Five myths about hiring an OCIO: setting the misconceptions straight

Despite a robust demand for OCIO services from institutional investors, some misconceptions remain among finance professionals and committee members. As a provider of OCIO/fiduciary services for 25+ years, we think it is time to address some of the myths.

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 organizational goals. Investment guidelines are still set by the committee, and SEI recommends asset allocations based on the guidelines set. Custom, strategic advice provided by the OCIO gives you more opportunities to meet your goals with:

• More timely decisions
• Modeling that allows you to “pre-experience” the potential impact of portfolio / allocation changes
• Better, more comprehensive risk management and monitoring

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

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 program. 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 SEI brings large asset volumes to investment managers, the best managers are very interested in the SEI OCIO program.

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 customization at various 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 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.

Most institutional investors are charged individual fees for each underlying manager/fund, consulting fees, trust and custody and ad hoc fees like asset allocation studies and potentially travel expenses.

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 SEI’s tremendous buying power, we are often able to offer lower underlying manager fees within our program and after including the fee for SEI the vast majority of our clients save money versus their previous model.

In addition to leveraging of economies of scale, SEI’s OCIO program includes ongoing strategic advice, financial modeling and risk management.

Myth #5: My role will be minimized.

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. But that only means that you will be able to focus on making the strategic decisions and plan for the future of the organization. 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 popularity (and myths) of OCIO increases, we are here to help. With 25+ years of experience, we welcome to opportunity to share more on the OCIO model and how we can help your organization.

Information provided by SEI Investments Management Corporation (SIMC), a registered investment adviser and wholly owned subsidiary of SEI Investments Company.