Unraveling OCIO Solutions: A Guide for Investors

The outsourced chief investment officer (OCIO) industry has grown rapidly in recent years.  Adoption of the OCIO model was initially dominated by pension plans; however, the rest of the nonprofit world is now increasingly looking to OCIO providers to help navigate the multitude of difficult market conditions and governance challenges impacting investors:

Market Volatility – Ongoing geopolitical tensions, inflation fears, and economic uncertainty cause markets to fluctuate at extreme levels.

Complexity – A diversified portfolio requires coverage of more asset classes, which grow in volume and complexity continuously.

Operational Burden – Growing administrative requirements place a heavy burden on staff, pulling them away from other responsibilities.

Governance Demands – Greater complexity means greater need for oversight and the ability to manage risk and effectively rebalance.

Technological Advancements – Rapidly advancing analytical tools that help monitor portfolio activity and manage risks are of growing importance and can be cost-prohibitive.

Regulatory Environment – There is greater scrutiny and requirements from regulators to ensure institutions are meeting their fiduciary duties.

Costs – The costs to employ experts that cover all a sset classes and areas of the market are considerable.

While the largest OCIO providers continue to grow and consume smaller discretionary shops, it is critical that investors remain attentive when selecting an advisor.

In this report, we will examine the industry trends and market conditions that have led to this growth, and offer solutions for investors considering discretionary investment advisory service models.

Current Environment

Investors navigating today’s dynamic landscape often consider the OCIO model for its adaptability to the evolving market environment.  The model offers compelling solutions to a wide variety of investors due to the efficiencies they offer, cost savings, access to specialized expertise, and ability to adapt to market fluctuations and evolving investor demands.

Concerns regarding inflation, economic uncertainty, and unpredictable geopolitical shifts have heightened the need for diversified portfolios and sophisticated risk management strategies.  A prolonged environment of low and stable bond rates, combined with low equity volatility, favored simpler approaches and allowed stock/bond blends to generate strong returns.  We believe a higher rate environment changes relationships between assets and affords greater potential for value-add through portfolio construction and implementation.

The ability to navigate a sophisticated portfolio through various market disruptions while managing risk and keeping an eye out for new opportunities is more critical than ever before.  Some OCIOs offer customized solutions and the flexibility to tailor their approaches to suit the unique requirements of each investor.  This level of adaptability helps ensure that client portfolios remain resilient and focused on their long-term objectives.

The ever-expanding investment manager universe makes it critical that OCIOs provide access to top-tier managers.  Investors should seek “right sized” partners that are small enough to be nimble, but large enough to matter to top-tier managers.  OCIOs should be able to use their scale to obtain favorable fees, which then get passed on to clients.

Technological advancements also play a pivotal role. OCIOs use a variety of analytical tools and data sources to inform decision-making and gain insights into emerging market trends. This integration allows for dynamic adjustments to investment strategies, enhancing performance and risk management.  For  many institutions, outsourcing investment management eliminates the need for extensive in-house teams and expensive software, resulting in meaningful reductions in operational costs.

While the current landscape makes the case for a strong OCIO, selecting the best provider can be challenging.  The OCIO universe has expanded exponentially in the past few years, topping 100 providers.  The list is top heavy, with more than half of total global assets managed by seven large multi-functional financial institutions, most focused on large pensions.  The recent transfer of Vanguard’s OCIO business to Mercer further concentrates it.  With so many players involved, a clearly defined set of criteria is critical to selecting an OCIO.

How We Can Help

Prime Buchholz has been working with institutional nonprofit clients for more than 35 years.  We built our business by understanding clients and sitting on the same side of the table as their trusted investment advisor.  Each client, and thus each portfolio, is unique and tailored to the client’s specific goals, mission, and financial circumstances.

Versatility is a hallmark of our approach. We have the ability and expertise to understand and manage the challenges of market conditions as well as the core value of adapting to meet our clients’ needs.  We evolved into an OCIO provider naturally, as we extended the services we already provided to approximately 250 clients.

Our current services range from non-discretionary consulting to discretionary OCIO models.   Many of our clients opt for a hybrid solution that allows them to fully customize their approach, and delegate or resume control as their needs change.

Advantages of Working with Prime Buchholz

• Long history; deep staff of experts
• Independent; avoid business conflicts of many of our competitors
• Alignment of Interests
• Deep and experienced internal research team
• 100% employee-owned
• Quality manager access
• Built for you; no model portfolios
• Strong back office capabilities
• Extensive MAI & DEI expertise
• Industry-leading proprietary reporting and analytics platform

Our deep staff of industry experts works with clients to identify solutions that are designed to achieve their missions and goals.  Moreover, our independence helps assure that your mission and our mission are one and the same.

Conclusion

The OCIO industry has surged in popularity in recent years, attracting diverse investors amidst market complexities.  The challenging investment landscape of the last half decade has amplified the need for a steady hand and trusted guide at the helm.

In addition to more than three decades of experience and specialized expertise, Prime Buchholz offers an optimum blend of flexible service models, a deep understanding of the non-profit world, an aligned, independent ownership structure, and unique insights gained through our proprietary analytics platform.

WRITTEN BY IAN MACPHERSON — Principal/Consultant

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