2022 Outsourced Chief Investment Officer Survey

A need for heightened risk management is the leading impetus for companies to enlist outside help to manage investments.

Better risk management is the top reason that asset allocators farm out their investment management, according to our 2021 Outsourced Chief Investment Officer Survey.

Given the tumultuous capital markets that the pandemic has produced, that’s understandable. Of survey respondents, 83% called risk management moderately important to very important in their choice to assign investment chores to outside managers.

Dovetailing with that finding, a full two-thirds gave absolute return as their main goal, with just one-third opting for de-risking. For pension plans, the rapid advances in funded status of late underscores that decision.

“Investment results have a meaningful impact on our ability to advance our mission,” says Brett Gordon, chief financial officer of Mid-America Transplant, a nonprofit that provides organs and tissues for recipients in Arkansas, Illinois, and Missouri. Gordon explains that outsourcing the investments frees up his leadership team to concentrate on its life-saving mission.

It’s the smaller organizations, such as Gordon’s, that chiefly use OCIO services. The survey finds that 50% of OCIO clients had less than $500 million in their portfolios, with 26% between $500 million and $5 billion and just 11% with more than $5 billion. The in-house investing staff of these three cohorts averaged two, four, and eight people, respectively..

Among the smallest portfolios, 56% gave the outsourcers full discretion, meaning that OCIO providers managed all of their investments. The other 44% gave the outside managers partial discretion. Among the largest portfolios, none allowed full discretion.

To Tony Waskiewicz, former CIO of Mercy Health and now president and CIO of Investment Office Resources, an OCIO provider, the key to helping small asset owners is to give them the advantages that larger operations enjoy. For risk management, “they need quantitative statistics around their programs,” he says. Plus, Waskiewicz, who numbers Mid-America among his clients, provides them access to private markets, which is a big thing these days among allocators.

How are OCIO managers paid? The smaller portfolios prefer flat basis point fees (80% of the funds under $500 million, 67% of the rung above). But the funds over $5 billion overwhelmingly use sliding asset-based fees.

Why do some asset owners choose not to go the OCIO route? The two biggest reasons for going solo are that they think they can best handle risk management in-house and are satisfied with the returns they generate on their own. — Larry Light

Methodology

Responses from 85 asset owners, aggregated for the charts that follow, were accepted for the survey from February 15 to April 1, 2022. CIO would like to extend a special thank you to all those who submitted responses for the survey, as well as those vendors, asset owners, and consultants who helped the CIO editorial and survey teams construct the survey.

For more information, contact surveys@issgoverance.com.