Onboarding at State Street: An OCIO Client Case Study
When institutional investors come to State Street’s Global Fiduciary Solutions (GFS) team for outsourced chief investment officer (OCIO), custody, and retiree services, the logistics of transitioning from their current providers can seem daunting. Maintaining market exposures, continuing benefit payments, and reporting throughout the transition are just a few of the challenges.
There are several ways transitions can be completed while maintaining policy weights and market exposure. The specific process used for each new GFS client is determined once a thorough review of the existing managers is complete. State Street needs to understand what type of structure is being used currently (commingled, mutual fund, separate account), the size of the overall investment, and the legal issues regarding redemptions.
Once given authority, State Street GFS notifies all existing providers of the upcoming transition and sets expectations and deliverables. The GFS team takes a collaborative approach with its clients to create the most efficient way of transitioning assets from current investment strategies to new ones. The goal is to complete the transition in a manner that minimizes costs1 (both hard costs and opportunity costs) and with minimal loss of market exposure. The onboarding process is more clearly seen via a case study.
OCIO Onboarding Case Study
XYZ Company is a global leader in the chemical industry that started its outsourcing process by asking multiple OCIO providers to submit a request for proposals (RFP) for OCIO services. The company has four pension plans that all sit in a master trust that has about $600 million in assets. XYZ’s RFP decision-making process was set up to gain a better understanding of:
The pros/cons of outsourcing
Overall costs and potential cost savings
The degrees of delegation available
How administrative responsibilities could be removed
Going in to the RFP process, XYZ Company thought that overseeing an OCIO provider would be a good match for the skill set of their investment committee, and they wanted to simplify oversight responsibilities to the extent possible. During the RFP response question and answer period, however, it became clear that XYZ Company would benefit greatly from a bundled offering of OCIO, custody, and retirement benefit services. XYZ was attracted to the simplicity of having one provider, as well as to having one State Street point person, to handle all aspects of pension management. They also appreciated the potential cost savings they could get through bundling. In the end, State Street GFS was selected for all three services, with the client stating that the bundling approach, total cost, and the strength of the State Street GFS team were key factors in the decision.
At the onset of the transition, XYZ Company had several concerns about the level of coordination required for such a complex transition.
All investment managers needed to be transitioned, with varying notification periods and settlement date practices, and they wanted to ensure that their money remained invested during the transition (to the extent possible).
They wanted to be sure their history was maintained.
They were justifiably concerned that there were no breaks in benefit payments during the transition.
They needed to simplify their trust billing processes.
The State Street GFS Client Executive2 set up a kickoff meeting where she brought together the various XYZ and GFS teams that needed to be involved; she carefully documented all of the client’s concerns and timelines. The client indicated a desire to get weekly updates, so the Client Executive scheduled a series of meetings to provide updates as the transition progressed. After gathering information from the various teams at State Street, she presented a project plan that detailed the multiple work streams that needed to be run concurrently and confirmed that the timelines in the plan met their objectives (See Sample Transition Timeline). The Client Executive also made it clear that XYZ would not have to navigate the world of State Street, and that she would be their main point of contact for all inquiries.
Following the weekly update meetings, the Client Executive took questions and concerns back to the GFS team and either got them resolved or came back with a business reason why it needed to be the way it was. To address the logistical concerns of transitioning all the investment managers, the Client Executive asked the GFS team for detailed project plan to track that part of the transition. The Implementation Team outlined the specifics for each account, confirming that they would prepare all the notification documents for the client to simply sign and send. The Implementation Team also coordinated with XYZ’s former custodian to ensure they had all the information they needed to execute the transition. For this transition, some securities transferred in kind while others were liquidated for cash proceeds.
Measures of Success
The XYZ team was interviewed following the onboarding by a third-party consultant to assess their satisfaction with State Street’s GFS team, specifically whether we met the expectations that were set at the time of hire. XYZ strongly confirmed their complete satisfaction, noting an added benefit of GFS taking on day-to-day transactional tasks, which freed up resources and bandwidth for XYZ. They appreciated the open communication lines and our flexibility in working with them
to ensure all their needs were met. In the end:
Managers were transitioned to plan with minimal work for the client.
All history was uploaded.
Benefit payments to participants were seamlessly continued.
A trust billing process was set up that properly allocated expenses across the trusts.
The agreed-upon day-to-day administrative items that the client used to manage were taken over by State Street.
One of our main take-aways from the post-onboarding interview was XYZ’s satisfaction with the State Street GFS servicing model. Having the Client Executive manage the entire transition on XYZ’s behalf, while maintaining an open communication channel, greatly reassured XYZ’s leadership throughout the process. They indicated that State Street’s responsiveness and leadership were refreshing and differentiating in the OCIO market.
Sample Transition Timeline
About State Street Global Advisors
For four decades, State Street Global Advisors has served the world’s governments, institutions and financial advisors. With a rigorous, risk-aware approach built on research, analysis and market-tested experience, we build from a breadth of active and index strategies to create cost-effective solutions. As stewards, we help portfolio companies see that what is fair for people and sustainable for the planet can deliver long-term performance. And, as pioneers in index, ETF, and ESG investing, we are always inventing new ways to invest. As a result, we have become the world’s third-largest asset manager with US $3.47 trillion* under our care.
* This figure is presented as of December 31, 2020 and includes approximately $75.17 billion of assets with respect to SPDR products for which State Street Global Advisors Funds Distributors, LLC (SSGA FD) acts solely as the marketing agent. SSGA FD and State Street Global Advisors are affiliated.
1 Before any transition is started, our team performs a cost analysis on each approach to determine if the costs are acceptable. In most cases, the largest cost of a transition is the opportunity cost (being out of the market and away from your strategic weights). Commission costs incurred, while material, can be negotiated, calculated, and monitored much more easily than opportunity cost.
2 Each of our clients is assigned a Client Executive and it is their job is to make things easy and streamlined during the onboarding process and thereafter. Their experience allows them to develop a comprehensive project plan that meets the client’s targeted timeline objectives and act as the single point of contact for all the required work streams. Once developed, they work with the various teams across State Street to coordinate timing, chase down deliverables and provide progress updates back to their clients.
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Distributor: State Street Global Advisors Funds Distributors, LLC, member FINRA, SIPC, an indirect wholly owned subsidiary of State Street Corporation. References to State Street may include State Street Corporation and its affiliates. Certain State Street affiliates provide services and receive fees from the SSGA Funds.
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