A Primer on Outsourced Investment Management

August 31, 2017 |
1 minute read

Once seen primarily as a solution for small institutions with limited resources, outsourcing of the investment management function is now widespread, with a broad range of long-term investors – including those with more substantial investable asset pools – turning to the outsourced chief investment officer model.

Properly implemented, outsourcing can help institutions to address portfolio complexity and risk management challenges, speed decision-making and contend with an increasingly rigorous regulatory environment, while enabling trustees to focus on improving institutional governance.

Among institutional investors with long-term portfolios, the practice of delegating the bulk of the investment office function to a third-party provider, typically an investment management or consulting firm, has increased steadily over the past decade. Outsourcing, as it is broadly known (the terms “outsourced chief investment officer” or “ocio” are also used), encompasses a wide range of models, depending on the degree of portfolio delegation to which the institution commits itself and the operational methodology it employs in carrying out its decision.

In a typical version of the OCIO model, the outsourcing provider designs a customized solution for the institution based on its risk tolerance, return targets and other requirements. Such a comprehensive approach includes:

  • investment policy review and counsel,
  • portfolio construction and asset allocation,
  • manager due diligence and ongoing monitoring,
  • portfolio re-balancing,
  • risk management and
  • reporting.

The provider thus assumes responsibility for the institution’s entire investment process, filling a role equivalent to that occupied, at institutions with very large investment pools, by the internal investment office staff. Services provided can range from fully customized asset allocation and implementation to the provision of comparatively standardized or specific portfolios, allocations or strategies.

While the OCIO label was historically applied to management of the total portfolio of an institution, in recent years there has been a trend toward more flexible arrangements in which only a portion of the portfolio — often specialized or more complex areas such as alternative investment strategies or operating assets — is outsourced. In these cases the OCIO serves as an extension of the organization’s investment committee or internal staff, supplementing their capabilities or expertise with additional resources.

The OCIO model has developed in response to profound changes in the institutional investment environment over the last two decades, which have placed increasing pressure on the nonprofit governance model. Volunteer boards and investment committees, meeting only four or five times a year, have been challenged to construct and monitor these complex portfolios, which have become the standard for many long-term investors. New legal and regulatory requirements, too, have placed a heavier load on fiduciaries. Taken as a whole, the investment process is far more time- and resource-intensive than ever before.

New Call-to-action

Stay connected with the Insights Blog

Popular Blog Posts

Market Commentary | Insights Blog

Chart of the Month | The Surprising Relationship Between Money Supply and Inflation

The potential for rising inflation is becoming a top concern for many investors and consumers. Many believe that inflation is already here as evidenced by price increases in commodities, homes,...
Perspectives | Insights Blog

The Case for Using the Higher Education Price Index® (HEPI) to Define Inflation for Colleges

When calculating return targets for an endowment portfolio, a conventional piece of the equation is often the Consumer Price Index (CPI). CPI plus 5% is the common short-hand formula for institutions...
Investment Strategy | Insights Blog

What is an OCIO?

Outsourced investment management, once primarily a solution for small institutions with limited resources, is now used by a broad range of long-term investors. When properly implemented, outsourcing...


Certain information contained herein has been obtained from or is based on third-party sources and, although believed to be reliable, has not been independently verified. Such information is as of the date indicated, if indicated, may not be complete, is subject to change and has not necessarily been updated. No representation or warranty, express or implied, is or will be given by The Common Fund for Nonprofit Organizations, any of its affiliates or any of its or their affiliates, trustees, directors, officers, employees or advisers (collectively referred to herein as “Commonfund”) or any other person as to the accuracy or completeness of the information in any third-party materials. Accordingly, Commonfund shall not be liable for any direct, indirect or consequential loss or damage suffered by any person as a result of relying on any statement in, or omission from, such third-party materials, and any such liability is expressly disclaimed.

All rights to the trademarks, copyrights, logos and other intellectual property listed herein belong to their respective owners and the use of such logos hereof does not imply an affiliation with, or endorsement by, the owners of such trademarks, copyrights, logos and other intellectual property.

To the extent views presented forecast market activity, they may be based on many factors in addition to those explicitly stated herein. Forecasts of experts inevitably differ. Views attributed to third-parties are presented to demonstrate the existence of points of view, not as a basis for recommendations or as investment advice. Market and investment views of third-parties presented herein do not necessarily reflect the views of Commonfund, any manager retained by Commonfund to manage any investments for Commonfund (each, a “Manager”) or any fund managed by any Commonfund entity (each, a “Fund”). Accordingly, the views presented herein may not be relied upon as an indication of trading intent on behalf of Commonfund, any Manager or any Fund.

Statements concerning Commonfund’s views of possible future outcomes in any investment asset class or market, or of possible future economic developments, are not intended, and should not be construed, as forecasts or predictions of the future investment performance of any Fund. Such statements are also not intended as recommendations by any Commonfund entity or any Commonfund employee to the recipient of the presentation. It is Commonfund’s policy that investment recommendations to its clients must be based on the investment objectives and risk tolerances of each individual client. All market outlook and similar statements are based upon information reasonably available as of the date of this presentation (unless an earlier date is stated with regard to particular information), and reasonably believed to be accurate by Commonfund. Commonfund disclaims any responsibility to provide the recipient of this presentation with updated or corrected information or statements. Past performance is not indicative of future results. For more information please refer to Important Disclosures.