Endowment and foundation asset owners face a distinct set of investment management challenges. They must navigate the expectations of multiple stakeholder groups – board members, investment committee members, donors, CFOs, and staff – while managing complex investment portfolios with a perpetual time horizon and a total return focus.
For many organizations, outsourcing investment oversight to a third-party Outsourced Chief Investment Officer (OCIO) has become an increasingly attractive option. But the decision to hire an OCIO is not one-size-fits-all. Before committing, your committee should be able to clearly answer these five questions.
Start by defining what you expect to achieve. Different organizations turn to OCIOs for very different reasons. Common objectives include:
Being specific about your intended outcomes will help you evaluate whether a given OCIO's capabilities and approach are the right fit.
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 have an honest conversation about what decisions it is – and is not – comfortable delegating.
Common areas of delegation include:
The committee's comfort level with delegation will shape both the OCIO structure you need and the oversight framework that should accompany it.
Even when delegating to an OCIO, your investment committee remains accountable. Certain responsibilities cannot – and should not – be fully outsourced. These typically include:
Understanding where accountability lies – and building appropriate governance structures to support it – is essential before any OCIO relationship begins.
For endowments and foundations, the investment program is an expression of organizational values. A prospective OCIO must demonstrate not just investment competence, but the willingness and ability to understand your mission – whether that involves environmental stewardship, faith-based values, community investment, or other considerations.
Ask candidates how they have incorporated mission alignment into client portfolios in the past. The right OCIO should be a genuine partner in translating your values into investment practice.
OCIO services represent a meaningful commitment of organizational resources. The potential benefits – augmented investment staff capabilities, improved risk-adjusted returns, access to lower-cost institutional strategies – must be weighed against fees and the transition costs involved in moving to a new model.
A transparent, fee-only advisor can help your organization conduct this analysis objectively – without any conflict of interest in the outcome.
Uma Kolluri leads Curcio Webb's Investment Services discipline, advising endowments, foundations, and institutional plan sponsors on asset allocation, plan design, and investment oversight. Reach out to start a conversation.