There are three main factors an institution will need to weigh in deciding if working with an OCIO provider is right for them. Those are:
Degree of Discretion: What role do the institution’s board and investment committee want an outsourced provider to play, and how do they expect that provider to interact with them, the staff and any other constituents?
Proper Oversight: To what extent is the institution’s existing investment policy statement an effective governing document for its financial resources and mission?
Achievement of Objectives: How confident is the institution, given its investment objectives and risk tolerances, in the future performance of its existing portfolio managers and strategies?
One of the most important aspects of the success of an organization’s OCIO model is defining the respective roles and responsibilities of the institution’s board, staff, investment committee and the outsourced CIO. Investment committees should think carefully about the institution’s ultimate goals in order to articulate objectives that are understandable and clear. While the outsourcing trend began with institutions that delegated essentially all their investment function to providers, time has changed the model that is now quite flexible and able to accommodate almost any level of discretion desired by institutions along the spectrum from minimal to total outsourcing.
There are a number of factors that will determine which model will work best for a particular organization, including the governance structure of the institution, the makeup of the investment committee, the number and expertise of existing internal staff, and the committee’s considerations of how it wishes to spend its time. For some institutions, granting full investment discretion to a third party may be seen as an overdue and welcome step. For others, the investment committee and staff may wish to delegate only certain functions – for example, conducting capital calls or rebalancing the portfolio mix – while retaining their current level of engagement in the design, management and oversight of specific strategies.