Keith’s 30 year career has been split evenly between time as a corporate practitioner and time spent in the financial technology industry. He currently serves as the Enterprise Solutions Leader at Clearwater Analytics.
For the first 15 years of Keith’s career, he worked as a corporate practitioner and managed teams in treasury, accounts payable, and accounts receivable. During those years he managed billion-dollar investment portfolios and complex foreign exchange, as well as interest rate and commodity portfolios.
Following a move to the financial technology industry, Keith spent the next 15 years focused on treasury, in addition to order-to-cash and procure-to-pay companies. His roles have included strategy, sales, sales management, consulting, marketing, and product management.
Originally from New Jersey, Keith now lives in St. Johns, Florida, with his wife and two boys, ages 23 and 21. When he isn’t working, he is an avid book collector and enjoys golf, the beach, beach bars, and travel.
Separately managed accounts, or SMAs, are investment accounts that are managed by investment professionals. Unlike an investment such as mutual fund, the investments in an SMA are owned by one entity — often a corporation. They are designed to meet a specific goal and objective via a very specific set of policies and procedures.
An SMA’s goals may include enhanced return, diversification of yield, target dated liquidity, or any number of goals that the owner can’t achieve by managing the assets themselves. For example, a treasury team may manage short term liquidity internally, but they have excess cash on the balance sheet that they manage more strategically to fund M&A or similar projects and investments.
One element that all SMAs have in common is how they are used to achieve investment goals by leveraging professional expertise for a fee.
Interested in learning more about separately managed accounts? Schedule a call to talk to an expert today.
SMAs can be implemented in various ways, but the usual process involves creating an account, presenting and reviewing an investment policy with the manager, and then funding the account. During the investment policy review, the manager typically creates and agrees upon a benchmark, ensuring a mutual understanding of both fees and expected return.
Funding generally occurs over time, as the manager typically won’t invest all of the funds on day one. Regular evaluations of investments, performance, compliance, and risk are conducted based on factors such as the level of internal expertise and the size of the account. These reviews typically occur at least monthly.
Regular monitoring of the SMA will ensure that the investment manager is following the investment policy and achieving at benchmark returns, utilizing metrics such as duration, yield, Sharpe ratio, and Sortino ratio.
SMA’s can be customized in several ways:
Investors are attracted to SMAs when they can’t achieve their goals internally or with existing funds. The inability to meet goals and objectives, internally or with existing funds, can be related to taxes, industry participation and involvement, time horizon, tax strategies, or other factors.
SMAs aren’t for everyone. They often require a minimum initial investment and generally carry higher fees than those in mutual funds or similar. SMAs can be more complex, making them less appealing to those who prefer simplicity, or where policies and procedures align better with public funds.
SMA’s can carry more administrative burden, because the investment manager may trade more frequently or may invest in securities where the investment account owner doesn’t have experience.
Fees for SMAs can be more challenging to identify compared to those for mutual funds. SMAs don’t have a prospectus, and the fees are negotiable, so you need to do your due diligence to ensure you are getting a fair rate / fee structure.
Often, fees decrease as the asset volume increases, but depending on the size of the SMA, that level may be higher than what the account owner is willing to invest in a single account. Fees for SMAs are typically structured as a percentage of the assets under management (AUM).
With an SMA, you directly own the individual securities, allowing for greater customization and control. You work closely with your investment manager to create a bespoke portfolio. This is unlike a fund, where you own shares in the pooled assets.
The following table outlines some of the main differences between SMAs and pooled investment funds.
|SMAs||Pooled Investment Funds|
|Individual investor owns all securities directly||Investors buy shares of the fund, do not directly own individual securities|
|Highly customizable to meet the specific needs and preferences of the investor||Limited customization. Investment decisions are made for the benefit of all shareholders|
|Typically based on a percentage of assets under management. May vary based on account size and services required||Often includes management fees and other expenses. Usually expressed as an annual percentage (the expense ratio)|
|Can employ tax-efficient strategies like tax-loss harvesting at the individual level||Tax decisions are made at the fund level, which can impact all investors|
|High transparency, with investors having a clear view of all held securities||Less transparent, as the investors only see the fund’s total holdings periodically|
|Performance is often evaluated against established benchmarks, hurdle rates, or WACC||Performance is generally compared to a relevant benchmark or index|
|Typically requires a higher minimum investment||Usually allows for lower minimum investment|
If you are considering incorporating SMAs into your investment strategy, it’s essential to find a comprehensive solution that can handle both internally and externally managed portfolios on the same platform. This combined approach brings the benefits of both strategies together, providing robust diversification and enhanced management capabilities. However, navigating through multiple SMAs without a unified solution can present challenges, potentially leading to complexities in management and reporting. Clearwater is here to help mitigate these difficulties.
We work with thousands of institutional investors, providing a cohesive investment accounting and reporting solution that is scalable and flexible. Our platform is designed to give teams the confidence to effectively incorporate and manage separate accounts, streamlining the process while maintaining a clear and comprehensive overview of your entire investment portfolio.
Clearwater Analytics offers a comprehensive investment accounting and reporting solution for those considering SMAs. Schedule a demo today to learn how Clearwater Analytics can support your move into SMAs and guide you through the decision-making process.