| Insights Blog

Why are Nonprofit Investors Seeking an OCIO?

July 31, 2024 |
2 minute read
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Why are Nonprofit Investors Seeking an OCIO?
3:22

According to data from Commonfund's Benchmarks Studies, Outsourced Chief Investment Officer (OCIO) usage is on the rise among private and community foundations and higher education over the past 10 years. OCIO models are often used primarily for investment management, but levels of discretion can vary depending on institutional capacity, and services can span operations, risk management, and strategic decision making.

Why are nonprofit investors seeking an OCIO? It can be for any number of reasons but we have highlighted those that we see consistently for institutions managing long-term pools of capital.

Reason

Details

Increasing portfolio complexity
  • Multiple dimensions of risk to be managed (liquidity, geopolitical, operational, etc.).
  • Allocations to alternatives are now the largest allocation at 35+% for the average foundation across asset size1; this increases demands on staff and Investment Committee’s (IC) in investment diligence and administrative support, particularly for illiquid investments.

Evolving fiduciary responsibility
  • With the enactment of UPMIFA in 2006, and increased transparency from 990s, nonprofit boards have heightened responsibility in terms of strategic policy design and oversight.
  • Increased and more complex state- and federal-based regulatory landscape
  • As appropriate, perpetual time horizon and mission-related risks to consider and manage.

Concerns regarding alignment of interests and accountability
  • The emergence of more capacity-constrained2 managers raises the potential for increasing conflicts of interest; this increases demands on IC’s to vet such potential conflicts.
  • For many institutions, ensuring accountability and clear communication to donors, public officials, community, and other stakeholders regarding effective investment stewardship is critical.

Challenges with limited resources/time
  • Many institutions average 5-7 volunteer investment committee members and rarely have staff dedicated to managing the endowment; this may limit investment options or slow decision-making. This is especially important concerning scenario planning, updating risk analysis, and any other time-sensitive inquiries.

Heightened demand for more comprehensive risk management
  • Increased allocation to alternative investments demands greater focus on risk management across the portfolio. How investment risk impacts and aligns with enterprise risk is increasingly important.

Need for quicker decision making
  • The traditional IC/consultant structure with quarterly meetings may lead to missed opportunities or inconsistent oversight.

In conclusion, the rise in Outsourced Chief Investment Officer (OCIO) usage among nonprofit institutions underscores the increasing complexity and challenges faced in managing long-term capital. As nonprofit organizations seek to align interests, enhance accountability, and optimize resources, exploring the benefits of an OCIO model can provide a strategic advantage in managing investment portfolios effectively. To delve deeper into this topic and explore how OCIO services can benefit your institution, we encourage you to explore our research center on this topic.

Want to learn more about how Commonfund can help your organization? Connect with Us.

 

 

  1. 2022 Council on Foundations-Commonfund Study of Foundations

  2. Capacity-constrained managers are fund managers that accept only a limited number of investors. 
George Suttles

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George Suttles

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Amanda Novello

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Amanda Novello

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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.

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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.

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Disclaimer

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.