Separately Managed Account (SMA)

A separately managed account, or SMA, is a portfolio of securities owned in the name of the family or one of its entities, managed by an appointed firm against an agreed mandate. The holdings sit at a custodian. The manager decides what to buy and sell, usually under a discretionary mandate. The family does not own shares in a fund that in turn owns the securities. It owns the securities.

That ownership is the point. The office can see every line, apply restrictions (no tobacco, no a given stock the family already owns through the business), harvest losses against cost basis, and report the account as part of the consolidated book without waiting for a fund statement. Customisation has a cost. Minimums are higher than a mutual fund, fees are negotiated, and the family bears the operational work of corporate actions, tax lots, and reconciliation.

An SMA is not automatically safer than a fund. It is more transparent, and more the family's problem if something in the account needs attention.

Why it matters for family offices

Public markets are often the liquid sleeve that funds capital calls, tax bills, and family distributions. An SMA lets the office keep that sleeve aligned with the rest of the book: matching asset allocation, avoiding a stock the family is already concentrated in, and producing look-through reports that a pooled vehicle may not.

It also changes who the client is. The manager may trade. The custodian holds. The family office still has to reconcile cash, positions, and fees, and to make sure the mandate, the IPS, and the actual holdings agree. Splitting manager and custodian is usually healthier than letting one firm do both without an independent record.

Tax administration follows the lots. That is an advantage when done well and a mess when the SMA is treated as a single line labelled "equity manager."

How it shows up in practice

A family has a $25 million listed equity SMA. The manager is instructed to run a global equity book, exclude the family's listed operating company, and keep any single name below 5%. Each night the custodian feed updates the family office platform. The quarterly pack shows the SMA as individual holdings, not one fund NAV, so the investment committee can see that the excluded name is absent and that two positions sit near the cap.

When the family needs $2 million for a private commitment, the office sells inside the SMA against the cash calendar rather than redeeming a fund on someone else's dealing day. The manager still has discretion inside the box. The family still owns the shares.