If you look at any survey about what people value in their Outsourced Chief Investment Officer (OCIO), performance and fees are almost always top of the list. No surprise there — after all, those are critical, tangible factors a buyer can and must weigh. But those only tell part of the story, and there are services that, if included, provide the CIO, IC chair and committee real benefits.

Here are 3 things smart CIOs and Investment Committee Chairs should value: 

  1. Robust Risk Technology and Actionable Implementation to provide the highest level of information and decision support available. The portfolio risk profile can change quickly as managers adjust their strategies. Your OCIO should be able to readily access in-depth data on each investment vehicle so you can have an accurate picture of risk across the portfolio.

    Technology plays a big part in that picture. Asset managers can gain deep insight to make investment decisions and maintain transparency with clients by using software such as Aladdin and FactSet. But these technologies come at a hefty price and not all OCIO firms, particularly smaller/newer firms, may have access to these tools. These tools can provide holdings-level analysis for asset classes to support ongoing monitoring of funding positions, analyze investment exposures at the manager and portfolio level and stress testing through simulation analysis. There are also applications for asset allocation and selection that show behavior and trends during market volatility.

    Remember, all the information in the world is useless if it is not actionable. Applying the technology and software to decision-making around risk management is critical. An OCIO should be actively reporting on and engaging you in discussions related to portfolio risk. Some ways they do this is through: 

    ​​​​​​Scenario Analysis - Modeling to see how changes to a variety of economic and market factors might affect investments
    Past Events Analysis - Quantify how your portfolio would respond to a market event that happened in the past
    Stress Tests - Quantify how specific investments may respond to adverse market events
    Manager Contributions to Risk - Monitor each manager’s contribution to risk and receive alerts of how that changes in real-time.
     
  2. Alternative asset class capabilities, access and monitoring of alternative asset classes including private equity, venture capital, hedge funds, real estate and more. Alternative asset classes can be complex. And not all OCIOs can have the capabilities, resources or experience needed to properly screen and report on them. 

    A team that is dedicated to researching, selecting and managing the alternatives investment program helps to ensure that clients have access to the best opportunities in all areas and types of alternative investments. That team should also monitor the allocation as it applies to liquidity needs in an effort to ensure you have access to assets at appropriate times. The right skills, expertise and resources can make all the difference. The CFA institute advises, “investors without a strong governance program are less likely to develop a successful alternative investment program.”

    It’s critical to actively monitor the portfolio and risk and adjust the usage depending upon each client objective and their specific return and risk profile and liquidity tolerance. 

    Legacy alternative investments are important to many institutional investors. The OCIO should fully incorporate legacy alternative investments into the new portfolio if appropriate and fully report those funds within the standard reporting package. 
     
  3. Custom Sustainable Investing Program that clients can rely on to meet their objectives. Like OCIO, Environmental, Social and Governance (ESG) is gaining popularity among institutional investors. In fact, ESG became one of the most searched financial terms in 2019, according to a  401(k) Specialist post . And most investment providers claim to offer screenings, but are they prepared to implement all custom parameters to meet the unique objectives of each portfolio? 

    Your access to great managers should not change, and the right OCIO has the ability to implement screens and inclusions for managers to meet what you want to target or exclude to meet your specific social criteria. That can include ESG weights/tilts towards holdings with positive characteristics, exclusionary screens of exposures that you identify, or impact screens to support initiates that focus on your specific goals. An OCIO with scale and resources can leverage buying power to offer niche, emerging investment options as part of custom screens for all OCIO clients, regardless of size. 

Performance and fees are key evaluation criteria, but there are additional essentials that can make one OCIO model stand out among others. Examine all the details when you make the final decision about how to manage your investment portfolio. 

Legal Note

Information provided by SEI Investments Management Corporation (SIMC), a registered investment adviser and wholly owned subsidiary of SEI Investments Company.

Investing involves risk including possible loss of principal. There is no guarantee that risk can be managed successfully nor that objectives will be met, Alternative investments are speculative, entail substantial risks, offer limited or no liquidity and are not suitable for all investors. ESG investing may cause a manager to make or avoid certain investment decisions when it may be disadvantageous to do so. This means that ESG investing may underperform other similar investments that do not consider those guidelines when making investment decisions.

This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice and is intended for educational purposes only.

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Maryjane Bobyock, author of Nonprofit Committee Connection