Most viral trends have a short half-life. Labubus are destined to gather dust in closets, the “6—7” meme will become cringe the moment a critical mass of adults figures it out, and other fads from 2025 will similarly recede in favor of fresh cultural hype.
One of the biggest trends in the hedge-fund world, however, appears to be doing the opposite. Its popularity is surging heading into 2026, according to industry insiders.
The so-called separately managed account, or SMA, sounds stodgy and is by no means new. But this way of investing in top hedge-fund strategies and talent reached new heights in 2025 — and now, everyone wants a piece of the action.
Investors across the spectrum are competing to plow money into promising hedge funds through SMAs, while a growing number of portfolio managers are emerging to grab the cash.
A quick refresher: Traditionally, hedge funds raise capital by securing a group of investors, or limited partners, into a single commingled pool of money. That capital is then deployed across long-short equity, merger arbitrage, distressed credit, or myriad other strategies. Allocators receive periodic performance updates but have limited visibility into day-to-day positions, and their money is typically locked up to avoid panicked withdrawals during market stress.
With a managed account — which has existed for decades but gained traction in the 2010s after the financial crisis and Bernie Madoff debacle — investors get white-glove treatment. Their money may be deployed in similar strategies, but it’s handled separately, with daily transparency into trades and positions and often the ability to redeem on short notice.
It’s a bit like flying via private jet versus commercial: The destination is ultimately the same, but with a different level of service, control, and prestige.
Historically, most hedge-fund managers avoided SMAs. They added operational complexity and carried a stigma — a perception that a manager offering one couldn’t raise a traditional fund.
That has all changed dramatically in recent years.
“There’s no negative connotation around offering an SMA now. It’s almost mandatory,” Jon Caplis, CEO of hedge fund research firm PivotalPath, told Business Insider.
Behind the SMA boom
Overall, SMA capital grew 27% in 2024 to $315 billion, according to Goldman Sachs research, and it has continued to climb since.
Innocap, one of the largest providers of managed-account services to institutional allocators, sold minority equity stakes this year to the Abu Dhabi Investment Authority and Bain Capital. Assets on its platform climbed from about $85 billion in April to more than $100 billion six months later.
One major growth driver in recent years has been the end of the era of zero-interest rates. Another seductive feature of the SMA structure, especially when interest rates are rising and cash earns higher returns, is that it allows investors to size up exposure to hedge fund strategies directly using borrowed money, preserving cash for other uses — or “capital efficiency” in industry speak.
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 the top investment talent to deploy it.
As another way to gain exposure to elite traders, multimanagers have increasingly allocated capital to external portfolio managers through SMAs. By mid-2025, nearly 75% of multimanagers had backed an external PM, up from 54% in 2022, according to Goldman Sachs. Two-thirds of those allocations have come since 2024, and 90% since 2022 — almost exclusively via SMAs.
Activity midway through 2025 was on pace to eclipse 2024 levels, Goldman said.
While emerging managers and smaller funds account for much of the uptick in SMAs, established managers are also increasingly opening up to the SMA, according to a banker who advises hedge funds, who told Business Insider.
“Most new launch portfolio managers, their dream is to have a multi-billion-dollar commingled fund one day,” said Jorge Hendrickson, cohead of prime services at Jones Trading, which provides hedge-fund services. “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.”
Tom Bradbeer, who leads the hedge fund practice at search firm Maven Partnership, said the PMs they work with are increasingly asking about — and pursuing — SMAs. The emergence of more service providers and off-the-shelf products — access to data, trading infrastructure, risk systems, compliance, or back office — has made the transition easier than ever, he added.
“The barrier to entry is a lot lower,” Bradbeer said.
Momentum is only building as we head into 2026. Multimanagers have signaled plans to increase their external allocations next year, the banker said, while traditional allocators leaning into SMAs are adding more fuel to the fire.
Several large banks are also prepping funds to allocate to external PMs, according to With Intelligence’s 2026 Hedge Fund Outlook report.
“It’s just accelerated. And we’re far from it slowing down,” one hedge fund allocator, who wasn’t authorized to speak publicly, told Business Insider. “Peers that haven’t historically are now dabbling in it.”
Shifting balance of power
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, industry insiders said.
Allocators, in turn, are pitching PMs on more than just capital.
“It’s not just ‘hey we’ll give you capital’ but ‘here’s ours and why you should take it versus others,'” said one hedge fund exec, who wasn’t authorized to speak publicly.
PMs considering SMA-backed launches are also becoming savvier, insiders said, pressing harder on terms related to liquidity, exclusivity, and transparency.
Those concerns were highlighted in a March paper from quant hedge fund Squarepoint, which has invested internal capital in external strategies via SMAs since 2018. The firm cautioned that some allocators may misuse SMA transparency by making parallel trades or replicating strategies internally — a practice it refers to as “shadow alpha.”
Such behavior can siphon profits from the SMA manager or erode the strategy’s alpha, Squarepoint wrote, harming not only the PM but their other investors as well.
Squarepoint — which typically makes nonexclusive investments — urged PMs to establish guardrails in their agreements and to ask probing questions before signing on with an allocator.
“The main point is just making sure that we’re all on a level playing field,” Nicolas Janson, head of external strategies at the fund, told Business Insider. “Essentially, it’s know your allocator.”
Janson said Squarepoint received positive responses to the paper, including direct action from some emerging managers.
“What we’re hoping is that the industry as a whole starts to speak more about it and that the SMA business gradually evolves until shadow alphas are no longer,” Janson said.
Another challenge emerging managers will face in 2026 is the talent war. Many of the same multimanagers seeding PMs through SMAs are also expanding aggressively — making it harder for startup funds to recruit analysts, researchers, and technologists.
“With the scrap for talent among multimanagers, it makes it incredibly hard for the smaller emerging funds to compete,” Bradbeer said, adding that candidates considering joining such operations face significant career disruption if it doesn’t pan out.
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