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Rising demand for separately managed accounts creates a challenge for hedge fund managers: how to scale without allowing operational complexity to rise at the same pace.
Which factor poses the greatest risk/headwind to SMA growth?
AFI’s survey finds operational complexity and cost to serve are the biggest headwind to SMA growth, cited by 43% of respondents, followed by technology and infrastructure limitations at 32%. Each new mandate can bring distinct investment guidelines, counterparties, reporting requirements, fee arrangements and data flows. That makes scalability increasingly important.
Managers able to standardize core processes while retaining the customization investors value should be better positioned to turn growing SMA demand into sustainable, profitable growth.
“The key constraint to broader adoption remains the operational complexity and economics of servicing bespoke mandates, particularly for smaller managers,” said Bruno Schneller, Erlen Capital Management.
“Continued improvements in technology and outsourced administration should help lower operational complexity barriers over time.”
For more information, download AFI’s new SMA report, produced in partnership with SS&C, and register for the webinar discussing its findings.