What you need to know about OCIO.

Endowments and foundations are playing a key role in driving the growth of the OCIO model. A study by the Chestnut Solutions Institute in March 2023 found endowment assets managed by OCIOs rocketed up 377% in the five years ending March 31, 2023, while foundation assets expanded by 211%. In comparison, defined benefit OCIO assets rose just 42%.⁶

The 2024 NACUBO Commonfund Study of Endowments found that more than 45% of respondents use an outsourced CIO model to manage their assets. For endowments in the $100 million to $500 million range, OCIO usage exceeded 56%.⁷

Use of OCIO among defined benefit plans has grown from 30% of assets in 2020 to 40% in 2024.⁸ In addition to valuing the OCIO’s ability to implement and monitor the LDI glidepath, organizations with closed/frozen plans may find it more efficient to outsource the management and monitoring of the plan rather than maintain staff in-house. Engaging an OCIO can help with goal setting and close monitoring of the plan’s progress against financial goals.

There has been an increase of larger organizations with $10 billion or more in assets using the OCIO model. The shift to larger organizations embracing the model began with the onset of the COVID-19 pandemic and is largely spurred by market volatility, increased portfolio intricacy, and the growing burden of regulatory compliance.³ 

The OCIO model has attracted a diverse range of providers, including consultants, asset managers, pure OCIOs, and RIAs. There are now more than 100 OCIOs for investors to choose from, each offering a broad range of experience, capabilities, and solutions. 

The more recent trend, which has accelerated over the past few years, is toward consolidation. Large OCIO firms are acquiring smaller ones to increase assets under management (AUM)—we believe sometimes without regard for strategic fit or impact on the affected client base. Some smaller, boutique firms are monetizing and selling their businesses. These firms may have been formed as a spinout, perhaps from a university or another organization, and we are seeing some of them decide to monetize the business and move on, which has caused some disruption for the clients.

Investors will see some OCIO providers specializing their resources and focus to meet these distinct investor needs. This is a good thing and something investors should seek to understand when choosing an OCIO as your strategic partner. For example, a university and a pension plan have distinctively different needs.

Even within a particular space, OCIOs are tailoring their services to match the organization’s needs. For example, universities don’t all look and feel the same. Some are well established, financially sound, have strong fundraising efforts, and are not overly reliant on the endowment beyond the spending that's required. They tend to invest more aggressively, perhaps take on more illiquidity. However, there are other universities that experience financial pressures, and may, for example, need to rely on the endowment to fund operations. 

Institutional investors have been turning to private markets and alternative investments to reach their targets. An OCIO can provide a deep understanding of various markets and strategies as well as the financial expertise necessary to employ alternative investments to their full potential.

The OCIOs may help provide specialist managers that deal in these investments. OCIOs can also supply a toolkit of private credit, private equity, and hedge funds—along with sub segments within these asset classes.³

Some believe that the decision to outsource means handing over all control. It is quite the opposite. With a flexible OCIO model, you can maintain control over the role you want the committee to have in portfolio decision-making.

While you are delegating some of the day-to-day investment-related tasks like manager monitoring and selection, you can gain improved governance, more strategic control, and time to focus on decisions that can positively impact your mission.

OCIO allows investment committees and plan sponsors to gain resources and advice, while reallocating their time to making critical decisions that can have higher overall impact. Performing proper due diligence to select the right OICO is critical because you are placing a high degree of trust and confidence in that firm. 

Check out our webinar with tips for selecting the right OCIO partner

Fees vary across OCIOs and it is important to understand what they include. They consist of both OCIO and investment management fees.

The OCIO fee should be viewed in terms of the services included and the firm’s resources and experience. This will vary across providers.

Investment management fees can also vary depending on the asset allocation and economies of scale brought by the provider. 

There may be other fees, such as custody, depending on the engagement. 

Learn more about evaluating OCIO fees.

While OCIO has been traditionally used for smaller organizations that didn’t have an in-house investment team, increased uncertainty has led larger organizations to consider adopting the OCIO model.

OCIO has been expanding to include larger asset-owner pools such as endowments and foundations as well as defined contribution plans and the public sector.⁹ 

In fact, according to the Cerulli report, endowments make up 21% of the client base for OCIO providers, followed by foundations (19%) and family offices (14%). Endowments and foundations are expected to play a key role in driving the growth of the OCIO industry.³

Larger and more sophisticated organizations with their own investment committees utilize an OCIO solution in more customized ways, including implementing, monitoring, and maintaining investments in an ever-changing environment.¹⁰