Key Takeaways

• LPs are shifting from traditional blind pool funds to customized structures that offer greater control and transparency
• Separately managed accounts (SMAs) are expected to grow by $400+ billion by 2027, with 58% of new launches using SMA structures
• Co-investment opportunities have become essential for attracting sophisticated investors who want deal-by-deal selection
• Single-asset vehicles and fund-of-one structures provide flexibility that traditional commingled funds cannot match
• Investment management platforms must support multiple structures simultaneously to meet evolving LP preferences

The traditional blind pool fund structure that dominated private real estate for decades is giving way to a new reality. Limited partners want more control, greater transparency, and customized terms that align with their specific investment mandates. This shift has accelerated dramatically, with Goldman Sachs projecting the SMA space alone will grow by over $400 billion by 2027.

For real estate sponsors, this evolution presents both opportunity and complexity. LPs willing to write larger checks are demanding bespoke structures that would have been unthinkable just five years ago. Understanding these structures and having the operational capability to deliver them determines who captures institutional capital and who gets left behind.

The Shift in LP Demand

The movement away from traditional fund structures reflects fundamental changes in how institutions approach private market investing. After years of accepting standardized terms and limited transparency, LPs are exercising their leverage to demand structures that better serve their needs.

McKinsey’s 2025 Global Private Markets Report reveals that while traditional closed-end fund AUM appeared to decline by 1.4%, this masks explosive growth in alternative structures. Separately managed accounts, co-investments, and bespoke partnerships have added trillions to global private equity AUM. These structures now account for a substantial portion of new capital formation, particularly from the largest institutional investors.

What’s driving this shift? LPs have learned that one-size-fits-all funds often don’t fit at all. Canadian pension funds, known as the Maple 8, have led this charge, with many now deploying the majority of new capital through customized structures rather than traditional funds. They want transparency into holdings, influence over investment decisions, and terms that reflect their particular risk tolerances and return requirements.

Understanding the New Structure Landscape

Separately Managed Accounts (SMAs): The Ultimate Customization

SMAs represent the most dramatic departure from traditional fund structures. Rather than pooling capital with other investors, an LP gets its own “fund of one” with complete customization of terms, strategy, and governance.

The appeal is clear: total transparency, custom investment guidelines, and control over operational decisions. According to recent data, JP Morgan expects 58% of new launches over the next 12 months will be done in SMAs, while new Morgan Stanley Prime Brokerage accounts in SMAs have grown from 9% in 2023 to 74% in Q2 2024.

For sponsors, SMAs offer stable, long-term capital from sophisticated investors willing to pay for customized solutions. Management fees are typically charged on deployed capital rather than commitments, incentivizing active deployment. The challenge lies in managing multiple SMAs with different terms while maintaining operational efficiency – something that requires robust portfolio management systems capable of handling complexity.

Co-Investments: Deal-by-Deal Partnership

Co-investment rights have evolved from a perk for large LPs to an expected component of any institutional relationship. LPs want the ability to increase exposure to specific deals without paying full fund fees and carry.

The traditional GP/LP structure, where GPs contribute 10% and LPs provide 90% of equity, is being supplemented by co-investment vehicles that allow LPs to invest additional capital alongside the main fund. These structures typically offer reduced fees, greater transparency into specific assets, and the ability to be selective about deployment.

For sponsors, co-investments serve multiple purposes. They provide additional capital for larger deals, deepen relationships with key LPs, and can help optimize the GP’s balance sheet by reducing the required GP commitment. However, managing co-investment allocations fairly while maintaining fiduciary duties to the main fund requires careful structuring and systematic processes.

Single-Asset Vehicles: Precision Investing

Large institutions increasingly want exposure to specific trophy assets or development projects without the diversification of a traditional fund. Single-asset vehicles allow sponsors to raise capital for individual properties or projects with terms tailored to that specific investment.

These structures work particularly well for complex, long-term projects where LPs want detailed governance rights and ongoing input into business plan execution. They’re also becoming popular for continuation vehicles, where sponsors transfer assets from older funds into new structures to provide liquidity for some LPs while allowing others to maintain exposure.

Fund-of-One Structures: Hybrid Flexibility

Fund-of-one structures blend elements of SMAs and traditional funds, creating bespoke vehicles that can evolve over time. An LP might start with a specific strategy but have the flexibility to adjust focus, add capital for new strategies, or extend investment periods based on market conditions.

These structures often include pre-negotiated options for different deployment scenarios, umbrella fee arrangements across multiple strategies, and governance provisions that give LPs meaningful input without day-to-day control. For sponsors, they represent long-term, strategic partnerships that can grow beyond initial mandates.

LP Rationales: Why Customization Matters

Greater Control and Transparency

Institutional investors managing billions need to understand exactly where capital is deployed and why. Customized structures provide position-level transparency, real-time reporting, and the ability to monitor compliance with investment guidelines continuously.

Ontario Teachers’ Pension Plan and Caisse de dépôt et placement du Québec have been particularly vocal about demanding transparency that allows them to aggregate exposures across their entire portfolio, manage risk holistically, and report accurately to their stakeholders.

Alignment of Interests

Standard fund terms often create misalignment between GP and LP interests. Customized structures allow for better alignment through tailored fee structures, appropriate hurdle rates, and governance provisions that match the specific investment strategy.

Management fees based on deployed rather than committed capital, deferred carry structures that match long-term performance, and co-investment rights that allow LPs to increase exposure to successful strategies all serve to better align interests between parties.

Regulatory and Policy Compliance

Many institutional investors operate under specific regulatory constraints or policy restrictions that make traditional fund structures problematic. Public pensions might have geographic restrictions, insurance companies face particular capital charges for different hold periods, and sovereign wealth funds often have ESG mandates that require customization.

Customized structures allow these investors to participate in real estate opportunities while maintaining compliance with their specific requirements. This might mean excluding certain property types, implementing specific reporting requirements, or structuring terms to optimize regulatory treatment.

InvestNext Capabilities for Complex Structures

The operational complexity of managing multiple structure types simultaneously has traditionally limited these arrangements to the largest sponsors with extensive back-office resources. InvestNext’s platform democratizes access to these structures by providing the operational infrastructure needed to manage complexity efficiently.

Multi-Structure Support Within Single Platform

Whether managing traditional funds, SMAs, co-investment vehicles, or single-asset structures, sponsors need unified systems that can handle different terms, reporting requirements, and governance provisions. InvestNext allows sponsors to manage all structure types within a single platform, maintaining operational efficiency while delivering customization.

The platform’s investor portal can be configured to show different information to different investor types, ensuring that SMA investors see only their holdings while fund investors see their proportionate share of pooled investments. This segmentation happens automatically, reducing the risk of information leakage while maintaining operational efficiency.

Flexible Waterfall and Distribution Management

Different structures require different distribution mechanics. A traditional fund might have a standard promote waterfall, while an SMA might have customized hurdles and catch-ups, and a co-investment vehicle might have reduced carry but priority returns.

InvestNext’s distribution management system handles multiple waterfall structures simultaneously, calculating distributions accurately regardless of complexity. Each structure maintains its own terms while benefiting from systematic processing and comprehensive audit trails.

Customizable Reporting and Documentation

Each structure type requires different reporting formats and documentation. SMAs need detailed position-level reporting, co-investment vehicles require deal-specific information, and traditional funds need standardized quarterly reports.

The platform’s reporting capabilities allow sponsors to create templates for each structure type while maintaining consistency in data and presentation. Automated report generation ensures that each investor receives appropriate information on schedule, regardless of their investment structure.

Investor Segmentation and Communication

Managing communications across multiple structures requires sophisticated CRM capabilities that can segment investors by structure type, investment strategy, and communication preferences. An LP might be invested in the main fund, have co-investment rights, and maintain an SMA, each requiring different communication approaches.

InvestNext’s CRM system maintains these relationships systematically, ensuring that each investor receives relevant communications for their specific investments while maintaining appropriate information barriers between structures.

Implementation Considerations for Sponsors

Start with Clear Structure Policies

Before offering customized structures, sponsors need clear policies about what they will and won’t accommodate. Which LPs qualify for co-investment opportunities? What minimum commitment warrants an SMA? How will conflicts between structures be managed?

Having these policies defined upfront and communicated clearly in fund documentation helps manage LP expectations and prevents operational complexity from spiraling out of control.

Build Operational Infrastructure First

The worst time to discover operational limitations is after committing to a complex structure with a major LP. Sponsors should ensure their operational infrastructure can handle complexity before offering customized structures.

This means having systems that can track different terms, calculate complex waterfalls, generate customized reports, and maintain appropriate information barriers. Manual processes that work for simple structures break down quickly when managing multiple SMAs with different terms.

Consider the Long-Term Relationship

Customized structures are about building long-term partnerships, not just raising capital for a single fund. Sponsors should evaluate whether they have the team, expertise, and commitment to maintain these relationships over time.

The most successful SMA relationships often extend for decades, with terms evolving as the relationship deepens. This requires operational flexibility and a partnership mindset that goes beyond traditional GP/LP dynamics.

The Competitive Advantage of Flexibility

Sponsors who can offer and efficiently manage multiple structure types have a significant competitive advantage in the current fundraising environment. They can accommodate the needs of different LP types, capture larger allocations from sophisticated investors, and build deeper, more strategic relationships.

The ability to offer an institutional LP a customized SMA while simultaneously managing a traditional fund for smaller investors and co-investment vehicles for strategic partners demonstrates operational sophistication that attracts capital. This flexibility has become table stakes for accessing the largest pools of institutional capital.

However, flexibility without operational excellence leads to chaos. The sponsors winning in this environment have invested in comprehensive platforms that allow them to manage complexity systematically rather than heroically.

Looking Forward

The trend toward customized structures will only accelerate. As more institutional capital flows into private markets and competition for quality sponsors intensifies, LPs will continue demanding terms that reflect their specific needs.

For emerging and mid-market sponsors, this evolution presents an extraordinary opportunity. The same institutional investors who once invested only in mega-funds are now willing to create bespoke structures with smaller sponsors who demonstrate operational excellence and strategic alignment.

The question isn’t whether to accommodate these structures but how quickly sponsors can build the operational capabilities to deliver them professionally. Every month spent limited to traditional fund structures is a month where sophisticated capital seeks more flexible alternatives. Ready to explore how your firm can accommodate the customized structures that institutional investors demand? Schedule a demo to discover how InvestNext enables sponsors to manage multiple structure types efficiently within a single platform.