The outsourced CIO model has exploded, overseeing $3 trillion in institutional assets, more than triple the level of 15 years ago. But it still has a way to go to improve transparency for asset owners tasked with managing holdings from OCIO providers.

Three experts in the OCIO field appeared Thursday in a webcast hosted by CIO (click the previous link to watch the recorded video), to discuss what progress has been made and what they believe needs to be done. On the plus side, new OCIO standards are being studied by a CFA Institute-sponsored work group, and performance-measurement indices are now available from Nasdaq.

Hosted by CIO Executive Editor Amy Resnick, guests on the webcast outlined methods to “bring more transparency,” in the words of panelist Daniel Brickhouse, head of product management for Nasdaq Analytics. The Nasdaq exchange, in partnership with consultant Alpha Capital Management, launched a series of indexes in 2019 to track different investor groups. In 2022, its broader market index lost 15%.

That measure gives asset owners a benchmark against which to compare their own OCIO’s performance. But Brickhouse points to other problems, such as the difficulty that arises when OCIOs choose to reorder asset allocations. “It’s hard to just eliminate positions,” he noted, referring to the expense and effort.

Such challenges are the impetus behind the CFA Institute’s effort to revise its Global Investment Performance Standards, or GIPS, to evaluate investment principals outside the U.S. These guidelines, which global investment firms use to ensure full and fair disclosure of financial performance, address questions such as how to write fees.

Different types of allocators — defined benefit pension plans and university endowments, for example — require different standards, explained panelist Caryn Vincent, senior head of global industry standards at the CFA Institute. He is a member of the working group.

In judging the assets an OCIO provider will take on, the outsourced chief investment officer can use a threshold to see whether the performance “should keep them,” Vincent said. CFA Institute’s plan will be unveiled for public comment in late summer.

Gauging OCIO performance and methods is no simple matter, according to panelist Gregory Metzger, senior consultant at North Peer Fiduciary Management, which advises asset owners. Questions arise, for example, of determining the value of liquid assets. What OCIOs need to evaluate is a template of investment outcomes, he said. Otherwise, the danger exists that OCIO may be “cherry-picking data”.

He likened the needs assessment to baking a cake. “You can’t just look at the content,” he said. “You should see Baker too.”

How long should an OCIO relationship last? Metzger answers: 10 years, although the provider must be reviewed every three. “Most OCIOs are replaced because of lack of performance,” he said. “This is service.” For example, the OCIO may not communicate well with the client’s investment committee.

Because of the diversity of allocators, no one-size-fits-all model is possible, the panelists indicated. The relationship between the property owner and the OCIO provider “must be tailored,” Metzger said. But for owners, he added, “then the challenge is to compare them” with other OCIO firms to see if clients are getting their money’s worth.

Related Stories:

Strong Growth, OCIO Industry Set for Alts Expansion

Corporate pension sponsors’ use of OCIO services is increasing, while interest in risk assets is declining, research finds

CFA Institute: Find out how to measure OCIO performance

Tags: CFA Institute , Daniel Brickhouse , GIPS , Gregory Metzger , Karyn Vincent , Nasdaq , North Pier Fiduciary Management , OCIO , Outsourced Chief Investment Officers

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