Single-Client Hedge Fund Assets Surged 20% Last Year, Goldman Sachs Reports

Capital allocated to hedge funds that exclusively serve a single client surged by 20% to total $255 billion at the end of last year, according to a report from Goldman Sachs. This growth highlights a significant shift as large investors demand more control over their assets and multi-manager funds seek new ways to access top investment talent.

The Rise of Separately Managed Accounts

These single-client funds, known as separately managed accounts (SMAs), have gained traction since the 2008 financial crisis. They provide allocators, such as pension and sovereign wealth funds, with greater transparency, control over investments, and leverage to negotiate management and performance fees.

The Goldman Sachs report, compiled by its prime insights and analytics unit, noted that the "ongoing scarcity of investment talent" has also driven multi-manager platforms to use SMAs. This structure allows them to invest capital in independent, third-party hedge funds rather than hiring managers directly.

Outpacing the Broader Industry

The growth in SMAs is significantly outpacing the hedge fund industry as a whole. The report highlights several key figures:

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• SMA assets have grown at a 13% annual rate over the last decade, compared to 5.5% for the broader industry.
• These accounts now represent 7.4% of the industry's total assets under management.
• Half of all hedge funds now operate at least one SMA.

Larger Managers Lead Adoption

The trend is most pronounced among the largest firms. The report found that managers with more than $5 billion in assets saw the greatest increase in SMA adoption, with 6% more of these firms running an SMA compared to the prior year. Goldman Sachs attributed this to the "deeper resources and scalable architecture of larger firms."

Furthermore, the report suggests a potential performance benefit, noting that firms utilizing SMAs in their portfolios delivered returns that were approximately 0.4% higher than those of commingled fund investors.