Unlock the Potential of Alternative Investments with an Outsourced Chief Investment Officer

Unlock the Potential of Alternative Investments with an Outsourced Chief Investment Officer
November 17, 2023 8 mins

Unlock the Potential of Alternative Investments with an Outsourced Chief Investment Officer

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Avoid limiting a portfolio’s capacity based on the capabilities or bandwidth of an existing process by working with the right partner.

Key Takeaways
  1. While the allure of higher returns and diversification makes alternative investments attractive, they are often complex and demand specialist expertise.
  2. A deep understanding of investment strategies, access to well-vetted asset managers and skills in operations are essential.
  3. As asset owners continue to expand their portfolios’ spectrum of investment opportunities, an OCIO structure can help facilitate effective implementation.

Amid ever-changing markets and increased volatility, organizations are considering all of their investment options. Alternative investments provide benefits to portfolios through a combination of low correlations to traditional, public market investment strategies, possible inflation hedging and the potential for higher returns. Alternative investments encompass a vast spectrum of asset classes and strategies, including private equity, hedge funds, real estate, infrastructure and more.

Alternative investments continue to gain popularity with many institutional investors. One such example is corporate pension plans. Historically, these have not been as active relative to other investors, such as university endowments. However, according to research from the Chartered Alternative Investment Analyst Association, alternative investments have grown from 6 percent to 14 percent of the global market over the last 15 years1 and are expected to grow between 18 - 24 percent by 2025.2

While the allure of higher returns and diversification makes alternative investments attractive, navigating this landscape is not without its challenges. Alternative investments are often opaque and complex, making it difficult for organizations to grasp the intricacies and risks involved. There are also specific portfolio and operational management skills required for these strategies. This is one reason many organizations turn to an outsourced chief investment officer (OCIO) to manage their portfolios.

The Advantages of an OCIO for Alternative Investment Management

A deep understanding of various markets and strategies, coupled with expert financial acumen, is essential to unlock the potential of alternative investment opportunities. This is where the role of an OCIO becomes vital. While investing in alternative investment strategies can contribute greatly to a well-performing investment portfolio, having a deep understanding of the investment strategies, access to well-vetted asset managers and skills in operations is essential.

“OCIOs provide improved governance and access, as well as the ability to be dynamic in periods of volatility,” says Bryan Ward, Senior Partner, Head of Solutions and Sales at Aon. “In many cases, asset owners don't have the bandwidth to be able to structure, implement and, at times, react in a way that the market requires to manage the additional complexity of an alternatives allocation.”

An OCIO Can Help Realize a Portfolio’s Full Potential

As asset owners continue to expand their portfolios’ spectrum of investment opportunities, an OCIO structure can help facilitate effective implementation. In today’s markets, it’s critical to not limit a portfolio’s potential based on the capabilities or bandwidth of an existing process, but instead, work with the right partner to achieve a strategy’s full potential.

What to Look For in an OCIO

Skills needed to manage an allocation to alternatives include:

  • Identification and access to the top managers
  • Ability to structure portfolios, such as pacing schedules and strategy diversification
  • Familiarity with different vehicle types
  • A strong operations team to manage distributions, calls and other aspects, such as year-end audits

Beyond alternative investments, an OCIO should offer a consultative approach that partners with organizations to understand and execute on its overall investment goals. Incorporating both traditional and alternative investment options can contribute to a sound investment strategy and the ability for asset owners to achieve their long-term objectives.

Find out more about how an OCIO can be the key to unlocking growth opportunities.

Aon’s Thought Leader
  • Bryan Ward
    Senior Partner, Aon Investments USA Inc. North America

1 The State of Alternative Investments in 2022, CAIA
2 The Growing Popularity of Alternative Investments, Masterworks

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