Understanding the Outsourced Chief Investment Officer (OCIO) Model

Non-profit organizations are increasingly turning to outsourced chief investment officers (OCIOs) to manage their investment portfolios. OCIOs differ from consultant and other models because they can do more than just advise; an OCIO is empowered to make investment decisions on the organization’s behalf.

What is an OCIO?

An OCIO is a third-party investment firm that manages all or a portion of its clients’ investment portfolios. The OCIO may assume some or all of the following functions on behalf of the client:

  • Establish the asset allocation
  • Implement strategic and tactical portfolio shifts
  • Identify, evaluate, and hire third party investment managers
  • Provide ongoing portfolio oversight and risk management
  • Offer ongoing communication and reporting
  • Serve as a fiduciary

Additionally, an OCIO may perform key management functions, freeing up time for stakeholders and reducing overhead costs while helping to manage operational and investment risk.

What are the benefits of outsourcing investment management?

Outsourcing has the potential to enhance an institution’s investment management function. A 2020 study by Chief Investment Officer magazine found that 37% of organizations surveyed were already outsourcing their investment program or planned to do so within the next two years.

It is critical to consider the advantages of working with an OCIO. Some benefits that may impact your organization include:

  • More effective time management: An OCIO takes on time-intensive tasks, freeing up stakeholder time.
  • Reduced costs: When an OCIO is on board, organizations can reduce spending on research and investment technology as well as internal staff.
  • Customized solutions: OCIOs provide customized solutions to meet each organization’s specific financial goals.
  • Improved performance: OCIOs design portfolios to align with your institution's core mission while seeking to maximize returns and minimizing risk.
  • Streamlined governance: An OCIO takes on the day-to-day management of your investment portfolio, allowing your internal staff to focus on core operations.

What types of organizations can benefit from an OCIO?

A wide range of organizations may benefit an OCIO, including non-profit organizations such as hospitals and educational institutions. Organizations such as those outlined below may particularly benefit from the endowment management that OCIOs can provide, which relieves the board of directors or staff of this responsibility.

Educational Institutions

An educational institution requires a strong financial foundation and must actively manage its investment. An OCIO brings the experience and expertise necessary to build a diversified portfolio with multiple return streams that can potentially mitigate risk while providing the returns necessary to support an institution’s mission.

Healthcare Institutions

OCIOs may serve as a fiduciary, thereby enhancing oversight of a healthcare institution’s fiduciary obligations. Additionally, an OCIO assumes responsibility for tailoring the investment solution to each institution’s financial characteristics, ensuring they maintain financial stability while lessening the burden on the staff and board and allowing them to focus on other responsibilities. An OCIO can tailor solutions that offer asset management, implementation, and strategic advice to help keep hospitals financially stable.

Community & Cultural Foundations

Both community and cultural foundations can benefit from the expertise of an OCIO, which can provide support services and advice for established organizations as well as those that are just starting to grow. An OCIO will work with each foundation to provide a solution based upon its specific fact patterns and the required level of support for the operational budget.

Other Organizations

Many other organizations can also benefit from OCIO services, such as

  • Faith-based organizations
  • Regional non-profits
  • Family foundations
  • Corporate foundations
  • Charitable trusts

 

OCIOs offer the investment expertise that non-profit organizations need to generate long-term support for their missions. Acting as trusted fiduciaries, OCIOs can relieve an organization’s staff and board of responsibility for managing its investments. An OCIO can create a balanced, diversified portfolio that is aligned with the organization’s goals and core values and support its continued success with ongoing management and oversight.

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