Pensions, SWFs gravitate to 'fund of one' for alts strategies

Large institutional investors are increasingly opting for separately managed accounts that promise deeper relationships with fund sponsors and better access to deal flow.
Pensions, SWFs gravitate to 'fund of one' for alts strategies

Large institutional investors such as pension funds and sovereign wealth funds are increasingly taking advantage of separately managed accounts (SMAs) while making fund investments, a trend that is set to increase pace in 2024.

“We are hearing about more interest in pursuing SMAs in 2024. We see this [SMA] interest in real estate, infrastructure and private credit strategies,” Billy Zhang, counsel in legal firm Ropes & Gray’s asset management group, told AsianInvestor.

Hong Kong-based Zhang represents investors, including SWFs, pension plans, universities and private institutional investors making investments in various fund vehicles.

Billy Zhang
Ropes & Gray

An SMA is a bespoke investment arrangement with private fund sponsors. It is also often called a ‘fund of one.'

This structure deploys capital on behalf of a single investor.

SMAs diverge from traditional blind-pool funds or ad-hoc co-investment vehicles and are most common where an investor makes a larger commitment to a particular fund sponsor.


Zhang noted some growing trends for investors making use of SMAs.

“Historically, the trend has been that a large investor will invest with a manager by committing to a flagship fund and will then negotiate for an SMA on the side,” he said,

“Now we are seeing investors approach managers to set up an SMA first and an investment into the flagship fund is more of a secondary investment.”

A fund-of-one structure allows investors to build deeper relationships with fund managers/sponsors, compared with investing in a blind-pool fund that can have several limited partners, also called LPs.

That deeper relationship enables a more open exchange of ideas and better access and collaboration on deal flow and referrals of investment opportunities.

Management fees are typically charged on deployed capital instead of committed capital, which inherently incentivises deal flow.

“With more visibility and control over deal flow, there is room for investors to negotiate economic terms like blended fees, low or no fees, etc.,” said Zhang.

Ropes & Gray has also seen investors negotiate deferred performance fees and carried interest arrangements to better match an SMA’s long-term performance over short-term gains.

Sometimes it’s also possible for an investor to have approval rights on every single investment as opposed to blind-pool, illiquid investment strategies that have many other investors, he added.

An SMA can also be extended continually to become the main investment platform, which can simplify subsequent negotiations, reduce structuring costs and accelerate execution timing for future investments, according to the legal firm.


The demand for SMAs is timely as the asset management industry consolidates, said Vince Ip, managing partner at Ropes & Gray’s Hong Kong office and a partner in the firm’s asset management group.

Vince IP
Ropes & Gray

It dovetails with difficulties in fundraising right now; it’s harder for first time managers or less established ones to raise funds successfully, Ip told AsianInvestor.

A surge in interest rates over the past 24 months and heightened macroeconomic uncertainty have changed some dynamics in private markets, a Barclays note issued in October 2023 noted.

Fund raising in the first half of 2022 fell 35% compared to the year-ago period, the note said.

Despite tougher conditions, investors continue to commit to new funds, although they are becoming more selective with a flight to familiar names, it added.

“LPs are trending towards consolidating their GP relationships, so it makes sense for large investors to opt for SMAs to gain exposure to attractive sectors with managers and sponsors that they have already built partnerships with," Ip added.


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