SMA: Why the One-to-One Approach is more Effective in Investment Management

With the rise of mutual funds, Unified Managed Accounts (UMAs), and Exchange-Traded Funds (ETF), investors still favor SMA or Separately Managed Accounts. SMA’s one-to-one management approach has proven its track record as an effective investment method.  Unlike other investment management types, SMA’s place an emphasis on personalization and customization of accounts. Each investor or asset manager focuses on and creates a strategic decision based on a single account. Because of its one-to-one approach, SMA’s are highly flexible. Other asset management types, for example, where there are multiple or shared funds under one account, investors and managers need to decide on the overall health of the whole account and this can injure any one particular account.

For some investors, this can be an issue especially when majority of shared funds’ fractions are not equal per investor. Instead of pooling assets with other investors, the affluent group can now access their investments through separate accounts. This is proven to be beneficial due to ability to distinguish cost basis of each account, which is another barrier for other funds like mutual funds.  With account minimums ranging from $100,000 to $250,000, each investor already has sole ownership on their accounts.

Another good thing about SMA’s are investors can monitor and assess their portfolio’s performance, and not merely evaluate external or post-analysis results. The asset manager’s purchasing decisions is made entirely in behalf of the investor and not the account.

Old Greenwich Capital Partners (OGCP), a leading multi-manager platform specializing in hedge funds and SMA’s, is led by Jeffrey Arsenault who explains how the SMA platform can add value to investments, “an SMA platform can eliminate lockups, gates and suspended redemption’s, and provide a much needed level of full transparency regarding the underlying holdings of a fund. Furthermore, the platform also provides vehicles to access managers with AUM <$100M, that make up 80% of the hedge fund universe.”  And with growing and stricter tax regulation in investment management, SMA offers flexibility and different regulation flexibility.

“At OGCAP, risk management is at the foundation of the investment process and is fully integrated into our process and framework. From manager selection to portfolio construction and ongoing monitoring, we feel that the initial manager approval and selection is paramount in reducing in both idiosyncratic and systemic risks. Selected managers are electronically integrated onto the OGCP Platform, providing them with state-of-the-art infrastructure and comprehensive daily analytics on aggregated data, also available to the investor. In addition, the technology enables investors to drill down to position level information and run risk analytics at the individual manager or aggregated portfolio levels,”.

Advantages of SMA:
  • Personalized or management one-to-one approach
  • Individual cost basis
  • Tailored management strategy for each single account
  • Tax flexibility through tax gain/loss selling

Furthermore, separately managed accounts are an efficient avenue for investors who want to utilize customization to reach full potential performance of their own investments.