Seward & Kissel’s First Report on Separately Managed Accounts Highlights Convergence of Major Industry Trends

NEW YORK--(BUSINESS WIRE)--A first-of-its-kind report on separately managed accounts (SMAs) in the hedge fund industry from national law firm Seward & Kissel LLP reveals that investor demand for bespoke products has resulted in an increase in SMAs. The SMA Snapshot Report offers detailed metrics on the individualized accounts that are increasingly favored by large ticket investors. It can be accessed here.

“The demand by investors for specific terms and strategy exposure is substantial, and only growing, which has been a large contributor to the increase in SMAs,” said Steve Nadel, a partner in the Investment Management Group of Seward & Kissel and lead author of The SMA Snapshot Report. “We feel that the uptick in SMAs reflects the convergence of the four biggest trends impacting the industry – greater investor demand for bespoke products, private asset exposure, ESG sensitivity, and cryptocurrency.”

For 45% of the SMAs studied, managers deviated from the investment strategy of their flagship hedge funds to accommodate investor mandates around a handful of priorities, including ESG considerations, exposure to privates and digital assets, as well as other issues.

Additional key findings of The Seward & Kissel SMA Snapshot Report include:

• Most investors in SMAs (52%) were funds, while 25% were high-net-worth individuals and family offices.
• The average SMA size was $35 million for managers over two years old and less than $10 million for newer managers.
• The vast majority (82%) of SMA managers had more than two years of experience as hedge fund managers; 61% had more than five years of experience.
• Of the 18% of SMA managers with less than two years of experience, 100% of their investments came from high-net-worth individuals and family offices.
• More SMAs employed equity-focused investment strategies (65%) than credit-focused strategies (27%).
• Management fees for SMAs averaged 1.5% overall, with 40% of the agreements featuring a tiered management fee structure, typically tied to AUM levels. Only 11% charged no management fee.
• Only 14% of SMA agreements charged a traditional 20% incentive fee, while 40% charged no incentive fee, 32% charged between 15%-18%, and 14% used a tiered incentive fee structure.

About Seward & Kissel LLP

Seward & Kissel LLP, founded in 1890, is a leading U.S. law firm with an international reputation for excellence. The firm is particularly well known for its hedge fund and investment management work, having established the first hedge fund ever, A.W. Jones, in 1949, and having earned numerous best in class awards over the years.