VC & PE Glossary
What Is Separately Managed Account (SMA)?
Updated
Definition
A separately managed account is an investment vehicle where an LP's capital is managed in its own account — often co-investing alongside a GP's main fund — with customized terms instead of a blind pool commitment.
Useful for: Founders, Investors
A separately managed account (SMA) holds one allocator’s capital under bespoke rules — parallel to but outside a GP’s main commingled fund.
How it works
The LP and GP sign an SMA agreement covering strategy, fees, carry, approval rights, and eligible deals. Capital may flow into each portfolio company as deals arise — similar to co-investing but with ongoing discretion rather than one-off SPVs.
SMAs suit sovereign wealth funds, pensions, and family offices that want venture exposure without blind pool risk or that need policy screens (sector exclusions, concentration limits).
Economics vary: some SMAs pay reduced carry; others mirror the flagship fund fee stack. Legal entities on cap tables may be named after the LP or a custodial wrapper.
Why it matters
- Founders: SMA investors can move quickly on hot rounds with pre-negotiated terms — know whether they have board governance expectations like a lead fund.
- Investors: LPs gain pacing control; GPs must manage conflicts between SMA clients and fund LPs on allocation and fees.
Common mistake
Treating an SMA like passive co-invest with no ongoing relationship — many SMAs require the same diligence cadence as fund commitments.
Related ideas
- Co-investment and direct indexing
- Side letter
- SPV
Common questions
Short answers for founders, LPs, and operators