5 Myths About Hiring an OCIO: Setting the Misconceptions Straight

23 August 2018

As OCIO has gained popularity, so have some myths among financial professionals and committee members. Let's dispel a few.

Despite a robust demand for OCIO services globally, some misconceptions remain -- particularly in the UK --  among charitable endowment investment committee members. As a provider of OCIO/fiduciary services for over 25 years, we want to make sure you have clarity on a few key misconceptions. 

Myth #1: I’ll lose control.

If I hire an OCIO/fiduciary manager, I won't know what’s going on in the portfolio or market environment.

Perhaps a little known truth about the OCIO model is that you actually gain more strategic control of the portfolio. At the start of the relationship, SEI works with the committee to identify the long-term organisational goals, from risk and growth targets to spending goals. Investment guidelines are still set by the committee, and we recommend asset allocations based on the guidelines set. Custom, strategic advice provided by the OCIO gives you more opportunities to meet your goals with:

  • Nimble and timely decision making
  • Modelling that allows you to “pre-experience” the potential impact of portfolio / allocation changes
  • Comprehensive risk management and monitoring 
  • Spending targets firmly in view       

Using our technology, resources and experts, we educate you so you are continually in touch with your portfolio and the market environment. This will allow more time to be spent on the strategic decisions and delegating manager selection / oversight to a fiduciary partner.

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Myth #2: I won’t get the best investments or managers.

An OCIO offers limited investment choices and will not provide access to the best investment managers.

The perception that OCIOs require the use of “their proprietary funds” applies to some, but not all providers. As an OCIO / fiduciary manager, SEI uses a multi-manager approach featuring industry-leading managers. Our 100+ investment experts focus on researching, monitoring and selecting third-party managers for inclusion in our platform. Your portfolio not only incorporates a diverse set of investment strategies, but also new managers that you might not otherwise have access to, like emerging or closed managers. Since we bring large asset volumes to investment managers, we are able to attract strong managers to our OCIO solution.

Myth #3: It’s all or nothing.

I have to hand over all my investment decisions to the OCIO / fiduciary manager. 

While delegation is a part of the OCIO model, flexibility and choice around your particular investment strategy are critical. A flexible OCIO provider like SEI allows for customisation at numerous levels based on your goals, including:

  • Discretion: ranges of discretion from investment manager related decisions to asset allocation decisions
  • Manager selection: incorporating best practice incumbent investment managers into your new portfolio where SEI integrates, monitors and takes accountability for these managers
  • Investment style: an effective implementation using a mix of investment style choices, including active, factor or passive, and a choice of investment vehicles

Myth #4: I’ll pay more.

An OCIO model will be more costly than simply using a consultant and my committee selecting managers.

Many charitable endowments are charged individual fees for each underlying manager/fund, consulting fees, trust and custody fees and potentially ad hoc fees for elements such as asset allocation studies and travel expenses. In fact, our recent research study into investment fees found that the charitable sector could potentially save between £250 million and £288 million in investment fees by using the OCIO model.

With an OCIO provider, all manager and fund-level fees are typically rolled up and included with the underlying management fee that SEI has already negotiated. Because of our buying power, we are often able to offer lower underlying manager fees within our solution, meaning that when we include our OCIO fee, our model remains very competitive.

In addition to leveraging of economies of scale, our OCIO solution for charities includes ongoing strategic advice, financial modeling and risk management.

Myth #5: My role will be minimised.

Selecting investment managers is my job, and outsourcing will make my role unclear.

In fact, it’s just the opposite. Yes, the OCIO will manage the day-to-day operations of your portfolio, freeing up time and resource for you to focus on making the important strategic decisions for the future of the charitable mission. As many investment committee members have found, when time was spent researching and vetting managers, there is little time for critical asset allocation decisions, long-term planning and overall strategy. Focusing on the overall picture without being clouded by the daily tasks can help you better meet the long-term goals.

Additionally, with the education you receive from an OCIO like SEI, you are more aware of industry developments, portfolio changes and economic trends. That helps you be more effective in your role and better prepared to make important calls on behalf of the portfolio.

As the popularity of OCIO (and the myths surrounding it) increases, we are here to help. With over 25 years of experience, we welcome to opportunity to share more on the OCIO model and how we can help your charity. 

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Legal Note

This information is provided by SEI Investments (Europe) Limited (SIEL) 1ST Floor, Alphabeta, 14-18 Finsbury Square, London EC2A 1BR, United Kingdom. SIEL is authorised and regulated by the Financial Conduct Authority in the United Kingdom.

This information is for Professional Clients only and not for further distribution.