She noted this close oversight has proven invaluable during the current situation in Ukraine.
“With the OCIO structure, we stay on top of the portfolio,” said Surya Pisapati, CFA, director of global equities, portfolio strategist and member of the multi-asset class investment committee at PFM Asset Management. “On the staff side, the cost of the tools and their sophistication level require a larger budget than most asset owners have for their investment portfolios.
DAVE KEIL DRIVER
Having industry experts on speed dial is necessary.” The costs of managing today’s more complex investment portfolios are a driver as well, he noted. “Plans are more aware that making the right decision - and making it in a timely fashion - is crucial. “This environment has pushed people towards an OCIO relationship,” agreed Floyd Simpson III, CFA, CAIA, CFP, director at PFM Asset Management. That risk-sharing element has become heightened, first through the pandemic and now through the Russia-Ukraine conflict.” (See chart on the balance of responsibilities between the board and the OCIO.) “You’ve got a strategic partner who is explicitly responsible for important fiduciary duties. The risk-sharing aspect of the OCIO model is important as well, Link said. Both have really accentuated the value of an OCIO.” He added that “market volatility and the speed required to make asset decisions in a timely manner have accelerated. If they are confident that the investment portfolio is being managed properly, they can spend more time on fulfilling their mission,” said Jim Link, head of the multi-asset strategies group at PFM Asset Management. “Boards are understanding that assets are simply a means for them to achieve their goals. Other industries as well that have had negative distractions during the past two years are seeking OCIO.”Īn OCIO arrangement frees up corporate boards to focus on what is important to them in managing their businesses, another key driver of adoption. The ability to partner with the OCIO to take more of a fiduciary role than would be available in an advisory relationship has been a huge impetus. For instance, the health-care industry has been under strain due to the pandemic. “Drivers to an OCIO are also industry specific. “So much of an OCIO is about good governance,” said Heather Myers, partner and nonprofit solutions leader at Aon Investments. It’s a very litigious environment, and making sure the DC plan is on top of things from a governance perspective is a key driver.” (See chart below on the potential benefits of the OCIO model.) For defined contribution plans, it is really a governance issue. “A defined benefit plan requires constant oversight of the investment portfolio by the OCIO. Ward noted that asset owners are also turning to OCIOs for several other reasons, including “resource constraints, the complexity of the investment opportunity set and the changing opportunity set.” There are nuances by type of asset owner. From a governance standpoint, the OCIO comes in to assist the asset owner or take over the governance processes that were in place.” leader of Mercer’s OCIO business.īryan Ward, senior partner and head of solutions and sales at Aon Investments, said today’s volatile markets make “it more important that investors have their hands on the wheel at all times. It is due to investment committees seeking the tools to be nimble in the market, to have clear transparency into their exposures and to meet their need for consistent monitoring, particularly right now, during the Russian-Ukraine conflict,” said Samantha Davidson, CFA, U.S. “Market uncertainty has traditionally been a catalyst for organizations to seek an OCIO relationship. While managing investment complexity has underpinned the use of OCIOs, current developments - persistent inflation, rising interest rates, the Russian war on Ukraine and higher oil prices, as well as workforce challenges - have accelerated the rise in OCIO demand as asset owners have sought the steady hand they provide. In today’s complex and low-yield market environment, buffeted by macroeconomic and geopolitical uncertainties, more asset owners are turning to the outsourced chief investment officer model to help meet their portfolio objectives and provide solid governance. Investment complexity and multifaceted market considerations are driving interest in OCIOs
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