Hedge Fund SMA Boom Accelerates Into 2026

The hedge fund industry is witnessing a massive shift toward separately managed accounts (SMAs), a structure that provides investors with greater transparency and control compared to traditional commingled funds. This trend surged in 2025 and is projected to accelerate further into 2026.

According to Goldman Sachs research, SMA capital grew 27% in 2024 to $315 billion. Large multistrategy hedge funds are driving much of this growth as they compete for top talent, increasingly allocating capital to external portfolio managers via SMAs. By mid-2025, nearly 75% of multimanagers had backed an external PM, up from 54% in 2022.

The rise of service providers has lowered barriers to entry, allowing emerging managers to launch more easily. However, the influx of capital is shifting the balance of power, with managers becoming choosier about deals and raising concerns about strategy replication, or shadow alpha. Despite these challenges, industry insiders agree that the momentum behind SMAs is building.

While most viral trends have a short half-life, the popularity of separately managed accounts is surging heading into 2026. The SMA structure sounds stodgy and is by no means new, but this way of investing in top hedge-fund strategies reached new heights in 2025.

Traditionally, hedge funds raise capital by securing a group of investors into a single commingled pool of money. Allocators receive periodic performance updates but have limited visibility into day-to-day positions. With a managed account, investors get white-glove treatment. Their money is handled separately, with daily transparency into trades and positions and often the ability to redeem on short notice.

Historically, most hedge-fund managers avoided SMAs due to operational complexity and the stigma that a manager offering one could not raise a traditional fund. That perception has changed dramatically. Jon Caplis, CEO of hedge fund research firm PivotalPath, stated, "There's no negative connotation around offering an SMA now. It's almost mandatory."

The growth in SMA capital is being fueled by several macroeconomic and structural factors. One major driver has been the end of the era of zero-interest rates. As interest rates rise, cash earns higher returns, making the SMA structure attractive for its capital efficiency.

Another seductive feature is that the structure allows investors to size up exposure to hedge fund strategies directly using borrowed money, preserving cash for other uses. The trend has been supercharged by the embrace of large multistrategy, multimanager hedge funds. These firms have amassed hundreds of billions of dollars and are locked in a fierce battle for top investment talent.

To gain exposure to elite traders, multimanagers have increasingly allocated capital to external portfolio managers through SMAs. Activity midway through 2025 was on pace to eclipse 2024 levels. Innocap, one of the largest providers of managed-account services, saw assets on its platform climb from about $85 billion in April to more than $100 billion six months later.

While emerging managers and smaller funds account for much of the uptick, established managers are also increasingly opening up to the SMA. Jorge Hendrickson, cohead of prime services at Jones Trading, explained the mindset of new portfolio managers.

"Most new launch portfolio managers, their dream is to have a multi-billion-dollar commingled fund one day. But then, as they have investor conversations, depending on strategy, they start to realize a lot of the capital most readily available is actually from the SMA allocators."

The emergence of more service providers and off-the-shelf products has made the transition easier. Access to data, trading infrastructure, risk systems, compliance, and back-office services has lowered the barrier to entry. Tom Bradbeer, who leads the hedge fund practice at Maven Partnership, noted that PMs are increasingly asking about and pursuing SMAs.

Momentum is building as we head into 2026. Multimanagers have signaled plans to increase their external allocations next year, and several large banks are prepping funds to allocate to external PMs. As one hedge fund allocator noted, "It's just accelerated. And we're far from it slowing down."

As SMA capital floods the market, the balance of power is shifting. With more allocators competing for deals, emerging managers are becoming choosier and increasingly reluctant to accept exclusive SMA arrangements. Allocators are pitching portfolio managers on more than just capital, emphasizing their unique value propositions.

However, risks remain. PMs are pressing harder on terms related to liquidity, exclusivity, and transparency. A paper from quant hedge fund Squarepoint highlighted concerns that some allocators may misuse SMA transparency by making parallel trades or replicating strategies internally—a practice referred to as shadow alpha.

Nicolas Janson, head of external strategies at Squarepoint, emphasized the need for diligence. "The main point is just making sure that we're all on a level playing field," Janson said. "Essentially, it's know your allocator."

Additionally, the talent war presents a challenge. Many multimanagers are expanding aggressively, making it difficult for smaller emerging funds to recruit analysts and technologists. Despite these hurdles, the SMA trend appears set for continued growth.