At our peak, more than $400 million of our $721 million in AUM was not invested through our hedge funds.
It was in separately managed accounts.
Our largest SMA started at $7 million. Over time, it grew to $120 million.
That taught me something important about institutional capital.
Once an investor becomes comfortable with a manager, increasing an existing mandate is often much easier than making a brand-new allocation. A single account can turn into a relationship that grows for years.
SMAs became especially important after Madoff. Many institutions still wanted exposure to a strategy, but preferred to keep the assets with their own custodian while giving the manager trading discretion.
There was another important difference.
A hedge fund investment might start at $100,000 or $500,000. An SMA, depending on the strategy, often starts at $5 million or more.
But there is a tradeoff.
Because the assets remain in the investor's account, the mandate can often be terminated on very short notice—sometimes in as little as one business day.
That control is precisely why investors may be willing to allocate substantially more.
In exchange, managers give up the stability that comes with locked-up fund capital.
For emerging managers, SMAs are not just another account structure.
They can materially expand both the size and type of institutional allocations available to you.