Considering an OCIO for Your Endowment or Foundation? 5 Questions to Ask Before Hiring

Endowment and foundation asset owners face a distinct set of investment management challenges. They answer to several stakeholder groups (board members, investment committee members, donors, CFOs, and staff) while managing complex portfolios with a perpetual time horizon and a total return focus.

Many of these organizations have moved investment oversight to an Outsourced Chief Investment Officer (OCIO). The arrangement suits some institutions better than others. Before committing, your committee should be able to answer five questions.

1. What outcomes are you seeking?

Start by defining what you expect to achieve. Different organizations turn to OCIOs for very different reasons. Common objectives include:

• Achieving target investment returns within defined risk parameters
• Reducing the administrative and governance burden on the investment committee
• Gaining access to institutional-quality investment strategies and manager relationships
• Aligning the portfolio with the organization's ESG, sustainability, or mission-related values

Being specific about your intended outcomes will help you evaluate whether a given OCIO's capabilities and approach are the right fit.

2. Is delegation comfortable for your committee?

There is no standard OCIO operating model. Some arrangements involve broad delegation of investment authority, while others are more narrowly defined. Before engaging a provider, your committee should decide which investment decisions it is comfortable delegating and which it wants to keep.

Common areas of delegation include:

• Allocation between passive and active management strategies
• Asset class weighting and portfolio rebalancing
• Manager selection, termination, and replacement

The committee's comfort level with delegation will shape both the OCIO structure you need and the oversight framework that should accompany it.

3. What responsibilities must the committee retain?

Even when delegating to an OCIO, your investment committee remains accountable. Some responsibilities cannot be fully outsourced. These typically include:

• Setting the organization's overall investment objectives and risk tolerance
• Approving the Investment Policy Statement and any material changes to strategy
• Overseeing and evaluating third-party providers, including the OCIO itself
• Ensuring alignment between the investment program and the organization's mission and spending needs

Before the relationship begins, the committee should know where accountability sits and have a governance structure that supports it.

4. Can the OCIO align with your institutional mission?

For endowments and foundations, the investment program is an expression of organizational values. Beyond managing the portfolio well, a prospective OCIO should show that it understands your mission, whether that involves environmental stewardship, faith-based values, community investment, or something else.

Ask candidates how they have incorporated mission alignment into client portfolios in the past.

5. Is there a clear cost-benefit justification?

OCIO services represent a meaningful commitment of organizational resources. The committee should weigh the potential benefits, such as added investment staff capacity, better risk-adjusted returns, and access to lower-cost institutional strategies, against the fees and the cost of transitioning to a new model.

A fee-only consultant with no stake in which OCIO you hire, or whether you hire one at all, can run that analysis for you.