IN FOCUS6-8 min read

Insights into OCIO partnerships and in-house pension team lift outs

Q&A with Neil Walton, Head of OCIO and Client Specialist Solutions at Schroders Solutions

08/11/2023
Businesswoman shaking hands

Authors

Neil Walton
Head of Investment Solutions

In this interview, Neil Walton, Head of OCIO and Client Specialist Solutions at Schroders Solutions, shares his insights on the factors considered when transferring an in-house team as part of an OCIO partnership. Additionally, Neil provides his perspective on the increasing trend of in-house pension teams moving to OCIO arrangements.

Q: What factors are considered when deciding whether to lift out an in-house team as part of an OCIO partnership?

From our experience, the in-house teams are valued members of the organisation and providing a good home for these individuals is essential for optimising the outcomes for our clients. They carry the intellectual capital and corporate history of the pension plan and by integrating them within our organisation, we can optimise business continuity and minimise any disruption during integration. We also take pride in putting ourselves in the client’s shoes. We enforce that culture and discipline by having members of the team who have been the client themselves.

That said, a driver behind the increased number of team related OCIO transactions is concern around in-house team turnover and key-person risk. By partnering with us we can deploy deeper and greater resources alongside the current team to build an OCIO partnership which provides improved business resilience and continuity to the client.

A significant amount of thought goes into whether we agree to take on the team, either in its entirety or partially, with the key criteria being able to provide any people transferring to us with a long-term credible career progression. We have walked away from opportunities where we have felt the cultural fit was not right, or where there was significant overlap in roles which would restrict our ability to deliver on the promise of future career prospects.

Q: Does the in-house team become part of Schroders Solutions as part of an OCIO partnership? Are those execs working across their own fund, but also others? Straight away or at a later point?

Different organisations approach this differently, but at Schroders, the people element is critical. Due to the nature of our business, we know most in-house teams and are therefore able to assess culture and fit before entering a tender process. Where there is good cultural alignment, we plan to integrate each individual into our Solutions business unit. We place significant care in building the right model for integrating transferring team members with our Solutions team. Looking at the position through the client’s eyes, we see the benefit in execs continuing to work on their own plans in a fully empowered way post integration to maintain corporate history, intellectual capital and minimise any disruption. These execs work closely with other OCIO specialists, forming the new team for the client. Once the execs have integrated within our firm, we get them involved in projects that best suit their skill sets so they can contribute to our global business and start enhancing their career development.

Q: Do you foresee more deals where in-house pension teams move to OCIO firms?

Yes, we have seen an acceleration in OCIO activity in recent years and expect this to continue. The drivers vary but centre around increasing regulatory requirements, the need for improved resilience, a desire to amplify existing drivers of value creation and evolving dynamics in the investment strategy. It is compelling for all stakeholders-trustees can improve their ability to deliver to pension plan participants by eliminating key-person risk, investment teams have improved career prospects, and the sponsor should benefit from through reduced costs, operational risk reduction and efficiencies. It is crucial that the OCIO partner already has all the required skills and systems in place to absorb a new OCIO client onto their platform to drive the required efficiencies and cost savings.

The recent UK gilt market crisis demonstrated the importance of having world class management information to manage liquidity in real-time, e.g., in the UK, LDI management information has become a key consideration. While in house teams have typically excelled in strategic considerations, understandably, they may not have been able to access institutional quality management information and risk analytics due to budget considerations. OCIO arrangements typically lead to a significant upgrade in systems and the availability of management information and, hence, reporting robustness.

Q: What are other points to consider from the OCIO perspective?

While it is crucial to ensure a smooth transition for in-house teams, our primary focus is on delivering customised investment strategies that meet the unique requirements of each investor. We understand the significance of tailoring our services to a client’s specific needs, risk tolerance, and long-term objectives. An OCIO firm must demonstrate how they will drive value for the client in relation to the client’s objectives. In addition, the OCIO firm should be comfortable that it offers sufficient flexibility to adapt to the changing needs of its clients.

We recognise the importance of cost considerations for institutional investors. It is crucial to evaluate the potential benefits against the associated costs. We are committed to transparently discussing the fee structure and conducting a thorough cost-benefit analysis to ensure that the value we deliver justifies the investment.

From the OCIO perspective, reputational integrity is paramount. Compliance with regulatory frameworks and fiduciary responsibilities is a vital consideration for institutional investors. We understand the importance of maintaining rigorous compliance procedures, adhering to regulatory standards, and providing transparent reporting. Our robust risk management framework and internal controls are designed to mitigate potential risks and safeguard investor interests.

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Authors

Neil Walton
Head of Investment Solutions

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