“Outsourced CIO” (or OCIO) is a term that might not be familiar to many. In the past it has been defined as a traditional consulting model in which the process of interviewing potential investment managers was delegated to an outside provider.
In recent years the OCIO model has evolved, and some providers have expanded the scope of their offering to focus more on a total partnership that delves into deeper issues than just an institution’s investment portfolio.
The result can be a “Holistic OCIO” relationship that addresses wide-ranging institutional factors beyond investment management, and provides strategies to support those broader areas. If you think that a Holistic OCIO approach might provide value to your institution, here are six questions you should ask a potential OCIO provider to make sure that you find one that is committed to a comprehensive approach that places a priority on total portfolio management.
Question #1: Do They Look Beyond Your Investments?
An effective relationship begins with an OCIO taking the time to understand specific needs within your organization. Beyond a narrow risk/reward profile and investment analysis, the OCIO should take the time to understand an institution’s strategic business goals, challenges and the role investments can play in overall organizational success. Based on these and many other important strategic factors, the OCIO will then develop a tailored investment plan with a forecast that can span as many as five or ten years into the future.
Question #2: In What Market Do They Specialize?
The right OCIO for your company will have experience in your specific market. This is an important question because as the model has evolved, a number of financial players have entered markets they frankly may not understand – such as the not-for-profit industry. The key variable in the approach is the institution itself. Each endowment or foundation has its own strategic needs, objectives and mission. Who would be more familiar with these matters than an OCIO who specializes in nonprofit institutions and has focused there for decades?
Question #3: Does Policy Design Go Beyond Investments?
A truly collaborative OCIO helps achieve institutional objectives by moving beyond mere investment policy and also addressing other components of policy design. Operational, Investment and Budget policies are some of the main areas that an OCIO will help address to develop the best investment approach for your organization. This 360-degree evaluation process will pay dividends in terms of helping your institution achieve its objectives.
Question #4: Are They Collaborative Partners?
Because a Holistic OCIO touches an institution’s functions beyond investments, the provider must be willing to collaborate with different areas and departments of your organization. A budgeting discussion, for example, may entail working directly with the finance office or even the board of directors. The relationship should extend from the boardroom to the back office, offering resources and capabilities that go well beyond investment management in order to implement a comprehensive strategy suited specifically to your organization’s culture.
Question #5: Are they thought leaders?
An effective OCIO should stay constantly on the cutting edge of market and industry trends, developing unique insights and thought leadership. This is critical in implementing an investment policy, because it informs strategies, asset allocation and policy goals that the OCIO and institution develop together. A forward-thinking OCIO not only monitors what’s happening today, but will also analyze, predict and adjust to future trends. Being a thought leader means having access to the latest information, the right tools to make sense of that data and the ability to make critical portfolio adjustments in an efficient, cost-effective manner.
Question #6: How Do They Construct a Portfolio for You?
Your OCIO should recognize that the construction of the portfolio hinges on multiple factors such as long-term investing goals, liquidity needs, and other internal institutional mandates. These and other key variables will dictate not only the components of the portfolio but of the overall investment program. Realizing that decision drivers often go beyond financial issues, a Holistic OCIO will bring a total institutional perspective to the portfolio construction process.
Once merely an investment advisory function, the OCIO model is now more about a total partnership that looks at many other factors of an organization beyond just the investment portfolio. By doing your due diligence and selecting a high-quality Holistic OCIO, you will gain a trusted fiduciary partner who takes a broader and deeper approach to your institution and addresses key issues well beyond the investment portfolio to maximize the success of your organization.