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SEI Focuses on Providing Valuations Transparency and Independence to the Buy Side, Says Oakes

Middle office outsourcing solution provider SEI has recently upgraded its pricing and valuation offering for the buy side by adding more third party data feeds and a new online Manager Dashboard tool . June Oakes, solutions director in SEI’s Investment Manager Services Division, explains to Reference Data Review that the upgrade is aimed at ensuring its clients meet the demand from their own customers for increased independence and transparency of their prices.

SEI provides middle and back office operations outsourcing for a full range of investment management clients, from hedge funds right through to mutual funds, and the valuations capabilities are part of its overall net asset value (NAV) offering to these firms. “Over time, we added independent valuation validation and pricing services to our offering and we have been building up the types of asset classes gradually, as we’ve seen our clients’ business grow more complex,” explains Oakes. “We are focused on helping clients meet the demand from their own customers for increased independence and transparency of their prices, as well as providing them with operational support to carry out this pricing function.”

The vendor has therefore recently expanded its relationships with the third party providers out on the market and thus increased its asset class coverage. “In the past, we focused on exchange traded securities but now we have added pricing providers for derivatives and private placements to our offering,” says Oakes.

She reckons the value of the SEI offering to clients is that the outsourced solution provider takes on the ownership of the relationship with third party providers of pricing and performs quarterly due diligence to ensure these providers are meeting the necessary requirements for individual asset classes. “We also automate the process of gathering these prices and provide the technology for a seamless reporting process where pricing reports are made available through the company’s manager dashboard tool,” she continues. “In terms of supporting investment managers’ clients, our service enables managers to prove the independence and transparency of their prices and provide investors with a robust level of reporting at a summary level.”

It is not only clients that are compelling this type of investment in valuations solutions; however, the regulatory community is also taking an active interest in the pricing space. Fair value accounting practices have put an emphasis on publishing more data around a price than ever before and the risk data requirements of incoming regulations such as Basel III have resulted in an increase in the need for intraday pricing. Marcel Guibout, executive director of the fund accounting product in EMEA for JPMorgan Worldwide Securities Services, noted last year that the increased complexity of accounting regulations have put valuations teams under significant pressure to produce prices, alongside the supporting data required for price transparency, in a timely manner.

However, the buy side is seemingly taking action to tackle these challenges. For example, at the end of last year, the UK Financial Services Authority (FSA) published a review of the derivative risk management and pricing practices in place across the investment management industry, which highlighted that the community is focused on tackling the transparency and independence challenge in particular.

“The majority of the firms had outsourced pricing to a third party, commonly the administrator, trustee, or fund accounting function. In these cases, service level agreements were in place regarding pricing procedures and the need for independent price sources. Five of the firms had in-house capabilities which produce prices independent of the front office. These were used as a check against the third party prices and occasionally as an indicator of which price to apply if multiple data sources are used. All of the firms surveyed had a formal pricing procedure in the event that usual pricing procedures fail,” states the report.

As for SEI’s own clients, Oakes notes that the reaction to the addition of more comprehensive pricing coverage and additional vendors to the table has been very positive. “This supports the market’s additional requirements for more frequent reporting to end investors and best practice requirements,” she adds.

The decision to add new vendors is not taken lightly, however, she says: “We have a robust due diligence process in place when selecting new third party vendors to add to our offering. We look at corporate standards and the providers’ understanding of the individual asset types they cover.”

The vendor’s diverse client base means that it has to work with a certain number of providers to meet their needs, as clients often have preferred vendors with whom they wish to work and SEI must support these requirements. “There is no limit to the number of vendors we can add to our offering,” says Oakes. “We look to work with the best in class vendors and we are constantly evaluating the third party providers out there on the market, especially if they have a special area of focus or expertise.”

The valuation validation and pricing service is currently an integral part of SEI’s middle office NAV offering and the vendor currently has no plans to offer it as a standalone service, she adds. “It is a complement to all the other services we provide in the risk management and processing space,” she continues. The vendor, will however, continue to focus on developing its technology around the data acquisition process for pricing and valuations, Oakes explains.

Given the competition out there in the valuations space, such a move seems sensible. For more information on how vendors are currently performing in the European valuations market vis a vis the buy side, check out our benchmarking report on the subject.

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