of a material fact to any investor or prospective investor in it. In Part 1A of Form ADV, "separately managed account clients" are clients other than registered investment companies, business development companies and other pooled investment vehicles; advisers report the regulatory assets under management attributable to them, and their borrowing and derivative use for them, in Schedule D Section 5.K (Item 5.K). For hedge fund strategies, managed account platforms run SMAs for investors who want daily transparency and control of the account.
Not the same as
- Fund of One: A fund of one is a fund vehicle controlled by the manager's GP with one LP; in an SMA the client holds the assets or controls the vehicle.
- Co-Investment: Co-investment is a single-deal investment alongside a fund; an SMA is a continuing multi-investment mandate.
How it is classified
- SMA: one client; assets held by the client or a vehicle it controls; manager acts under a management agreement.
- Fund of one: one investor; manager-controlled fund vehicle.
- Commingled fund: two or more unaffiliated investors in one vehicle.
Common mistakes
- Using "SMA" and "fund of one" interchangeably when the legal control and liability differ.
- Assuming an SMA avoids allocation conflicts; it creates them.
- Comparing SMA performance with fund benchmarks without adjusting for bespoke fees and constraints.
Edge cases
- In private credit, an SMA may be structured as a bespoke lending vehicle owned by the client but serviced by the manager.
- An SMA can hold interests in the manager's own commingled funds as well as direct assets, raising fee-layering questions.
Sources
- 17 CFR 275.206(4)-8 - Pooled investment vehicles. U.S. Securities and Exchange Commission (CFR text; LII mirror), Current CFR text as published by LII (accessed 2026-10-01); source 72 FR 44761, Aug. 9, 2007. Status: in force (checked 2026-10-01). 17 CFR 275.206(4)-8(a), (b) — supports: Antifraud rule protecting investors and prospective investors in pooled investment vehicles; definition of pooled investment vehicle
- Form ADV Part 1A (paper version) - Uniform Application for Investment Adviser Registration and Report by Exempt Reporting Advisers. U.S. Securities and Exchange Commission, SEC 1707 (07-24). Status: in force (checked 2026-10-01). Part 1A Item 5.D(3)(d)-(f); Item 5.K(1)-(3) — supports: Separately managed account clients are clients other than those in Item 5.D(3)(d)-(f) (investment companies, BDCs, other pooled investment vehicles); RAUM, borrowing and derivatives for them reported in Schedule D Section 5.K