By Arasu Kannagi Basil and Anirban Sen
NEW YORK, Sept 23 (Reuters) – The biggest multi-manager hedge funds are allocating more capital than ever to separately managed accounts (SMAs), or external funds that are exclusively run for individual clients, according to a Goldman Sachs report, underscoring the industry’s battle for talent.
The Goldman report, compiled by its prime insights and analytics unit and seen by Reuters, said these SMAs had totaled $255 billion at the end of last year, up 20% from 2024.
The once niche SMAs have rapidly grown in recent years as a preferred way in which investors, or allocators, direct capital into funds.
As big asset management clients have gravitated towards large multi-strategy hedge funds, fund managers are increasingly opting to manage capital for just one client, rather than a commingled pool from multiple investors, according to other hedge fund industry experts.
“The ongoing scarcity of investment talent for hire has driven increasing enthusiasm from multi-managers to use SMAs to invest capital in independent third-party hedge funds,” the Goldman report said, adding that growth in SMAs has continued to outpace the broader hedge fund industry.
SMAs, created for a single allocator or money manager to run, are designed to give investors better transparency, more control over assets and to negotiate management and performance fees. They gained traction after the 2008 global financial crisis. More recently, allocators have gravitated towards SMAs to capitalize on a high-rate environment and potentially generate bigger returns from various hedge fund strategies.
Goldman estimates hedge fund assets managed by SMAs have grown 13% annually over the last decade, compared to 5.5% for the broader industry.
They now account for 7.4% of overall industry assets under management, with half of all hedge funds running at least one, the report said, adding SMAs’ popularity is growing among pension and sovereign wealth funds.
“We saw the greatest growth from the largest managers (managing more than $5 billion), with 6% more now running an SMA versus in 2024. These managers also saw the greatest increase in the number of SMAs they run – this may be driven by the deeper resources and scalable architecture of larger firms allowing them to take on additional SMAs with relative ease,” the report said.
Firms utilizing SMAs in their portfolio appear to have delivered about 0.4% higher returns compared to commingled investors, it added.
According to the report, the majority of hedge fund investors are now willing to match terms from single-client funds on liquidity, underscoring competition to secure favorable terms.
“Most allocators will not request exclusivity or limit the ability of managers to take on additional SMAs. This is considerably more common amongst the funds of funds and multi-managers, where commercial and competitive dynamics drive a motivation for exclusivity,” Goldman said.
Global hedge funds are on track for another big year, following a strong first-half performance buoyed by the AI boom for money managers across most investment strategies.
(Reporting by Anirban Sen in New York and Arasu Kannagi Basil in Bengaluru; Editing by Jonathan Spicer)
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