The biggest gap-up came from mid-sized schools—59 percent of which reported using an OCIO in FY2024 compared with 40 percent in FY2023. Forty-three percent of the largest responding institutions used an OCIO in FY2024, as did 26 percent of the smallest.
The exploration of top concerns and the increasing use of endowment to cover operating expenses in the recent blog "Independent Schools Increasingly Depend on Endowments for Operations," all point to the endowment needing to work harder in support of the institution. With that context, it is unsurprising that more independent schools are turning to outsourcing for investment management.
What key responsibilities are independent schools seeking to outsource? When asked about the primary responsibility for various investment functions1, independent schools overall and across asset sizes were most likely to use an OCIO for day-to-day investment management, capital markets research, and portfolio rebalancing. More than half of responding schools with assets between $10 million and $50 million reported using an OCIO for each of those three functions, whereas roughly 35 percent of the largest schools did. Schools with assets under $10 million were more likely to have an internal IC/Board or a consultant with primary responsibility over the surveyed investment activities. However, the percentage of the smallest schools that used OCIO for day-to-day investment management doubled to 24 percent in FY2024 from 12 percent in the prior year.
Finally, resource constraints may lead institutions to seek external support for investment management. One key resource constraint is the number of investment committee members, and their credentials that support investment management decision-making. In FY2024, independent schools reported they had an average of 6.9 investment committee members, and an average of 4.9 of whom are investment professionals. Larger schools have more investment committee members (8.1 on average) and more members that have professional investment experience (6.3 on average), compared with the other size cohorts. When asked how many investment committee members have experience with alternative strategies, the average response for large schools was 4.9, for mid-size schools, 3.5, and for small schools, 1.6. Limited resources and expertise at mid-sized and smaller schools likely contribute to their relatively high use of an OCIO for investment management.
The use of OCIO in independent schools is a developing trend that we continue to monitor. Between increasing market volatility and complexity, the pressures on the endowment to provide more to meet the mission of the institution, and internal resource constraints, it may continue into future years.