Explosive Growth, Quiet Fears

Outsourced-CIO (OCIO) is growing—exploding. CIO’s 2016 OCIO survey found discretionary assets have ballooned by 860% while the number of investors choosing to outsource some or all of their portfolio has soared by 2,189% since the financial crisis. In this rocketing business, is there anything you can’t outsource? 

Jon Hirtle, CEO of OCIO firm Hirtle Callaghan, is firmly in the ‘no’ or ‘almost no’ camp. (Surprise!) “OCIO does the same thing as the CIO,” Hirtle says. “There’s no difference at all. In the increasingly complex world, it’s becoming more difficult to assemble investing talent and data, and pay for it. Internal staffs are finding it difficult to amortize our capabilities at the right price.” 

But where exactly does the OCIO line begin and end? “No one really knows how to define it,” says David Goerz, former investment strategy and risk chief for the Alberta Investment Management Corporation (AIMCo). “Frankly, I’ve struggled with the moniker.”

The ambiguity meant Goerz was able to forge his own way. Upon leaving AIMCo last year, he opened a one-man shop specializing in risk—an outsourced-chief risk officer. “It’s a narrow version of a typical OCIO mandate, a high-level definition of OCIO,” Goerz explains. “I can provide better risk management software and capabilities, performance attribution, and education about risk.”

But he admits there is one rather large risk to the aggressive growth of OCIO—specialized or not. “More and more outsourcing means there are fewer independent internal resources to analyze the information provided,” Goerz says. “There is no substitute for having an internal staff. Otherwise, where is the trusted advisor?”