How an Outsourced Chief Investment Officer Can Help Improve Governance and Manage Complexity

How an Outsourced Chief Investment Officer Can Help Improve Governance and Manage Complexity
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September 1, 2023 6 mins

How an Outsourced Chief Investment Officer Can Help Improve Governance and Manage Complexity

How an Outsourced Chief Investment Officer (OCIO) Can Help Improve Governance and Manage Complexity Hero image

An OCIO can help asset owners make decisions with confidence and help deliver an optimal investment strategy.

Key Takeaways
  1. Increasing complexity has led many organizations to engage an OCIO.
  2. Enhanced governance is critical in today’s volatile environment.
  3. An OCIO can allow asset owners to focus on higher-level decisions and adapt to changes quickly.

An organization’s committee, board, and investment staff are often stretched to capacity and may not be able to accomplish their investment objectives with existing resources. An ever-evolving investment landscape forces organizations to constantly stay ahead.

Asset owners need to select the optimal investment strategy and be confident in its governance and ability to manage complexity.

Improving Governance

Over time, the investment opportunities available to asset owners have grown more complex and time-sensitive. Governance systems to manage complexities may be challenging and costly to develop in-house.

That’s why many organizations have turned to outsourced chief investment officers (OCIOs), which bring specialized expertise, experience, and objectivity that all help enhance the decision-making process.

Good governance is at the center of a strong OCIO relationship. OCIOs allow the asset owner to focus on higher-level strategic decisions while the OCIO executes the strategy, including real-time monitoring of the portfolio relative to policy. By acting as an independent third party, the OCIO helps align investment decisions with long-term goals, risk appetite, and regulatory compliance.

Effective governance is crucial for organizations to maintain transparency, stay accountable and manage complexity.

Engaging an OCIO can significantly enhance an organization’s governance practices. The enhanced governance provided by an OCIO helps clients manage volatility and capitalize on new opportunities.

Organizations of all sizes and in all sectors are increasingly engaging OCIOs. According to a recent survey by CIO Magazine, 44% of corporate pensions, 39% of public pensions, 43% of endowments and foundations, and 56% of 401(k), 403(b), or 457 DC plans outsource or plan to outsource.

The three primary reasons for this engagement — helping to improve governance, managing complexity, and accessing sophisticated investments while aiming to drive cost savings — underscore the value of an OCIO. As Heather Myers, partner and non-profit practice leader at Aon, puts it: “In a consultative model, investment committees might only meet once a quarter and can’t execute rapidly. An OCIO is actively managing the investments and can pivot quickly as markets evolve or change.”

By leveraging the OCIO's expertise, organizations can help optimize their investment strategies, ensure effective governance, and focus their internal resources on core business operations. In an era marked by rapid market changes and increasing competition, partnering with an OCIO has emerged as a prudent choice for organizations seeking long-term success.

Next Steps

  • Explore different OCIO options, such as full or hybrid approaches
  • Learn how to assess and choose the right OCIO partner
  • Look for an OCIO provider with the scale and experience to help make effective decisions

Source: Chief Investment Officer, Responses are from 85 asset owners from February 8 to March 16, 2021. This site contains information that has been created, published, maintained, or otherwise posted by institutions or organizations independent of AIUSA. AIUSA does not endorse, approve, certify, or control these websites and does not assume responsibility for the accuracy, completeness, or timeliness of the information located there.

44%

44% of corporate pensions outsource or plan to engage an OCIO.

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Investment advice and consulting services are provided by Aon Investments USA Inc. (“Aon Investments”). The information contained herein is given as of the date hereof and does not purport to give information as of any other date. The delivery at any time shall not, under any circumstances, create any implication that there has been a change in the information set forth herein since the date hereof or any obligation to update or provide amendments hereto. This document is not intended to provide, and shall not be relied upon for, accounting, legal or tax advice or investment recommendations. Any accounting, legal, or taxation position described in this presentation is a general statement and shall only be used as a guide. It does not constitute accounting, legal, and tax advice and is based on Aon Investments’ understanding of current laws and interpretation. This document is intended for general information purposes only and should not be construed as advice or opinions on any specific facts or circumstances. The content of this document is made available on an “as is” basis, without warranty of any kind. Aon Investments disclaims any legal liability to any person or organization for loss or damage caused by or resulting from any reliance placed on that content. Aon Investments reserves all rights to the content of this document. No part of this document may be reproduced, stored, or transmitted by any means without the express written consent of Aon Investments. Commented [EB7]: Can help/aim to/strive to Commented [EB8]: AIUSA legal disclaimer needed at the end (unless it will already be on the web page?) Aon Investments USA Inc. is a federally registered investment advisor with the U.S. Securities and Exchange Commission. Aon Investments is also registered with the Commodity Futures Trading Commission as a commodity pool operator and a commodity trading advisor and is a member of the National Futures Association. The Aon Investments ADV Form Part 2A disclosure statement is available upon written request to: Aon Investments USA Inc. 200 E. Randolph Street Suite 700 Chicago, IL 60601 ATTN: Aon Investments Compliance Officer General Disclaimer The information contained herein and the statements expressed are of a general nature and are not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information and use sources we consider reliable, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

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