What is OCIO? How partnering with one can help your organisation

What does OCIO stand for?

OCIO stands for Outsourced Chief Investment Officer, also known as implemented consulting or, more broadly, outsourced investment management. The term refers to the full or partial outsourcing of an organisation’s investment function to a third party, such as an asset management firm or investment consultant. In delegating investment tasks to a third party, the organisation typically retains some level of fiduciary responsibility-while other fiduciary duties are transferred to the outsourced CIO provider.  

Who can benefit from OCIO?

Institutional investors such as not-for-profit organisations partner with outsourced CIO providers to satisfy a range of objectives, including portfolio customisation, fiduciary requirements, enhanced governance structure, decreased volatility, risk reductions and lower costs.

How can an outsourced CIO or OCIO model improve governance?

One key reason an organisation may shift the management of its investment program to an OCIO provider is to improve its governance structure. The traditional governance model used by organisations to make investment decisions is rife with several shortcomings, many of which have been exacerbated by today’s increasingly complex regulatory and investing environment.

Many companies, for instance, establish and review their investment policies and asset allocation during quarterly meetings run by an investment board or committee. This means that on an annual basis, a shockingly small amount of time-as little as 16 hours-is spent making high-impact investment decisions for an organisation. This isn’t even remotely close to the ballpark range of time we believe is necessary to review and refine an investment strategy.

An OCIO provider, by contrast, works to establish an improved, robust governance process for organisations, with the provider assuming daily oversight of all investments. A skilled provider will have the superior resources, expertise and implementation capabilities that this day-to-day attention demands, with clear visibility into a portfolio’s holdings at any given time. This is crucial due to the volatile nature of markets, where yesterday’s winners can become tomorrow’s laggards in the blink of an eye and market volatility can sway investors from their long-term goals, tempting them to make hasty decisions at odds with their overall strategic objectives. A strong, well-defined governance process helps prevent this from happening, ensuring that the organisation does not stray from its previously-established investing mandates.

How can outsourced CIO supplement your strained resources?

More and more organisations are facing resource constraints and tighter budgets, there’s increasingly less time to spend on activities that aren’t core to the business. A public electric utility, for instance, is better served focusing its time on power generation and distribution efforts than on managing an investment program. Yet, both demand stringent around-the-clock attention.

That’s where an OCIO partner can step in.

How can investment outsourcing help improve access to best-in-class money managers?

The right provider will not only have a dedicated team of in-house specialists to provide daily oversight and strategic advice, but also offer improved access to best-in-class investment managers on a global scale. Top OCIO providers will be able to extensively research and rate thousands of investment managers and opportunities to find those ideally suited to an organisation’s portfolio. In addition, skilled providers will possess a comprehensive risk management system-a necessity for effective portfolio management today, in our view. These systems typically show aggregated portfolio exposures across multiple managers, with a view of how exposures are likely to affective both risks and rewards-all with the click of a mouse.

Can outsourced CIO also help with back-office functions?

Investment outsourcing also means that the outsourced CIO provider takes charge of the associated daily administrative tasks, reducing the strain on an organisation’s resources. This, in turn, frees up more time for the organisation to spend on core business activities and programs-while simultaneously ensuring that its fiduciary duties are still being carried out.

Can CIO outsourcing provide cost savings?

Many organisations can also save significant amounts of money by outsourcing some or all of their investment function. How? There is a well-documented inverse relationship between asset management costs and portfolio size. In other words, large OCIO providers-with billions of dollars of assets under management-can use their scale to negotiate more competitive rates with sub-managers. They can also accomplish this by pooling the assets of multiple organisations together. In aggregating this buying power, investment outsourcing providers can pass along these efficiencies, which are, quite frankly, unachievable when an organisation negotiates independently.

Can Outsourced CIO help with volatility?

Success in investing over the long-term isn’t just about picking winners. The safest way to grow your wealth over the long-term is to construct a portfolio that is able to navigate different market environments.

It’s no secret that the expertise of many is necessary to design and oversee a top-notch investment program. The sheer amount of work required in managing an investment portfolio dictates that some tasks must be delegated beyond the walls of an organisation.

In today’s environment, many organisations are seeking an outsourced CIO partnership to help navigate volatile markets and achieve their key investment objectives. An OCIO partner that understands your business and can adjust to market changes, take advantage of opportunities that arise and manage risks.

What is the benefit of a custom, tailored OCIO solution?

It’s worth emphasising that, above all else, there is no cookie-cutter approach to OCIO. The goals and objectives of organisations that have made the decision to outsource vary widely across the spectrum, and so too do the range of potential solutions. Leading outsourced CIO providers will be able to draw on their flexibilities and utilise the proper set of tools to align their investment outsourcing services with the precise needs of each organisation. In our opinion, the emphasis placed on customisation is one of the key calling cards in a trusted investment outsourcing partner.

The bottom line

In today’s topsy-turvy world, companies are beset by a multitude of challenges. Investing shouldn’t be one of them. Consider partnering with a skilled OCIO provider to improve your organisation’s governance process, alleviate resource strain and reduce your overall costs. Let us know how we can help.