As we talk to investors evaluating OCIO, it has become clear that many are missing a big part of the picture when it comes to comparing fees. When the investment model was first introduced, OCIO advisory fees and underlying manager fees were bundled together. As time has moved on, the competitive market led to more fee transparency and the separation of those fees. This shift, however, has also caused investors to over-rely on the OCIO fee and not consider the manager fees themselves.

Read more on why OCIO fees are only part of the cost

OCIO fees: Comparing total fees

Transcript

As fiduciaries for your investment program, thank you for taking the initiative to conduct additional due diligence on the evaluation of OCIO providers.  Today we will discuss the importance of fee transparency and the total cost of partnering with an OCIO.


Decades ago, when the delegated investment management model was first introduced, OCIO advisory fees and underlying manager fees were often bundled together. Over time, a competitive OCIO market and the need for fee transparency has led to a separation of those fees.

 
The shift to greater transparency was and is a very good thing. However, this had led some investors to over-rely on the standalone OCIO fee, oftentimes ignoring arguably the largest portion of total cost: investment manager fees. 


Let’s compare sample fees for two discretionary investment providers.  

  • In this example, we have an institutional investor with a $200 million portfolio, only investing in public markets, that already has determined the value of investment manager fee-savings within the OCIO model
  • OCIO firm A has a 20 basis point advisory fee and OCIO firm B is proposing a 25 basis point advisory fee
  • Next let’s take a look at the investment management fees across a diversified public market portfolio; we will allocate the assets the same for both OCIO firms in order to maintain consistency
  • The total weighted average investment manager fees for OCIO A are 48 basis points while OCIO B weighted investment manager fees are only 21 basis points
  • OCIO A has a total fee of 68 basis points, while OCIO B has a total fee of 46 basis points
  • So, while OCIO A has a lower advisory fee, the total fee is significantly higher than OCIO B.  This should be important criteria when evaluating providers.
  • So, what makes the OCIO fee higher for one provider versus another? Our next blog and video will address the different type of services offered by OCIO firms to better explain the differences in advisory fees. 

As a fiduciary for an institutional investment pool, your job can be challenging.  
We believe that fee transparency and the importance of accurately comparing all fees are critical decisions to help you achieve your goals and objectives.

Information provided by SEI Investments Management Corporation (SIMC) and SEI Investments Canada Company, wholly owned subsidiaries of SEI Investments Company. SIMC is a registered investment adviser and SEI Investments Canada Company is the manager of the SEI Funds in Canada. Investing involves risk including possible loss of principal. There is no guarantee that risk can be managed successfully, This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. This information should not be relied upon as research or investment advice and is intended for educational purposes only.
 

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Legal Note

Information provided by SEI Investments Management Corporation (SIMC) and SEI Investments Canada Company, wholly owned subsidiaries of SEI Investments Company. SIMC is a registered investment adviser and SEI Investments Canada Company is the manager of the SEI Funds in Canada. Investing involves risk including possible loss of principal. There is no guarantee that risk can be managed successfully, This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. This information should not be relied upon as research or investment advice and is intended for educational purposes only.