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What is an Outsourced Chief Investment Officer?

By Nimisha Srivastava and Jonathan Pliner, CFA | September 9, 2024

The objectives and trends of the OCIO model
Investments
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OCIO can mean different things to different clients. Framed simply, OCIO is all about taking over key investment and fiduciary responsibilities previously undertaken by an asset owner. This allows clients to focus on the objective or mission for the asset pool. For defined benefit (DB) plans, this typically means driving funded status while managing volatility; for defined contribution (DC) plans, this entails achieving better participant outcomes while managing overall fiduciary risks. Other asset owners strive to align their investment strategy with spending policies or overall return needs. To align investment programs with objectives, an asset owner has seven key decision areas to consider:

  • Objective setting and alignment with corporate strategy and governance
  • Risk budgeting, a true understanding of liabilities and their interaction with the assets
  • Ongoing monitoring and risk management, including an understanding of long-term systemic risks
  • Strategic asset allocation, both top-down or bottom-up objective-based investing or total portfolio approach and — for DC — appropriate line-up and target-date fund structure
  • Manager selection
  • Dynamic asset allocation across asset classes
  • Security/asset selection within asset classes

Of these, asset consultants have typically helped clients manage numbers one to six, while asset managers have historically owned number seven (and for multi-asset mandates, perhaps contributed to number six as well). As asset consultants have grown, their OCIO and fund-of-fund solutions, oversight and responsibility of number six has expanded as well.

Graph indicating asset owner responsibilities
Responsibility and historic expertise of asset consultants: alignment of strategy of governance, risk budgeting, asset/liability assetmetn, ongoing monitoring and risk management, strategic asset allocation, manager selection, dynamic asset allocation. Historically collaboration between asset oweners and consultants. As asset consultants have grown fund of fund and OCIO assets, expertise and responsibility has grown: dynamic asset allocation. Responsibility and historic expertise of asset managers: security selection.
The interplay of OCIOs, asset owners and asset managers

OCIO trends: Why do asset owners outsource?

Asset owners may choose to outsource investment responsibilities for several reasons, depending on their specific circumstances. Key drivers in recent years have included:

Whether it is helping clients better handle growing market complexity, providing retirement plan (DB and DC) expertise, adhering to regulations or managing fiduciary risks, clients have turned to OCIOs to provide the implementation experience, manager selection and program monitoring.

As more talent has left asset owners for other roles within the industry or teams face generational shifts/retirements of key leaders, OCIO firms have filled these experience gaps, particularly asset consultant OCIOs, who can quickly align investment programs with broader strategy.
Macroeconomic volatility, market changes and the emergence of new asset classes have increased the fiduciary burden for asset owners to have a strong handle on these areas to execute quickly and generate required risk-adjusted returns.
As clients prioritize and streamline their own resourcing, OCIO has been a way to free up internal team time to focus on other matters. WTW has worked with an increasing number of clients on governance for this very reason to ensure the investment program is aligned with objectives.
OCIO provider scale can also help drive down total costs of managing an investment program, leveraging research and technology resources, another driver of delegation.

With this backdrop, it's no surprise that OCIO growth has exploded, growing from $90 billion in 2007 to an estimated $2.7 trillion in 2022, a compound annual growth rate of 25% [1].

Key drivers of OCIO

ocio-bar-objective-trends
Key drivers of OCIO
ocio-pie-objective-trends
OCIO by the numbers

Explore more considerations for OCIOs here.

Footnotes

  1. WTW Global client figures as of 31 December 2022 Return to article
Authors

Head of Investments, North America
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Head of Delegated Portfolio Management, U.S.
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