Outsourcing models

Submitted by zhen4ek on Thu, 11/26/2015 - 05:45

The model by which outsourced CIOs service clients is still evolving in this nascent business. The most common model is to outsource all decision making including asset allocation, manager selection and monitoring. The OCIO reports back to the client but the burden is largely lifted from the client and placed on the new provider. Among OCIOs utilizing this approach, there is a “continuum of outsourcing approaches and providers: manager-of-manager programs; funds-of-funds; former CIOs offering a diversified model portfolio.”[11] The common thread amongst these approaches is the use of commingled funds or model portfolios which creates economies of scale for the OCIO.

A different model is pursued by a small subset of the OCIO universe. The members of this group work alongside the client’s staff – not as a replacement to them. According to investment industry newsletter FundFire, “An increasing number of CIOs see outsourcing not as a threat to their job, but as a source of complementary expertise and advice, as well as investment opportunities.” Like much of the nomenclature around the OCIO business, this more customized, bespoke solution does not yet have a widely recognized name. Fiduciary Research (FRC), an OCIO who oversees about $9 billion on behalf of a small list of pension fund clients, calls itself an iCIO for integrated chief investment office.[12]