Executive summary
Key takeaways
- Changing OCIO providers is more complex when private investments cannot transfer or liquidate cleanly.
- Legacy assets may remain with the prior provider, move as direct holdings, or require specialized operational support.
- OCIOs use different pricing approaches: no additional charge, full or partial asset-based fees, or per-fund charges.
- Transition duties, data, capital calls, monitoring, fees, and exit terms should be explicit in the RFP and contract.
01
OCIO 2.0 is not a blank slate
An institution adopting OCIO for the first time can sometimes transfer cash and liquid securities to a provider. An institution replacing an incumbent often arrives with years of portfolio history, manager relationships, and private investments. The education phase may be shorter, but the transition can be much harder.
Legacy illiquid assets are frequently the most overlooked complication. Private equity, private debt, real estate, hedge funds, and pooled structures can outlast investment committee members and OCIO relationships. They become the “bags” the institution must carry to its next provider.
02
What is a legacy illiquid asset?
In a perfect transition, a new OCIO receives cash or easily sold investments and can implement its preferred portfolio. In practice, nonprofit and other institutional portfolios may have significant private-market allocations that cannot be sold on demand.
Imagine an institution invested twenty percent of a portfolio in illiquid funds under OCIO 1.0. When it hires OCIO 2.0, the liquid assets can move, but the private investments remain. The new provider must construct the rest of the portfolio around those holdings while someone continues to manage capital calls, distributions, data, and manager oversight.
03
What may be in the bag
Side pockets and fund-of-funds interests may remain administered by the former OCIO or vehicle manager until underlying investments wind down. The new OCIO may have limited duties beyond supplying capital and reinvesting distributions.
Quasi-illiquid holdings, such as some hedge funds, can often be redeemed over a defined schedule. Direct private-fund interests are more demanding: the new provider may inherit monitoring, valuation, document, capital-call, distribution, and reporting work across dozens of line items.
04
How OCIOs price legacy assets
There is no universal pricing model. Some firms treat basic administration as a cost of winning the relationship and charge only on liquid assets, sometimes up to a position limit. Others charge the full OCIO fee when they provide monitoring and active management comparable to the rest of the portfolio.
Partial asset-based fees recognize that legacy holdings require work but less investment discretion. Per-fund charges separate operational services from assets the OCIO directly manages. The prior OCIO or fund-of-funds may also continue charging fees, so institutions must examine both sides of the transition.
05
Questions for an OCIO 2.0 search
The RFP should inventory every legacy position and ask who will hold it, monitor it, process capital activity, obtain valuations, receive documents, report performance, and seek liquidity. Providers should price the work against the same asset list and state any caps, exclusions, or fee changes.
Contracts should also address data transfer, termination, side pockets, proprietary vehicles, transition support, and future fees if the next relationship ends. A competitive process cannot make illiquid assets disappear, but it can prevent surprises and ensure that the committee understands the full cost and operating model before selecting OCIO 2.0.