Finding the Right OCIO Partner

As financial regulations and global markets become increasingly complex, more organizations have decided to conserve their in-house resources by outsourcing the role of the Chief Investment Officer. Organizations that partner with an outsourced CIO (OCIO) find it to be an effective solution for dedicated expertise, sophisticated research and analytics, and faster investment decision making. However, finding the right OCIO provider is becoming more difficult given the growth in the number of firms providing OCIO services and the complexity of their solutions. Managing the assets of an organization is mission-critical so it’s important not to rush into choosing an OCIO provider that may not be the right fit for your business.

Why Organizations Outsource

The decision to outsource can be proactive, reactive, or a mix of both. Institutions realize that their financial officers or investment committees’ responsibilities have outgrown their capacity to provide these services effectively. An OCIO can boost an organization’s compliance with (and achievement within) investment and administrative goals.

Investment Goals

Often, reviewing an organization’s asset allocation can shift to the back burner when the board or investment committee’s time is consumed with other, more immediate concerns. Once an OCIO is brought into the fold, it can provide a fresh review of how the current investment selections are helping (or hampering) the goals outlined in the Investment Policy Statement.

Administrative Goals

An OCIO can do more than simply select investments and ensure compliance with federal and state regulations. It can also take on tasks ranging from soliciting and supporting donors to other support services such as tax preparation and educational support. If your organization needs a more comprehensive array of financial and marketing services, an OCIO may provide the best fit.

Is Outsourcing Right for Us? Questions to Consider.

Before beginning the search for an OCIO, an organization should outline its needs by asking a few probing questions.

Do We Have the Resources and Expertise?

Similarly, is your organization structured to make quick decisions? Or possess the long-term discipline required? Do you have access to top managers or independent research and analytics? The markets and asset classes are more complex and can be subject to spurts of volatility, so if you answered no to any of these questions, the OCIO model could be a good approach.

Can We Improve Performance?

Many organizations have been reluctant to outsource in part due to the double-digit investment gains seen in many of the U.S. indexes over the past few years. But an OCIO with a proven track record can often be the difference during market downturns. Improving your organization’s performance during times of market softness can increase the likelihood that your long-term returns remain above market and investment policy benchmarks.

What’s Our Risk Tolerance?

An OCIO can also improve an organization’s risk management—but first, it’s crucial to have a handle on your risk tolerance. If each drop in assets is going to have your team scrambling for a change, the OCIO will need to be able to provide a clear outline of how volatility can be minimized. On the other hand, if your organization has a healthy risk tolerance, an OCIO can help you guide your asset allocation so that the only investment risks you take are compensated ones.

What to Look for in an OCIO Provider

The process of searching for an OCIO provider can be challenging. After outlining your organization’s needs, the next step is to find an OCIO provider that can meet them. The key factors to consider when searching for the right OCIO include:

Experience / Fit

With the industry-wide move toward OCIOs over the last decade, there are many providers to choose from. While many are highly qualified, others may not have the experience necessary to meet your organization’s specific needs. A lot of these firms’ clients span across pension funds, institutions, nonprofits, and other investor types. It’s important to choose a provider with experience in managing assets of similar type, size and goals as yours. Ask the prospective OCIO to provide proof of performance and details on their risk management process and results.

Service Model

The key to a successful OCIO relationship lies in the OCIO’s personalized service and being truly integrated with your organization. A worthy OCIO provider will understand how your existing board and committee functions, along with the preferences with how to work with them. If your board wants hands-on investment management, an OCIO that only checks in with a dry report every few months may not fit the bill.

Inquire into your OCIO prospects’ service models to ensure that your final choice will fit well within your company’s culture and the degree of investment involvement your organization desires.

Cost and Fees

When evaluating the different cost structures presented by your OCIO prospects, it’s important to keep your organization’s needs in mind. In some cases, you may be able to enjoy a “stripped-down” range of services in exchange for a lower fee; if these services are truly all you need, paying for more may not make sense.

However, don’t let a higher price tag be an immediate disqualifier. If the benefits you can realize from a range of OCIO services outweigh the costs, paying more can be money well-spent. What’s more important is the OCIO provider being able to provide a detailed schedule of costs and fees, such as advisor’s management fee, management fees, expenses of underlying investment vehicles, performance incentives, and custody charges.

We’ll Help You Find the Right OCIO Provider

Outsourcing your CIO can provide a myriad of benefits, including strong investment performance within an appropriate risk management framework, better managed and transparent fees, improved governance and fiduciary practices, and having board and committee support. We can help you navigate this important fiduciary decision and ensure that you thoroughly evaluate your options, document the process, and select the provider that best meets your needs. We are fully committed to making the search for your OCIO provider easier and more efficient.

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