The term Outsourced Chief Investment Officer (OCIO) has gained popularity in the investment industry as investment consultants, banks, and small wealth management firms are now offering OCIO services to foundations, endowments, and nonprofits.
You may be considering this model instead of the self-managed or consultant model used in the past.
Below we include the “T” test to help your organization evaluate potential OCIO providers.
Does the OCIO have an investment philosophy and process that is time-tested, disciplined, and proven?
Your OCIO should have an investment philosophy that is well-articulated, research-driven, and time-tested as well as an investment process that is explainable, repeatable, and disciplined. The strongest OCIO firms can clearly explain where ideas are generated, who evaluates ideas, and how portfolios are constructed. Their philosophy and process should prove consistent over the long term, not wavering or chasing the latest fad.
Does the OCIO have a team of experts solely dedicated to serving organizations that are similar to yours—in size, scope, mission, goals, objectives, and time horizon?
OCIOs that lack depth of team, show high levels of instability and turnover, or have a retail focus should raise flags during your evaluation. It is important to find a partner who has deep understanding of the unique challenges faced by charitable organizations and is able to leverage a multitude of resources to help you meet those challenges.
Is the OCIO transparent about the services offered to your organization and the fees associated with those services?
During your evaluation the OCIO should be clear and transparent about fees; it should be easy to understand account-level fees, underlying manager fees, and any additional fees that may be assessed based on the services provided.
Does the OCIO offer value-added services to enhance your client experience and help your organization fulfill its mission?
As competition within the investment management industry increases, it is important that your OCIO offers services that complement their investment process. A firm that understands how to enhance your organization’s existing efforts in areas like board education and governance, transition and leadership succession planning, grantmaking, donor development, or planned giving and stewardship will bring significant value to the relationship and make the lives of your board and staff easier.
Does the OCIO have a history of helping clients meet their goals and objectives?
The organizations you evaluate should show a history of meeting client goals and objectives. Beyond performance, OCIOs should demonstrate the ability to preserve principal, achieve capital appreciation, and generate a total return to meet distribution/spending requirements over the long-term.
See also Exponent Philanthropy’s publication Getting It Done: The Who and How of Small Foundation Investing >>
Erika McDaniel is a business development officer at Glenmede, an independent trust company that manages $30 billion in assets for nonprofit organizations, institutions, individuals, and families. Erika also serves on the board of trustees for the Forman S. Acton Educational Foundation, a private non-operating foundation based in Salem, NJ.