The OCIO Revolution: Here to Stay?

The outsourcing of investment decisions is happening at a third of non-profit institutional investors.

(July 30, 2013) — The outsourced CIO (OCIO) model has come of age: the trend of externalising the running of investments has now been adopted by one in three non-profit institutions, according to the Commonfund Institute.

A whitepaper on the trend written by the Institute–which is part of Connecticut-based the Commonfund Group, an early adopter of OCIO model–has declared that outsourcing the CIO role is more popular today because institutional staffing levels have not kept pace with the rapidly evolving demands being placed on them.

The report found that the average number of full-time equivalent employees devoted to the investment function has remained stable at 1.3 to 1.6, with many institutions having less than one employee responsible for investment management.

Similarly, the average number of investment committee members is between six and eight, but only around half of them are investment professionals.

This lack of internal investment professionals, along with the advantageous infrastructure and scale available through an OCIO, has driven the adoption of outsourcing, the report continued.

“These resources can be particularly advantageous for a foundation or endowment with a small to mid-sized asset pool, where the staff, however knowledgeable, may lack the time or expertise to perform multiple tasks well,” said the report.

Delegating the execution of investment decisions is also becoming more popular in Europe. At a recent conference, Russell Investments (which also offers a form of OCIO), asked more than 100 investors from the UK, Netherlands, Ireland, and Italy whether they believed delegation would help achieve their investment goals.

Of the 106 asked in June 2013, 35% had little or no delegation in place but planned to do more in future, and another 43% already had significant outsourcing in place and planned to continue or increase the practice.

And last week, fund manager SEI revealed the lack of resources available to UK pension funds trustees was leading them to consider employing fiduciary managers or delegated consultants, even though a third felt their consultant did not offer good value for money.

Related Content: 2013 Outsourced Chief Investment Officer Buyer’s Guide and Ex-Dartmouth College Investment Chief Joins Outsourced CIO Firm