When an investor has separately managed portfolios, that investor is placing assets under the control of different managers. This can cause inefficiencies if the managers begin making transactions that either increase the risk of the overall portfolio, have negative tax effects, or unbalance the investor's positions.
For example, if one of the separately managed account traders purchases an asset and another trader sells it, the investor will be left with a neutral position and two transaction fees. Overlay management seeks to improve the communication between the separate managers, allowing for increases in transaction efficiency.
Investment dictionary. Academic. 2012.