Is OCIO right for us? Questions you should be asking.
As they grapple with an increasingly complex market environment, more institutional investors have been considering the Outsourced Chief Investment Officer (OCIO) model as a potential solution for the expertise and resource constraints of in-house investment management. A deeper bench of expertise, faster decision making, more sophisticated research and analytics, and access to more managers are some of the potential benefits. At the same time, concerns about fees, minimums and transparency have led some institutions to shy away. It’s not a simple decision.
OCIO experience.
Clearbrook was an early adopter of the OCIO model, and we understand its strengths and limitations. Here are some of the key variables to consider:
Think outside the traditional OCIO box.
Most investors approach outsourcing as a two-step decision: Should we outsource? If so, with whom? In reality, you can’t separate the two. Whether or not the OCIO model is right for you might depend on finding the right OCIO partner. The traditional OCIO was a bespoke discretionary approach, one that was far too costly for many investors. There is a broader range of options today. Find a flexible, experienced partner who can structure outsourcing alternatives customized for your needs and resources.
Start with the basics.
What’s wrong with what we’ve been doing? Maybe nothing. But if you’re relying on a “safe” traditional portfolio of equities and fixed income, you may not be fulfilling your fiduciary duties. The technology bubble of the early 2000’s and 2008-2009 recession demonstrated that diversification and managing risk can be just as important to long-term performance as chasing return. Alternatives asset classes such as hedge funds, private equity, and real estate are increasingly seen as critical diversification tools. Does your portfolio measure up?
Do we have the expertise and the resources we need? Markets and asset classes are a lot more complex than they were just a few years ago, and changes come more quickly. Does your team have the multi-asset class, multi-market cycle experience needed? Do you have access to top managers, alternative asset classes and independent research and analytics? If your answer is no (or even “not sure”), it’s probably a good idea to rethink your approach.
Can we improve performance? There are no guarantees, but an OCIO with a proven track record, a disciplined investment process and an innovative approach to structuring cost-effective solutions may offer the potential for above-benchmark long-term return.
Ask some tough questions.
Are we structured for quick decisions? Global markets are increasingly subject to sudden spurts of volatility and the influence of uncertain economic and political developments. Tactical decisions can be as important to long-term performance as your overall investment strategy. Can your investment committee or team make decisions quickly, with the support of robust, independent research and analytics? Better tactical decision-making can be one of the most important benefits of the OCIO model.
Do we really understand the risks? Your mission depends on protecting the assets you need to fulfill it. An experienced OCIO partner may be better equipped to identify and evaluate potential risks, and to insulate your portfolio from the shocks of risks that can’t be foreseen.
Can’t we just invest in low-cost index funds? Which indexes? Which Managers? Lower-cost index funds can be part of your solution, but you still need the experience and analytical capabilities to select the right strategies and funds.
Do we have the long-term perspective and the long-term discipline we need? The right OCIO partner can bring a steady and reassuring hand to your investment decisions, with the ability not only to make reasoned decisions but to effectively explain them to your investment committee.
Go beyond OCIO. You’re really looking for RCIO –the Rightsourced Chief Investment Officer.
“Should we outsource?” is just the first question. In our next email, we’ll explore the questions you should be asking potential OCIO partners – what you need to know to help make sure you’re not just outsourcing, but rightsourcing the management of your organization’s investment portfolio.
Talk with us first.
Clearbrook was an early adopter of customized OCIO solutions for clients. No matter what your ultimate decision, we’re confident that it will be a better one once you’ve talked with us.
To discuss potential outsourcing solutions in the context of your portfolio and goals,
Contact
Elliott Wislar
marketing@clrbrk.com
Office: 212-359-0260