Less than 12 years after Toronto-based SEI Investments Canada Co. launched its first manager-of-managers funds in Canada, the company has attracted $9 billion in assets under management. Meanwhile, the firm’s parent, Philadelphia-based SEI Investments Co., has built worldwide AUM of $178 billion through its subsidiaries and partnerships.

SEI Canada’s impressive ability to attract assets can be attributed largely to a business model that emphasizes outsourcing — both on the part of financial advisors and by SEI Canada itself. Advisors are urged to outsource their investment-management business to SEI Canada; the firm, in turn, outsources its portfolio management to independent money managers.

From the advisors’ point of view, the premise is simple: SEI Canada offers advisors access to professional portfolio management through its offering of mutual funds so the advisors can focus on managing client relationships.

“We want advisors to outsource as much as possible,” says Louis Spadacini, regional director of Ontario/GTA with SEI Canada in Toronto. “They come to SEI to construct a portfolio and determine proper asset allocation for their clients, and then let us run all the money — and the managers.”

SEI Canada helps advisors with client profiling, so advisors can assess which investments best suit a client. The service typically includes such tools as questionnaires, investor profiles and investment policy statements, which will strengthen the relationship between client and advisor.

Each client also gets a report card every quarter so he or she can see if his or her goals are being met. If not, the client may make changes to the portfolio at no cost.

“We offer advisors peace of mind,” Spadacini says, “by allowing them to focus on their clients while exposing their clients to comprehensive institutional managed solutions.”

PRODUCT COMES FIRST

What makes SEI Canada somewhat unusual among manager-of-managers firms is its approach to product development and manager selection. It designs the product first and then finds managers who are right for that product. “We want to build a strategy and then allow the managers to fit into that strategy,” Spadacini says, “versus going out and getting the best managers from around the world and then making a product.”

According to the company, SEI Canada’s manager-of-managers approach follows four principles: asset allocation, portfolio structure by diversifying across all asset classes, multiple-specialist managers and continuous portfolio management.

Spadacini describes the manager-of-managers model as “our secret sauce.”

To implement its asset-allocation method, SEI Canada uses specialist managers whose management styles complement each other. The firm uses multiple managers within each of the stock markets and each of the major investment styles. It hires independent specialist portfolio managers to run specific investment mandates.

SEI Canada uses 36 investment-management firms around the world to manage its 14 mutual funds. For example, while Sionna Investment Managers Inc. of Toronto is one of seven managers of SEI Canadian Equity Fund, Atlanta-based Montag & Caldwell Inc. is one of eight managers of SEI U.S. Large Company Equity Fund. SEI Canada has access to 5,000 individual managers with 20,000 global mandates; one manager might offer three or four mandates. All SEI Canada money managers are subadvisors and are not employees of SEI Canada; they work under one-year contracts, so they can be replaced quickly if they do not perform as expected.

SEI Canada employs more than 100 analysts, who work together to hire and monitor the money managers. Once a manager is in place, the analysts watch closely, monitoring the funds and the managers to ensure neither stray from their assigned mandates and to ensure regulatory compliance.

SEI Canada’s analysts assess each fund’s performance on a quarterly basis, noting factors such as returns, holdings and value-added vs benchmark, and they determine which assets within the portfolio are generating returns.

And SEI Canada analysts are always on the lookout for money managers who show consistent results with a track record of at least five years. “We want to see that they can consistently provide us with a trend above their benchmark,” Spadacini says. “But we also want to see that the trend we are looking for and their skill set fit into the portfolio we designed. So, the strategy comes first.”

MARKET TRENDS

The analysts also study market trends and other influences to determine strategies for developing new products.

Although SEI funds have been available in Canada since the late 1990s, SEI has been active in Canada for considerably longer. Predecessor firm Simulated Environments Inc. was founded in Philadelphia in 1968 by Al West — still the parent company’s chairman and CEO — after he created a software program for training American bank-loan officers. It was one of the industry’s first computer-simulated loan training technologies.

@page_break@West later established a consulting business that offered advice on institutional wealth management and formed a partnership with investment bank A.G Becker Corp. SEI was well known for its performance measurement and investment consulting for institutional investors in North America.

SEI has had a presence in Canada since the 1970s through its partnership with A.G Becker. SEI acquired A.G. Becker in 1980 and a few years later, the SEI Canada name was launched with the firm providing asset-management services to institutional clients and investment advisors and their high net-worth clients. SEI Canada subsequently sold off the consulting business in order to focus on the asset-management side.

SEI launched its funds in Canada in 1997, working in an exclusive arrangement with Toronto-based BMO Nesbitt Burns Inc. It has since expanded through the independent distribution channel. Now all SEI Canada’s funds are distributed through the advisory channel; SEI Canada works with approximately 3,500 advisors in Canada.

“We don’t want the advisor having to construct portfolios, pick managers, run money — all on top of doing what the client is paying them to do, such as estate planning and retirement goals,” Spadacini says, “We want advisors to be able to practise as many of these [relationship] skills within their own business and outsource the rest to SEI.” IE