It’s no secret that institutional investors face a range of current challenges, from inflation and rising interest
rates to bank crises and international conflict. Add in regulatory changes in many jurisdictions, and the road ahead
seems quite uncertain for organizations managing investment portfolios. In addition, some lack the institutional
capacity to execute on strategy in a timely enough manner to take advantage of fast-changing conditions.
Along with macro trends, investors face more mundane everyday challenges. Administrative duties pile up, pulling
focus away from strategic thinking. Short-term concerns take precedence over long-term planning. Implementation
complexities, like choosing managers, can create barriers.
As these trends continue and volatility persists, the benefits of an outsourced chief investment officer (OCIO)
become clear. Institutional investors that want to maximize investment opportunities while minimizing risk, or gain
the support needed to reach their strategic endgame objectives, have the potential to do so without facing investment implementation
and administrative demands. And the more time to focus on strategic objectives, the more potential benefits companies will
The Role of an OCIO
OCIO is an umbrella term for a service that can be tailored to the circumstances of a client’s needs. An OCIO can be
a manager who implements the strategy of an institutional investor, including handling administrative duties and
sharing the fiduciary responsibility. It can also be a role more akin to an operational manager. While initially
developed for larger organizations, even small and midsize entities can find OCIOs beneficial, as they allow time to
refocus on core priorities.
The flexibility and customization of an OCIO provides the opportunity to support various aspects of an organization’s
portfolio, whether that’s compliance with ESG regulations in Europe, a multinational company fulfilling a specific
mandate around alternative investments, or a U.S. organization looking to maximize investment opportunity.
For multinational organizations in particular, an OCIO approach can deliver the benefits of consistent views,
efficient implementation, consolidated reporting and strategic analysis across multiple plans and countries.
An OCIO’s Responsibilities Could Include:
- Advising on the establishment of the investment strategy to achieve investor objectives
- Assuming discretion for strategy implementation
- Portfolio rebalancing and cash flow management
- Manager selection and review
An important part of the OCIO experience is the ability to tailor the solution to an organization’s needs, providing
a bespoke solution that can take on as much — or as little — of the investment, and administrative and operational
responsibilities as the organization needs.
For example, a private foundation board may want to focus on its oversight duties and governance strategy, leaving
day-to-day operations control and specific investment decisions to an OCIO. By focusing on the parts of the job that
are most important to them, the board can thereby better serve the organization.
Governance issues are at the forefront for investment managers. This is especially true in Europe and the UK, where
investment managers faced a crisis over UK bond prices, forcing organizations to quickly rebalance their portfolios.
The Benefits of an OCIO
Investing continues to become more complex, with emerging regulations and technology advancing at a pace that may
leave some behind. While this complexity isn’t new, it has accelerated to a point where even experienced
institutional investors may need to enlist help.
Using an OCIO is more than just a convenience — it’s a tailored solution that can help improve governance, manage
complexity and save costs. Potential benefits include:
- Improved governance: Improved governance is at the core of an OCIO solution. Organizations that
find themselves understaffed or busy with administrative tasks can offload some of these responsibilities to an
OCIO and instead turn their focus to strategic thinking. Additionally, an OCIO can be more efficient at
replacing underperforming managers, which may prevent losses.
- Cost savings: Cost savings can come from an OCIO’s ability to aggregate assets and negotiate better
- Market execution: Many organizations may not have the capabilities or expertise to execute in
some markets. Working with an experienced OCIO provides the opportunity to access more sophisticated and complex
investment options, potentially driving improved outcomes and expanded portfolios.
- Time efficiency: The ability to make decisions with greater speed is another benefit of an
OCIO. Some institutional investors don’t have the bandwidth to take advantage of changing market conditions. For
example, an investment committee might only meet once per quarter, resulting in an extremely slow decision
making process, especially in volatile conditions. An OCIO can reduce this timeframe drastically.
- Long-term planning: Dealing with the short-term consequences of market volatility makes it
challenging for asset owners to focus on strategic planning that is vital to the long-term success of an
investment program. An OCIO can help manage short-term volatility, freeing up time and resources for future
- Portfolio resilience: By providing roadmaps for navigating volatility and uncertainty, OCIOs
are positioned to build resilience into portfolios.