Hedge Fund SMA Boom Accelerates as Demand Surges Ahead of 2026

UPDATE: The hedge fund industry is witnessing an urgent surge in demand for separately managed accounts (SMAs), with insiders predicting an explosive growth trajectory heading into 2026. This investment vehicle, long considered traditional, is now at the forefront of a gold rush, as investors scramble for exclusive access to top hedge fund strategies.

In 2025, SMA capital soared by 27%, reaching an impressive $315 billion, according to Goldman Sachs research. The trend shows no signs of slowing, with a flood of investors eager to capitalize on this investment method that offers unparalleled transparency and control.

Traditionally, hedge funds raised capital through commingled pools of money with limited visibility for investors. However, SMAs provide a more tailored experience, allowing for daily transparency into trades and positions, and often enabling quick redemption options. Investors can now enjoy a private jet experience in hedge fund investing, enhancing both control and prestige.

“There’s no negative connotation around offering an SMA now. It’s almost mandatory,” stated Jon Caplis, CEO of hedge fund research firm PivotalPath. This shift has made it crucial for funds to adapt or risk being left behind.

In recent years, the end of the zero-interest rate era has further fueled the SMA boom. Investors can now leverage borrowed money to increase their exposure to hedge fund strategies while preserving cash for other investments. This has made SMAs particularly appealing as interest rates rise, enhancing what industry insiders call “capital efficiency.”

Large multistrategy, multimanager hedge funds are increasingly recognizing the value of SMAs, with nearly 75% backing external portfolio managers through this structure by mid-2025. This marks a significant rise from 54% in 2022, showcasing a rapid shift in investment dynamics.

As the landscape evolves, emerging managers face fierce competition not only from established funds but also in the talent war. The same multimanagers seeding new portfolio managers through SMAs are aggressively expanding their teams, making it challenging for smaller funds to recruit top talent. “With the scrap for talent among multimanagers, it makes it incredibly hard for the smaller emerging funds to compete,” added Tom Bradbeer, who leads the hedge fund practice at Maven Partnership.

Despite the challenges, the momentum around SMAs is only building. Large banks are preparing to allocate funds to external portfolio managers, and traditional allocators are increasingly leaning into SMAs, further intensifying the competition for hedge fund deals. “It’s just accelerated. And we’re far from it slowing down,” noted one hedge fund allocator who requested anonymity.

However, the surge in SMA capital is shifting the balance of power in the hedge fund market. Emerging managers are becoming more selective, often declining exclusive arrangements as they understand their value in a competitive environment. Allocators are now pitching more than just capital; they’re presenting comprehensive advantages to attract the best fund managers.

Concerns about transparency and strategy replication also loom large. A recent report from quant hedge fund Squarepoint highlighted the risks of allocators potentially misusing SMA transparency to replicate strategies, which may dilute profits for managers. “The main point is just making sure that we’re all on a level playing field,” said Nicolas Janson, head of external strategies at Squarepoint.

As the hedge fund industry gears up for 2026, the SMA trend is not just a passing fad. It represents a fundamental shift in how capital is allocated and managed in hedge funds. With both established and emerging managers adapting to this new landscape, the stakes have never been higher. Investors are urged to stay informed and consider the implications of these developments as they navigate their investment strategies.