In the years following the global financial crisis, investment managers of all kinds have been under increased scrutiny when it comes to accountability, reliability, and trust. The need for more sophisticated investment strategies consequently requires more sophisticated investors, and many firms now face a difficult question: Is our in-house investment team the best possible option when it comes to managing our portfolios?

Many firms are now choosing to reinforce their investment expertise by engaging an outsourced-Chief Investment Officer. In the following article, we will discuss what an “OCIO” is, does, and if it may be the right fit for your firm.

What exactly is an “Outsourced CIO”?

An outsourced Chief Investment Officer, or OCIO, is a third-party person or organization that manages the investment portfolios for one or more businesses. However, just as Chief Investment Officers have different responsibilities at different companies, the services offered by OCIOs are widespread.

What does an outsourced Chief Investment Officer do?

The responsibilities of an OCIO can differ greatly depending on the needs of a firm. In some cases, an outsourced-CIO may act as a consultant and simply provide strategy recommendations. In most cases, however, an OCIO is given full-discretion when it comes to portfolio management. This arrangement involves total permissions for asset allocation, selecting investment managers, and implementing ongoing portfolio decisions.

What is the appeal of an outsourced Chief Investment Officer?

According to the 2017 Outsourced-Chief Investment Officer Survey, the top five reasons for considering an OCIO are:

  1. Lack of internal resources
  2. Additional fiduciary oversight
  3. Better risk management
  4. Need to increase returns
  5. Desire for a strategic partnership

This survey reveals that many firms are turning to OCIOs out of concern that they cannot sufficiently manage their investment process. For some, they may consider hiring an OCIO because they simply do not have the bandwidth, expertise or staff to handle the responsibilities of an investment officer. In similar situations, firms may choose to employ the services of an OCIO to increase credibility and provide reassurance to their clients. Outsourcing investment services also allows advisors and managers to spend more time communicating with clients and growing their business.