The OCIO Approach

In our industry, marketing parlance has a way of coming and going. One such marketing term is the “Outsourced Chief Investment Officer,” often shortened to “OCIO.” Although the term may be relatively new, the concept of a discretionary advisor is not – in simplistic terms, it merely means fiduciaries may delegate authority and responsibility for day-to-day portfolio management to a third party. Since its founding in 1997, Cornerstone has served in just such a capacity for many an institution.

Different pools of assets are governed by different rules and regulations, which provide for this outsourcing of responsibility. For example, many of our non-profit clients’ foundations and endowments are governed by the Uniform Prudent Management of Institutional Funds Act or applicable state law. Other clients, like our corporate pension plan clients, are governed by ERISA.

Many of our clients, particularly middle market institutions, have Boards and staff members who wear many hats, so keeping abreast of developments in the global economy, changes within investment strategies, and innovation in the financial markets is not always the number one priority. By delegating these responsibilities, fiduciaries can focus on exercising loyalty, prudence, and care in their selection of an advisor.

Key to the success of such a relationship is proper governance. The ability to delegate some elements of fiduciary responsibility does not absolve fiduciaries of all risk and liability. When institutions decide to outsource fiduciary responsibility, they no longer retain primary responsibility for things like manager selection and portfolio rebalancing. They do, however, retain responsibility for monitoring the advisor and setting policy.

Here at Cornerstone, we understand that transparency is the name of the game. When fiduciaries delegate the daily mechanics of portfolios, thorough and transparent reporting becomes increasingly important to help them understand and monitor the performance, and more importantly, the risks present in their portfolios. We also understand that our clients need to measure the success of their advisor; while we hope our high-touch service model makes a tangible impact on our clients’ day-to-day operations, we know the importance of measuring our quantitative impact in our reporting.

Finally, we stress the importance of having clearly defined objectives, roles and responsibilities, and expectations delineated in the Investment Policy Statement (IPS). Development and maintenance of the IPS is not a one-time activity — that’s why we focus on governance as an iterative process throughout each of our relationships.

Whether you call us an OCIO, a discretionary advisor, or any other new marketing term that may emerge in the future – we are proud to serve our clients as an extension of their teams. If we do not yet have the privilege of working with you, and you are interested in how we can help you delegate part of your role as a fiduciary, please do not hesitate to reach out.