In today’s insights, we will discuss some of the key benefits of using of using an Outsourced Chief Investment Officer. Outsourced Chief Investment Officer (OCIO) is a growing and competitive field, where financial advisors, family offices, charitable foundations, pension funds and other institutions seek an outside firm for help to manage their core assets. Employing an OCIO can be an essential step in improving the efficiency of the investment decision-making process by employing the resources and the expertise of an outside firm.
One of the most common reasons why clients seek our services is to manage their growing asset base. While fast growth is a good problem, it brings more responsibilities and higher investment and operational risk. For instance, one of our key clients increased their asset base fivefold within 12 months. In that short period, we created an infrastructure to integrate new incoming accounts into the existing portfolio structure. While at the same time we worked on eliminating operational deficiencies and establishing an investment committee.
Asset complexity and customization
Organizations have unique investment goals and appetite for risk. We regularly observe customer portfolios with significant investment concentration and need for diversification. Additionally, we see that many organizations have specific tax or liquidity constraints that can hinder their investment decisions. There is also a growing need for socially responsible and faith-based investing. An outside CIOs can help clients efficiently navigate through the ever-growing complexity of customized investments and financial decisions.
Investment portfolios need real-time management. Financial markets are risky and often move very fast. Our customers know that their complex portfolios require continuous supervision from experts who can monitor investment risks and take advantage of tactical opportunities.
The rise of ETFs and low-cost index investing created enormous pressure on organizations to improve their returns. Our team of experts can establish a dynamic process for evaluating external managers and passive investment strategies. We are a firm believer of risk-adjusted performance. Therefore we continuously scan the investment universe for managers with an outstanding history of achieving risk-adjusted returns and recommend them to our clients.
Identifying and understanding the risks in our clients’ portfolios is a critical element in our investment management process. A robust risk and trading system can make a huge difference in a volatile market environment. As OCIO, we can implement ongoing risk management using daily monitoring, hedge strategies, portfolio stress testing, and risk modeling.
Lack of internal resources
Our clients often rely on an investment committee and small internal staff to operate and manage their assets. Hiring a full-time portfolio manager can be a lengthy, challenging and often costly process. By engaging an external CIO, our clients can free up their already stretched internal resources and focus on their core services in a cost-effective way.
Accelerated Investment process
In a dynamic market environment, many of our clients benefit massively from an accelerated investment process. Our OCIO service helps our clients make faster strategic and tactical investment decisions. We also assist in the timely implementation of portfolio infrastructure and operational tasks.
Our clients highly appreciate the value of fiduciary advice aligned with their specific goals, needs, and objectives. As a fiduciary OCIO, we must provide advice, investment management and guidance in our clients’ best interest.
An outsourced CIO can implement an open architecture investment portfolio to allow for expanded investment options in all asset classes and categories. The open structure can lower cost and provide diversification. With our ongoing investment due-diligence process, our customers can choose from a broad pool of investment options including index funds, factor-based ETFs, and top-ranked portfolio managers.
As OCIO, we can help clients reduce their overall investment management and administration cost. We often see clients locked-in expensive investment management agreements or using high-cost mutual funds and fee-loaded strategies with lackluster performance. Our fiduciary client commitment allows us to evaluate a wide range of investment strategies and recommend those with the lower cost and higher risk-adjusted return.