In the annual Council on Foundations-Commonfund Study of Investment of Endowments for Private and Community Foundations® (CCSF; the "Study") data show concerns are rising regarding the ability to meet investment return targets that can support spending and meet a foundation's mission. The Study surveyed 255 foundations—154 private and 101 community—for the calendar year ending December 31, 2024.
Study Data Show Increase Use of OCIO Over Time
For foundations, growing market complexity and volatility, a rapidly shifting regulatory and technology environment, turnover of staff and leadership, inflation, and more, have made their work more difficult. With this context, it is not surprising there has been a subsequent rise in outsourcing, specifically the use of OCIO (outsourced chief investment officer), for investment management across nonprofit segments. Foundations are no different: Study data show that the share of both private and community foundations working with an OCIO have risen by 50 percent since 2018.
By size, institutions in the mid-sized and smaller cohorts more often use an OCIO for investment management, whereas the largest private foundations are more likely to have an internal investment office and the largest community foundations more often utilize an investment committee supported by an internal finance team. In the past two years, the use of OCIO among the largest private and community foundations was largely unchanged. However, there was a substantial year over year increase in the use of OCIO among private and community foundations with assets between $101-$500 million, which grew from 35 percent and 33 percent, respectively, to 45 percent for both foundation types.
Over time, Study data show that foundations across size and type cohort have increased the share of investment management that is outsourced. In 2018, the first year this question was surveyed, 24 percent of respondents used an OCIO and those foundations out-sourced 75 percent of their investments, on average. Fast forward to 2024: 38 percent of private foundation respondents worked with an OCIO, and those that did outsourced 93 percent of investments, on average. The 31 percent of community foundations that used an OCIO in 2018, and 46 percent in 2024, followed a similar trajectory to private foundations in terms of the growth of the share of investments outsourced.
The largest private and community foundations are less likely to outsource because they often have the internal resources and dedicated staff needed to manage their portfolios in-house, therefore data for those cohorts are limited. Where data are available, the trend of increased outsourcing as a share of total investments holds across size/type cohorts. Mid-sized private foundations and smaller community foundations outsource the largest share of their investments compared with other cohorts.
Governance Considerations for Foundations
For foundations that use or may use an OCIO in the future, various practical matters are critical to highlight. First, when considering a new OCIO provider, there are several questions to ask in order to find a provider that meets the needs of your organization. We outline questions for consideration in an article, Six Key Questions to ask OCIO Providers, including:
- Do they look beyond your investments?
- In what market do they specialize?
- Does policy design go beyond investments?
- Are they collaborative partners?
- Are they thought leaders?
- How do they construct a portfolio for you?
Further, it is critical to understand how roles and responsibilities will shift when working with an OCIO provider. As stated in the article, Increasing Use of OCIO Relationships Requires New Governance Considerations, it is “important to understand that an institution may be handing over technical day-to-day investment operations, but a good governance framework must be in place to ensure fiduciary responsibilities are soundly maintained.” This may include establishing a governance and operational framework with your provider, reviewing your IPS and asset allocation, and more.
Each institution will have to determine what roles and responsibilities they will maintain versus those that may be shared or supported. The graphic below is a template that can be used to ensure all bases are covered when establishing or shifting roles and responsibilities. Note this will vary depending on the model that’s best-suited to your institution.
Source: Understanding the OCIO Governance Model
Given the nuances in foundation investment and governance practices, it is critical to identify your institution’s needs, the right investment partner that can help meet them, and prepare for success by delving into the transition process before it begins. Would you like more detailed insights from the latest Foundations Study? Request your copy today!
