By Mark Olsen, Managing Director at PlanPILOT
In an increasingly complex financial landscape, managing endowments and foundations has never been more challenging. Markets are constantly evolving, compliance and due diligence requirements are intensifying, and regulatory landscapes are shifting. Amid this complexity, a comprehensive and focused approach to investing is not just desirable—it’s essential.
At PlanPILOT, we aim to minimize fiduciary risk for institutional governance teams, and be diligent stewards of the investments they manage. This commitment aligns well with the role of an Outsourced Chief Investment Officer (OCIO), a rapidly growing investment model that is projected to manage a total of $3 trillion in assets by 2025.
In this article, we’ll explain what an OCIO is, how it can benefit endowments and foundations, and the various types of OCIO services you can use.
What Is an OCIO?
An Outsourced Chief Investment Officer (OCIO) is a specialized service in which an institution delegates a significant portion, if not all, of its investment management activities to an external expert. This model of investment management offers a holistic approach, overseeing all aspects of an organization’s investment portfolio. The OCIO is responsible for setting strategic asset allocation, making tactical investment decisions, handling manager selection and due diligence, and ensuring adherence to regulatory standards.
Importantly, an OCIO is also accountable for investment performance. They operate under a fiduciary duty, which means they are legally obliged to act in the best interest of their client. This approach allows institutions to leverage the OCIO’s skill set, resources, and infrastructure, enabling them to focus on their core mission while having confidence that their investments are being professionally managed.
How an OCIO Can Benefit Endowments and Foundations
The decision to engage an OCIO is not taken lightly, and it’s driven by a multitude of key benefits this model offers. One of the primary advantages is the considerable back-end support provided by the OCIO. By overseeing the daily operations and administration of investment activities, the OCIO allows institutions to free up their time and resources, focusing instead on broader strategic goals.
Moreover, an OCIO brings a wealth of investment experience to the table. With their deep knowledge of the financial markets, they offer strategic asset allocation advice, guide on manager selection, and provide risk management tactics—activities that demand considerable time, experience, and resources. This level of skill is particularly valuable for smaller organizations, which may lack the resources to maintain a fully staffed, in-house investment team.
Compliance adherence is another area where an OCIO can make a significant difference. Given the increasingly complex regulatory environment surrounding managing investments, an OCIO can help keep your plan in compliance with all relevant laws and regulations, minimizing potential legal and financial risks.
Differentiation Among OCIO Providers
As the OCIO market continues to grow and evolve, differentiation among providers becomes increasingly pronounced. Some OCIOs offer a comprehensive, full-service solution, managing every aspect of your investment strategy, allowing institutions to work on other aspects of their organization. Others provide à la carte services tailored to your specific needs. Before requesting proposals from OCIOs, it would be wise to make a list of all areas you’d like help with so you know the key traits you are looking for in a provider.
Additionally, some OCIO firms may have more niche investment strategies. Some of them offer ESG (environmental, social, and governance) investments, while others incorporate private equity into their investment strategy. Each of these strategies are polarizing topics in the investment world, so it’s important for you to know whether or not it’s right for your firm.
After understanding the service offerings as well as any unique investment strategy, other key considerations should be their investment philosophy, performance record, risk management approach, and the depth and quality of their investment team. You also want to verify you understand their fee structures, and that the OCIO is a cultural fit with your organization. In a diverse and growing landscape, understanding these variations is crucial to find the most compatible OCIO partner.
Is an OCIO Right for Your Plan?
Are you grappling with the complexities of governing an endowment or foundation and implementing best governance practices? Now is the time to consider whether an OCIO might be right for you. An OCIO can provide a level of skill and support that enhances your strategy, confirms compliance, and ultimately helps your plan participants to experience better outcomes. With a tailored approach to your unique needs, an OCIO can be an invaluable partner for your endowment or foundation.
At PlanPILOT, our goal is to help you find the best of class investment manager that meets the goals of your organization and all shareholders and decision-makers. If you’d like to start your search to find the best OCIO for you, call us at (312) 973-4913 or email mark.olsen@PlanPILOT.com.
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), 403(b), and 457 plan sponsors. 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.