Managing Expectations: The Rise of the Separately Managed Account

Managing Expectations: The Rise of the Separately Managed Account

By Diane Harrison

The line between wealth management and fund management continues to blur for the alternative asset managers who serve the high-net-worth investor community. Driven by a growing desire on the part of these investors to maximize control over their investment portfolio, managers who are emerging or who operate with assets under management under the $1B level are finding increased demand for separately managed accounts, or SMAs. Some of the obvious advantages of SMAs over funds from a client’s perspective include customization, transparency, tax and cash efficiency, and professional management. Clients are also attracted to individual accounts when these provide flexibility in terms and fees.


The generalized shift towards solutions providing more investor control across both traditional and alternative investments is in large part due to a greater desire for products addressing global uncertainty and volatility risks, a longer-term investment perspective, and capital preservation combined with income. And yet, some managers have been slow to embrace the option of SMAs, as they perceive them to be counter-productive to growing their fledgling funds.

A more constructive view for managers might be to consider a tandem build out of both SMAs for their clients alongside their fund’s asset gathering, to provide a growing pool of AUM. It is no secret that building a successful alternatives fund takes years to accomplish in this very competitive market. Managers who truly offer attractive investment management skill can often win over new clients through SMAs in a shorter time frame than they can for their funds and gain fee income to sustain their business for the long term.


The preference trend of HNW investors towards SMAs is corroborated by the advisors and professionals who serve this segment. Over the past two months, I reached out to a number of the advisors, attorneys, performance data providers, and consultants to confirm what seems to be a growing demand for customized solutions. Following are several key points these professionals made in support of the SMA option and the advantages to an investor. They also validate a manager’s ability to grow their overall AUM through offering an SMA option when possible.

  • From a leading attorney in the alternatives industry: Two key points of SMAs over funds ? the deductibility of certain expenses for the separate account and the ability of the investor to increase diversification of their overall investment exposure beyond what they can achieve on their own.
  • From a leading data information and risk reporting provider to managed accounts: Transparency of the account combined with customization of reporting and flexibility in fees, which can be negotiable for clients.
  • From an industry accounting provider: Securities in an SMA are visible and portable, as investors own the underlying shares and not units in a fund. This leads to better management of an investor’s tax situation, including control of accrued capital gains.

This third point was expanded upon by a wealth manager in the industry with whom I spoke to recently, Bob DeMichele, CIO and founder of Strategy Asset Managers, LLC. The firm is a boutique asset management firm, founded in 2001 and located in Woodcliff Lake, NJ, offering global and domestic investment solutions to family offices, endowments, and individuals through separately managed accounts. “We proactively initiate discussions every September with our clients about tax selling, tax efficiencies, and net long-term gains/losses for each client,” explains Bob. “We want these discussions to allow time for portfolio adjustments in the fourth quarter as our clients seek to achieve certain overall portfolio outcomes annually.”


I can almost hear the collective voices of emerging and smaller managers who protest that offering these SMAs will cannibalize their fund business ? that no investor will want to be placed in a fund structure versus having the customization of a separately managed account, if available pari passu. This might be true for many investors, where control trumps other features, such as pricing.

However, managers who are eager to grow their small fund and have the ability to offer price breaks for certain share classes may entice investors to participate in a fund over an SMA by offering attractive fee breaks for a core segment, such as founders shares, or larger subscriptions. While these fee breaks would not be sustainable for all fund investors, the fee income generated through regular share pricing of the rest of the fund, combined with the fee income realized by managing SMAs alongside the fund, can assist a manager in attaining viable management fee income to support and grow the overall business for the long-term.

Regardless of whether an investor participates with a manager through a fund or an SMA, fostering strong relationships with each client is paramount to a manager’s success. Equally important to communicating regularly and meaningfully to investors about investment strategy and performance is the ability to listen to and learn from the investors. No one knows better than they do about their information needs and wants, their preferences for solutions-based investment options, and their negotiable flexibility to accommodate in their investment decisions. Smart managers will work as hard to satisfy as many of the needs and wants as they are able in order to achieve their own long-term money management goals.

 Diane Harrison is principal and owner of Panegyric Marketing, a strategic marketing communications firm founded in 2002 specializing in alternative assets.  She has over 25 years’ of expertise in hedge fund and private equity marketing, investor relations, articles, white papers, blog posts, and other thought leadership deliverables. In 2016, Panegyric Marketing has been shortlisted for Family Wealth Report’s Outstanding Contribution to Wealth Management Thought Leadership and received AI Hedge Fund’s Outstanding Contribution to Wealth Management Thought Leadership, and  M&A’s Excellence in Financial Services Marketing Communications – USA.  A published author and speaker, Ms. Harrison’s work has appeared in many industry publications, both in print and on-line. To read more of her published work in alternatives, please visit Contact: or visit

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