The outsourced chief investment officer (OCIO) model emerged as a way to serve the particular investment needs of non-profit endowments and foundations established to support the missions of education, healthcare, and cultural institutions, to name a few. It represents a significant evolution from the consultant model, capable of providing a level of service associated with a seasoned internal investment office without the cost of maintaining it. Here are some key characteristics that differentiate an OCIO from a consultant.
OCIOs work more like internal staff.
Consultants and OCIOs alike take on fiduciary roles in the organizations they serve. However, OCIOs, unlike consultants, are typically empowered to make discretionary decisions on their clients’ behalf. While a consultant shares duties such as designing strategies and monitoring managers with an organization’s investment committee, an OCIO is able to perform these functions independently. This requires OCIOs to build strong relationships with their client organizations so they can closely align investment strategies with each organization’s values and risk tolerance. It also means an OCIO is fully accountable for the results they deliver.
OCIOs can provide expanded services.
In addition to the day-to-day management of a non-profit’s investment portfolio, an OCIO can take on key management functions and other time-consuming tasks, like creating custom reports and reconciling performance, allowing the organization to focus on core operations and potentially alleviating some internal staffing needs.
OCIOs are leaders in ESG investing.
Because the OCIO model was designed with non-profits in mind, many OCIOs have experience and expertise in Environmental, Social, and Governance investing strategies that many institutions seek. While some investors may be wary of ESG investments, believing that they require a trade-off in profitability, OCIOs have been early adopters of socially responsible investment strategies and understand how to build competitive portfolios that support the values and mission of their non-profit clients.
To learn more about Verger’s approach to ESG engagement, read our whitepaper: Investing in the Lives of Others: A Strategy for Environmental, Social, and Governance Engagement for Nonprofit Investment Management.
OCIOs can pool assets to access a broader selection of investments.
One of the biggest challenges that many non-profit organizations face is sourcing and accessing high quality investment talent for their portfolios. This is particularly true for institutions with smaller portfolios attempting to access private or alternative asset investment opportunities, which often require large minimum investments. Because OCIOs specialize in serving non-profits, they can create pooled funds for like-minded organizations, giving them greater access to alternative investments such as hedge funds, private equity and venture capital, which can help offset market volatility because of their low correlation with traditional asset classes.
OCIOs provide expert guidance through economic turbulence.
While it’s true that non-profit endowments and foundations have long time horizons, they also have ongoing funding needs that need to be met—even during times of market upheaval. OCIOs have the expertise to build portfolios that offer protection from market volatility while also taking advantage of the opportunities that same volatility creates. By diversifying investments across asset classes and including those that tend to increase in value when most are in decline, an OCIO can help your organization meet its short-term funding needs while building long-term stability.
An OCIO is a cost-effective solution for non-profits.
Because an OCIO effectively serves as a non-profit institution’s office of investments, hiring an OCIO can be a cost-effective way to extend the organization’s back office of capabilities. Additionally, an OCIO may be able to provide access to a wider array of investments at a lower cost than smaller organizations would have on their own. To effectively evaluate the value of an OCIO relative to their cost, it’s important to work with an OCIO provider who offers transparent fee structures.
Direct cost comparison among OCIOs can be misleading, since the services they offer can vary. To understand the value a particular OCIO provides, it’s important to know exactly what you’d be paying for and how it supports your organization. For example, if an OCIO would take on work that’s currently handled by internal staff, be sure to account for any payroll savings that would offset the OCIO’s fees.
If you're looking for a partner to manage your non-profit foundation or endowment’s investment portfolio, putting out a request for proposal (RFP) can be the best way to gain visibility into how various providers fit your institution’s goals, priorities, and budget. At Verger, we have a passion for fueling the success of non-profits. To empower your organization to make the best choice for managing its investments, we've developed an RFP template to guide you through the process and help you make meaningful comparisons among providers.