As search consultant involvement in the OCIO evaluation process expands, OCIO providers are shifting away from the bundled fee structure to meet the demand for transparency.
As described in FundFire, historically, clients have paid a flat price that includes an OCIO management fee, fees for the underlying managers, and other service or administrative fees. But increased scrutiny of the fee has led to a closer review – and with it, institutional investors and their search consultants want to know who is getting paid what from those fees.
Investors want transparency, and any criticism mostly stems from concerns around conflicts of interest. The article states, “OCIO providers, for instance, might be incentivized to pick cheaper managers or lean more on passive strategies to cut expenses and increase their margins.”
But that’s not the case for all OCIOs. Mike Cagnina, VP and managing director of SEI’s institutional group, told FundFire that there are times when it’s practical to pay more for managers. In fact, SEI does not pick price over performance. “If we had a better manager with better performance capabilities, we would pay more for that manager.” If firms chose cheaper strategies to increase margins, “they’ll probably have an unsatisfied client because they’re not going to get good performance if they use fees as the only criteria,” he adds.
And while bundling might be more straightforward, it’s not necessarily the smarter choice. That’s why the changing appetite from the client side has already taken hold at SEI. Mike explains the switch toward the unbundled fee model began about 10 years ago, when client demand changed.
Read: Bundled OCIO Fees Becoming 'Obsolete' Amid Transparency Push
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Information provided by SEI Investments Management Corporation (SIMC), a registered investment adviser and wholly owned subsidiary of SEI Investments Company.
