Separately Managed Accounts (SMAs)
Definition
A Separately Managed Account (SMA) — also called a managed account or dedicated mandate — is an arrangement where a GP manages a private pool of capital exclusively for one investor (typically a large institution such as a pension fund, sovereign wealth fund, or insurance company). The investor commits capital to a dedicated vehicle rather than pooling it with other investors in a commingled fund.
Caveat: SMA terms are governed by a bespoke Investment Management Agreement (IMA), not a standard LPA. All economics, reporting, governance, and operational requirements are negotiated individually. There is no universal SMA structure.
Why SMAs Exist
SMAs are used by large institutional LPs that want more control, customisation, and transparency than a commingled fund offers. The GP benefits from a larger, more stable capital commitment and a deeper relationship with a key institutional client.
Custom Mandate Complexity
Each SMA has a bespoke investment mandate that may include:
- Geographic and sector restrictions – e.g., Europe and North America only; exclude fossil fuel producers
- ESG requirements – specific negative screens or positive obligations
- Concentration limits – maximum exposure to any single asset, sector, or company
- Co-investment rights – the SMA investor may receive first right of refusal on deals above a certain size
- Reporting customisation – frequency, format, data fields, and templates aligned to the LP’s internal systems
- Return targets and risk limits – agreed at mandate inception and tracked through regular reporting
The bespoke nature of each mandate means that the GP must operationalise each SMA separately — the standard commingled fund infrastructure cannot be used without modification.
Fee and Economics Complexity
SMA fee structures are individually negotiated. Common features:
- Management fees are often lower than for commingled funds (economies of scale for the GP on a large single mandate)
- Carry arrangements vary: some SMAs have no carry; others have full carry but on a lower management fee
- Fee basis may differ from the commingled fund — e.g., net invested capital rather than committed capital
- Any portfolio company fee offsets are defined in the IMA
From an operations perspective, fee calculations for SMAs must follow the specific IMA logic, which may differ from the logic applied to other funds the same team services. Errors can be costly and visible — unlike pooled funds, the SMA investor sees all the detail.
Allocation Conflicts and Governance
When a GP manages both commingled funds and an SMA with overlapping strategies, allocation conflicts arise: which vehicle gets a deal first? How are attractive opportunities allocated when multiple vehicles could participate?
The IMA (and the fund LPAs) should define a deal allocation policy that addresses this. Common approaches:
- Pro-rata allocation – opportunities are offered to all eligible vehicles proportionally
- First right of refusal – one vehicle has priority (usually the SMA, given its size and relationship)
- Conflict committee – an internal committee reviews allocations for fairness
Caveat: Allocation conflicts are a key operational and reputational risk for GPs running SMAs alongside commingled funds. The quality of conflict management is a key factor in institutional LP due diligence. Administrator involvement does not remove the GP’s responsibility to manage conflicts fairly.
Operational Burden
Running an SMA alongside commingled funds significantly increases operational complexity:
| Operational Area | SMA-Specific Requirement |
|---|---|
| Capital account tracking | Separate ledger; custom contribution/distribution tracking |
| Fee calculation | Bespoke logic per IMA; may differ from standard fund methodology |
| Reporting | Custom format, frequency, data fields; often direct data feed to LP systems |
| Deal allocation | Policy documentation; audit trail for each allocation decision |
| KYC/AML | Separate investor record and periodic refresh |
| Governance | Separate LPAC-equivalent (if any); IMA amendment process |
| Valuation | Same underlying assets may be reported differently to the SMA vs commingled fund LPs |
Data and Reporting Expectations
Large institutional SMA investors typically have more demanding data requirements than commingled fund LPs:
- They may require portfolio-level data (not just fund-level summaries) to feed their own risk and portfolio management systems
- They may need data in machine-readable formats (not just PDF reports)
- They may require more frequent reporting than the standard quarterly cycle — some require monthly or even more frequent estimated NAV
- They may require look-through exposure data for regulatory reporting (e.g., Solvency II for insurance companies, pension regulations)
Meeting these requirements requires investment in data infrastructure and often custom development of reporting pipelines. Operations teams should scope data and reporting requirements fully during mandate onboarding, not after the first reporting cycle.
How SMAs Differ from Commingled Funds
| Feature | Commingled Fund | SMA |
|---|---|---|
| Investors | Many (pooled) | One |
| Governing document | Standard LPA | Bespoke IMA |
| Reporting | Standard format | Customised to LP |
| Restrictions | Limited (LPA governs all) | Highly customisable |
| Minimum commitment | Varies; often smaller | Typically very large (institutional scale) |
| Fee levels | Per LPA; market standard | Often lower or bespoke |
| Liquidity | Per fund type | Per IMA; underlying assets still illiquid |
Related Files
- Limited Partnerships
- Fund of Funds
- Co-Investments
- LP Roles
- Fee Calculations
- Investor Reporting
- NAV Production
- Data Management
Manual Review Notes
- Minimum commitment thresholds for SMAs are not stated here as numbers because they vary widely by GP, strategy, and market environment. Any figures in earlier versions of this file have been removed to avoid unsupported market claims.
- The description of allocation conflict policies is generic. Real allocation policies are complex and may be more or less favourable to different vehicle types depending on the IMA terms. Legal and compliance review of any specific allocation policy is essential.
- Solvency II and pension fund regulatory look-through requirements mentioned in the data section are jurisdiction-specific and subject to regulatory change. Teams supporting insurance or pension LP SMAs should verify current requirements with specialist counsel.
- SMA structures vary significantly between asset classes: a PE SMA, a real estate SMA, and a private credit SMA will have very different governance, valuation, and reporting frameworks.