How does an outsourced CIO (OCIO) relationship work?
Under an outsourced CIO relationship, clients engage a third party provider to manage the investment portfolio. Clients are supported by a Chief Investment Officer (CIO) who leads a full investment team and operations support staff. These robust teams manage portfolios to optimize performance within guidelines set by the client including investment strategy, portfolio construction, risk management, and manager hiring, firing and rebalancing. Back office teams manage investment operations of the portfolio, reducing the client’s administrative burden.
Why are institutions outsourcing?
Often, a variety of factors influence the decision to outsource. Some of our clients have chosen to outsource their investment offices and have shared with us their reasons for doing so.
- Investment Committees are facing more challenges than ever. Increased scrutiny of portfolio performance, growing concerns about reputational risk, and challenges of navigating changing regulations have led to “fiduciary fatigue.”
- Investment Committees want to maximize their time. Investment outsourcing allows Committees to focus on strategic portfolio issues and entrust day-to-day decision making to seasoned professionals.
- Portfolios need real-time management. Committees understand that complex portfolios need constant oversight from experts who can identify investment risks and capitalize on tactical opportunities. They also need dedicated administrative support to mitigate execution risk and support operations. Outsourced CIO relationships allow Committees to delegate the timely implementation and administration decisions to a professional team that is held accountable for the portfolio’s results.
- Complex investments require specialized skills. Even highly sophisticated Committees who have experience with alternative asset classes recognize that such portfolios can’t be overseen with limited internal resources.
- Staff can be difficult to attract and retain. Building and maintaining an in-house investment office can be challenging. An outsourced investment office provides stability to the investment management process in a cost-effective way.