The firm you pick to serve as your outsourced chief investment officer (OCIO) can have long-term implications for the financial health of your nonprofit endowment or foundation. Choosing an investment manager that understands and aligns with your institution’s return targets, risk tolerances, and long-term goals is foundational to a successful partnership. While many firms can deliver satisfactory results when the market is strong, navigating volatility can often be more challenging and may expose weaknesses in your OCIO’s investment strategy. Below, we share several questions that may help you in evaluating your OCIO’s readiness to effectively weather market turbulence.
Does your OCIO use an anti-fragile investment strategy?
Chasing performance is not a tactic that we believe disciplined investors should favor. For this reason, it is crucial to choose a partner with an investment philosophy that promotes sustained, stable, risk-adjusted returns through a variety of market conditions. An anti-fragile strategy is designed to take advantage of market advances while also protecting capital during declines. This approach allows the OCIO to make opportunistic investments as they arise during times of market volatility.
A non-profit organization’s endowment has a perpetual time horizon, so volatility can have long-term unforeseen effects. Because reporting between OCIOs may vary and there is room for more standardization within the industry, it is crucial to understand what metrics are being used and how to appropriately compare both performance results and risk metrics.
Does your OCIO understand the downside risk to your portfolio?
OCIOs that make use of the latest risk management technology can gain insight into how various market behaviors would impact a particular portfolio. This better enables them to educate your board on what to expect and address any concerns they may have before turbulence arises. Your OCIO should provide frequent updates during periods of volatility to help your board understand how their investment strategy continues to support the organization. Understanding the risk in your portfolio is the best way for your OCIO to help you prepare for volatility and prevent it from significantly impacting your long-term goals.
Does your OCIO have a proven track record serving non-profits?
There are two main parts to this question: How long have they been providing OCIO services, and what is their dedication to working with non-profit organizations? The number of OCIO service providers has increased dramatically in recent years. In fact, it is currently the fastest growing sector in asset management. This means the field includes a lot of new players and not all OCIOs have experience in navigating the needs of non-profits, which often have long or perpetual time horizons but must manage significant short-term liabilities. Your organization will benefit from an OCIO who is experienced not only at providing dedicated OCIO services but also in supporting the ongoing needs unique to non-profit organizations.
At Verger, managing non-profit endowment and foundation portfolios is in our DNA. It’s the only thing we do. We build anti-fragile portfolios that are designed to not just withstand market downturns but to remain robust in all environments. Our investment team consistently makes proactive moves that help our client portfolios adapt to market conditions with the dual goal of maintaining stability during drawdowns and capturing returns in up markets.
If you're looking for a partner to manage your institution's endowment, arranging an RFP can be a good way to see which providers best fit your overall goals. To help you identify the questions you should ask when evaluating an outsourced chief investment officer, we've developed an RFP template to guide you through the process.