By Mark Olsen, Managing Director at PlanPILOT
A growing number of organizations are turning to outsourced chief investment officers (OCIO). In fact, an independent survey found that 37% of organizations are either currently outsourcing their investments or have plans to do so in the next two years. (1) In 2020 alone, OCIO-managed assets increased 5.8%, reaching $1.96 trillion. (2) If you’re looking for a better way to manage your organization’s assets, consider these reasons why an OCIO relationship might be right for you.
What Is an Outsourced Chief Investment Officer?
An outsourced chief investment officer (OCIO) is an investment model in which the day-to-day operations of a company’s CIO are delegated to a third party. Essentially, the duties of the asset owner are transferred to an investment advisor instead. OCIOs can be used for companies, funds, or institutions and they offer services that range from partial to full responsibility over the investment portfolio.
The OCIO is responsible for discretionary decisions including the asset allocation of the portfolio and when to rebalance. They will decide how and when to invest, as well as which assets to invest in (stocks, bonds, real estate, commodities, alternative investments, etc.) based on an agreed-upon investment strategy and risk tolerance profile.
Benefits of an OCIO
There are many benefits to using an OCIO, including:
- Free up internal resources: Many organizations do not have the infrastructure to support a dedicated investment officer. An OCIO can help alleviate this issue.
- Fiduciary responsibilities: An OCIO adds another layer of fiduciary protection to a organizations’s portfolio by overseeing day-to-day transactions and management decisions.
- Risk management: With access to institutional-level investment strategies and educational resources, an OCIO can help reduce risk by investing among a variety of asset classes and reacting to market changes in a timely fashion.
How to Choose an OCIO
Choosing an OCIO is an important process that should not be taken lightly. There are several factors to consider, including:
- Fee structure: Is the pricing clear-cut and easy to understand?
- Historical returns: Past performance does not predict future results, but it’s still important to understand how the OCIO has performed against appropriate benchmarks.
- Conflicts of interest: Are there any investment products that are included or excluded due to a financial incentive on the part of the OCIO?
- Investment infrastructure: Is the OCIO sufficiently competent and capable of investing in a broad range of assets?
These questions should be thoroughly explored before deciding on an OCIO. Similarly, it’s very important to understand your needs as a client before agreeing to an OCIO model. For instance, if you only need partial delegation, be sure to find an OCIO that offers the appropriate level of coverage required.
How We Can Help
It can be difficult to sort through all the information about OCIOs, and deciding which firm to use can be even harder. At PlanPILOT, we can help you make the best choice by leveraging our proprietary OCIO database. We will review your specific goals and match your needs against OCIO firms we have already vetted, ensuring that the firm you work with will be properly aligned with your values.
If you would like help with the due diligence needed to find the right OCIO, or you would like to learn more about how OCIOs work and how they can be utilized to improve your plan’s performance, call us at (312) 973-4913 or email mark.olsen@PlanPILOT.com to get started today.
About Mark
Mark Olsen is the managing director at PlanPILOT, an independent retirement plan consulting firm headquartered in Chicago. PlanPILOT delivers comprehensive retirement plan advisory services to 401(k) and 403(b) plan sponsors. Drawing on more than two decades of experience, Mark provides institutional retirement plan consulting to 401(k), 403(b), and defined benefit plans. His specialties include plan governance, investment searches, investment monitoring, and plan oversight. Mark is recognized as a leader in the industry and speaks at national conferences, including those organized by Pensions & Investments, Stable Value Investment Association, and CUPA-HR.
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(1) https://theonebrief.com/outsourced-chief-investment-officer/
(2) https://www.pionline.com/special-report-cio-outsourcing/ocio-growth-assisted-volatile-times