By Laura LaRosa
The outsourced chief investment officer (OCIO) model has gained prevalence with endowments and foundations as donor contributions rebound to pre-2009 levels. Augmented complexity of the portfolio management process, fiduciary responsibility and a more complicated regulatory environment cause many investors, including family offices, to embrace this model.
Every firm's OCIO approach and offering is distinct. The firm you choose should align closely with your organization or family's philosophy, and should demonstrate a clear understanding of your overall goals and objectives.
Here are five key considerations when evaluating OCIO providers:
Time tested: Your OCIO should have a well-articulated and research-driven investment philosophy, complemented by a repeatable, transparent and disciplined investment process. The strongest OCIO firms can explain how ideas are generated and evaluated, and demonstrate the methodology supporting the portfolio-construction process. OCIO firms should be evaluated over a longer-term period to ensure performance is not the result of one-off cycles or chasing the latest fads.
Team: It is important to find a partner with a deep understanding of the unique challenges facing charitable organizations and ultra-high-net-worth families and individuals. It is crucial for a provider to leverage a multitude of competencies. Ideally, firms should employ dedicated specialists, tenured in handling the client’s express needs. Team stability is crucial. Low turnover is generally considered a sign of the organization’s strength and stability.
Transparency: OCIO providers should present clear and transparent pricing with easy-to-understand account level fees and underlying manager fees, including additional fees assessed based on the services provided outside the quoted mandate.
True Value: With ample supply of OCIO providers, it is important for investors to choose a partner that offers the services that best complement their investment process and support vital development areas like education, governance, transition and leadership succession. In the endowment and foundation space, look for expertise in governance, planning, grant making, donor development, planned giving and stewardship, which bring significant value to board and staff members. For large families, charitable planning, estate planning, comprehensive balance sheet advice, fiduciary services, tax planning and estate administration are all critical considerations for an OCIO.
Track Record: An experienced OCIO should demonstrate a history of meeting client goals and objectives. Beyond performance, OCIOs should exhibit an ability to preserve principal, achieve capital appreciation and generate a total return over time that is consistent with long-term goals.
Laura LaRosa is the director of client development, Glenmede.