Lightkeeper

Over the past several years, many hedge funds have expanded their use of Separately Managed Accounts (SMAs) to meet growing investor demand for transparency, control, and flexibility. Early on, the implementation of SMAs works well. Investors have greater transparency, and client demand accelerates.

But as the number of accounts grows, operational complexity compounds quickly. What begins as a manageable level of customization can become a growing burden across data management, reporting, and oversight, particularly for teams built around commingled fund workflows.

Compared to launching a new commingled fund, SMAs often feel easier at the outset because investors are typically allocating to the manager’s existing strategy, which means the SMA is built using largely the same underlying securities.

Once an SMA is live, complexity compounds. Each account brings its own mandates, constraints, reporting expectations, and oversight requirements. Data aggregation challenges increase as the number of data sources grows with additional fund administrators being used by investors. Customization becomes the norm. And tolerance for delays or inconsistencies drops quickly, particularly in larger, more sophisticated mandates.

This is often where operational alpha becomes visible, particularly for firms trying to scale customization without introducing friction.

Why SMAs Are Gaining Momentum and What That Can Obscure

The appeal of SMAs is straightforward. Institutional investors increasingly seek transparency, control, and flexibility, whether around risk limits, liquidity, tax considerations, tax treatment, or governance. OCIOs, pensions, and multi-manager platforms favor SMA structures as a way to meet those needs while maintaining access to differentiated strategies.

For managers, SMAs can accelerate distribution and strengthen allocator relationships. The challenge isn’t the structure itself. It’s what the structure demands operationally as it scales.

What Actually Breaks as SMAs Scale

The investment strategy often scales.

What tends to break are the operational protocols that surround it.

Data Stops Lining Up Cleanly

Different administrators with different data delivery times, inconsistent security masters, and varying reporting formats are among the challenges. Teams spend more time reconciling numbers that aren’t wrong, just inconsistent. What was once a periodic cleanup becomes a constant effort.

Reporting Quietly Consumes More Time

What was once a single monthly fund report turns into a growing set of bespoke deliverables. Exposure is grouped differently. Risk metrics are calculated differently. Attribution must align with allocator-specific frameworks. Over time, senior team members find themselves producing reports rather than generating insight.

Reconciliation Becomes Ongoing

In pooled vehicles, reconciliation has a predictable rhythm. In SMA environments, it becomes continuous. Manual processes that once felt manageable begin to get stretched. Firms often describe reconciliation work that once took hours each month becoming a significant effort as SMA complexity increases.

Headcount Becomes the Default Fix

When operations teams fall behind, the instinct is to hire. Additional analysts and specialists help keep things moving, but firms often see margin pressure increase, staff-turnover risk rise, and responsiveness fail to improve in proportion to cost.

When Operations Enter the Investment Conversation

Operational execution is no longer invisible to investors.

As SMA mandates grow larger and more complex, allocators perform deeper operational due diligence than they would for commingled funds. They ask how data flows through the organization, how reconciliation is handled, how quickly ad-hoc requests can be answered, and what happens operationally when the next SMA comes onboard.

Operational fragility tends to surface early, through delays, inconsistencies, or uncertainty, long before it appears in performance.

And when operations rely heavily on manual work or institutional knowledge, that becomes clear.

This is no longer just an efficiency conversation. As SMAs proliferate, allocators increasingly evaluate how consistently firms deliver under customization pressure. In many cases, operational confidence has become a gating factor in mandate decisions alongside performance.

What Operational Alpha Really Means

In SMA-heavy environments, operational alpha shows up in a firm’s ability to support customization at scale without incremental headcount, inconsistent reporting, or growing operational risk. In practice, that often means teams can absorb additional mandates without slowing response times or increasing operational strain, even as SMA complexity grows.

At its core, this comes down to designing operations that flex as complexity grows rather than breaking under it. By building this discipline early, firms can deliver consistent reporting across customized mandates while preserving margins as SMA complexity increases. It reduces operational noise and risk, allowing teams to respond confidently during allocator due diligence rather than scrambling to explain inconsistencies. Over time, firms with stronger operational alpha tend to feel the benefits most clearly as complexity increases, while those without it often experience growing friction instead.

The Operational Reality of Scaling SMAs

As SMAs continue to grow, we’re starting to see meaningful differences emerge in how firms absorb that complexity.

Some firms built operations for a different era, when customization was limited, reporting cycles were slower, and complexity was easier to manage. For them, SMA growth increasingly feels constraining.

Others invested earlier in data discipline, integrated workflows, and operational leverage, not because it was fashionable, but because it made long-term sense. They understood that every manual process caps scale, and every workaround eventually becomes visible to investors.

The difference between those firms isn’t strategy or performance.

It’s whether SMA growth feels like momentum or like drag.

The question for managers increasingly isn’t whether to pursue SMA growth, but whether their operating model is built to support it.

Why AI is the next test of operational foundations

The Resolution We Keep Postponing

Every year, asset managers tell themselves the same things.

We need to clean up our data.
We need to automate more.
We need to find ways to stay ahead.

And every year, most firms push those conversations just far enough to feel responsible, then get pulled back into the day-to-day reality of running portfolios, supporting teams, and keeping the infrastructure moving.

The problem isn’t a lack of awareness. It’s that operational change is easy to postpone when the data flows are still “good enough.”

But that cushion is getting thinner.

As investment alpha remains as hard as ever to generate and even harder to sustain, the operational foundation of a firm is increasingly shaping how effectively firms can adapt and scale. The firms pulling ahead aren’t simply running tighter operations; they’re deliberately building operational alpha: the ability to leverage data, integrated workflows, and scalable infrastructure into faster decisions and better outcomes.

And AI will only exacerbate the gap between firms with operational infrastructure to leverage technology versus those reliant on legacy manual processes.

That’s why 2026 feels different. There is a technology paradigm shift going on that is both exciting and uncertain.

This isn’t another cycle of incremental improvement, or a new system layered on top of old processes. While technology like AI provides exciting possibilities, it also pressures every shortcut, workaround, and fragile dependency firms have been carrying for years because they become the blockers. What used to be manageable friction is now a real constraint on growth.

The question facing asset managers isn’t whether operational transformation is necessary.

It’s whether it will be an asset or a liability.

When “Good Enough” Stops Being Enough

Most New Year’s resolutions fail for the same reason: they’re framed as things we should do, rather than commitments we are actually ready to make. In asset management, operational transformation often falls into this exact category. It’s acknowledged as important, discussed at off-sites, and revisited just often enough to keep it on the radar, but it fades into the background as other priorities take over.  But the risk versus reward equation is changing.

This technology cycle is tipping the scale towards action; the operational realm now stands in the prime position to benefit, fundamentally shifting the math on transformation. The potential upside has increased, as well as the cost of delay, turning inaction into a growing liability. The firms that can best leverage this new technology on the data that matters the most to their business will have a material and likely growing advantage.

AI provides a force multiplier on good data and well-architected systems and a force divider on bad data and poorly structured systems. Earlier tools made firms incrementally more efficient; AI-powered data sets open entirely new possibilities. This distinction matters because, until recently, the real bottleneck was not only access to data; it was having the time and capacity to turn that data into something actionable.

That latter bottleneck was almost always a human capital expense and is now being broken down. AI excels at synthesizing information and surfacing insight at speed, but it stumbles when data is fragmented, inconsistent, or difficult to retrieve. As a result, clean data that can be accurately accessed can become an immediately leverageable asset, enabling a level of speed, flexibility, and scale of insight that simply wasn’t possible before.

Another Year Over a New One Just Begun

As you close the books on 2025, ask yourself: what insights do you wish you had the time to pursue? What ideas are left unexplored because digging into them still requires too much manual effort?

In 2026, the landscape is changing. Insights that once required dedicated projects are increasingly answerable with a well-constructed prompt. The bottleneck is shifting from human time to system readiness.

But that shift won’t be evenly distributed. The firms able to turn questions into insight at speed will be the ones with data and workflows that AI can leverage and users can trust. For everyone else, the promise of productivity will remain just out of reach; limited not by the technology itself, but by the foundations beneath it.

It is going to be an exciting time around internal data sets and the evolving landscape of tools to make them more valuable to your firm. This is not the year to let operational alpha slip off your resolution list.

 

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Fifteen years ago, we set out to solve a problem many investment managers faced: fragmented, incomplete data that made it difficult to truly understand their portfolios. We believed there had to be a better way to build the data necessary to see not only the portfolio’s outputs but also the decisions that created those results. From that belief, Lightkeeper was born.

What we didn’t realize at the time was just how much the company would evolve. What started as a software initiative quickly became something more: a mission to help firms make better decisions through better data, trusted tools, purposeful innovation, and partnership.

Early Innovation and Bold Decisions

In our early years, we made choices that weren’t always easy or popular. Starting on the public cloud, for example, was a leap of faith at a time when few in the industry trusted it. But we saw what was coming. The scalability, security, and flexibility of the cloud aligned perfectly with our vision for a platform that could grow with our clients.

That decision, and others like it, defined Lightkeeper’s culture of innovation. We’ve never chased trends for the sake of being new; instead, we’ve embraced change when it clearly benefited our clients. That focus on doing what’s right, not just what’s easy, has guided us from the very beginning.

Building a Culture Around Clients, Not Code

We also learned early on that technology alone does not create optimal value for clients. It is a combination of building great tools and relentlessly supporting the people who leverage them. From the start, we believed that lasting success comes from partnership, not transactions.

That meant hiring differently. We sought out people who cared about understanding clients’ challenges as much as writing great code. We built a culture where client service wasn’t an afterthought; it was a foundation.

Over time, that approach became our hallmark. We built strong, trust-based relationships and created a team that takes our clients’ successes personally. It’s this mindset that has carried us through every transition, from product evolution to major technology shifts.

Evolving Leadership, Enduring Vision

As the company grew, so did our leadership structure and focus. Each founder brought a unique perspective, and together we shaped a company that could adapt while staying true to its principles.

Now, as we continue to evolve, that same collaborative spirit fuels our exploration of new technologies and new ways to serve clients better.

Looking Ahead

Reaching our 15-year milestone is both a moment of reflection and renewal. The technology landscape is transforming faster than ever, and innovations like artificial intelligence are opening new possibilities for how investment managers interact with their data and make decisions.

While the tools will change, our foundation remains the same: better data, trusted tools, purposeful innovation, superior client service, and an unwavering commitment to client success.

As we look to the future, we’re excited to continue building on that legacy, combining the power of technology and partnership with our clients to drive clarity, efficiency, and insight in entirely new ways.

We invite you to see what’s next. Learn more or schedule a conversation at info@lightkeeper.com or lightkeeper.com/contact.

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