NEW YORK -- The biggest multi-manager hedge funds are allocating more capital than ever to accounts that are exclusively run for individual clients, according to an internal Goldman Sachs report, underscoring the industry’s battle for talent and the need for more control over investments.
The Goldman report, compiled by its prime insights and analytics unit and seen by Reuters, said these so-called separately managed accounts (SMAs)had totaled US$255 billion at the end of last year, up 20 per cent 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.
“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 more control over assets and to better negotiate management and performance fees. They gained traction after the 2008 global financial crisis.
Goldman estimates hedge fund assets managed by SMAs have grown 13 per cent annually over the last decade, compared to 5.5 per cent for the broader industry.
They now account for 7.4 per cent 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 six per cent 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 higher returns by around 0.4 per cent, compared to commingled investors, it added.
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)
