OCIO Search Consultants Ease The Hiring Decision
Chestnut Advisory Group
Chestnut is a boutique management strategy consultant dedicated to asset managers and solutions providers.
In this post we are sharing another key insight from our article, The Widespread Impact of OCIO Growth, which will be published on January 25 as part of our Future of Investments research project.??
OCIO Search Consultants Ease The Hiring Decision: Ten years ago, new OCIO engagements almost always came either via a personal relationship from a board member or by simply transitioning the institution’s existing investment consultant engagement to OCIO without running an external search.? Today, we estimate somewhere between ? and half of all OCIO searches are led by third party search consultants.
OCIO search consultants (most of whom are former investment consultants) use processes and analytic tools similar to those used by traditional investment consultants for manager selection, including:
Improved Transparency Pressures OCIO Fees... : The rise of OCIO search consultants has made it possible to compare fees and performance track records among different providers.? Five years ago we often heard OCIOs claiming that their clients were happy with one bundled fee.? Today virtually every OCIO clearly breaks down each element of their clients’ fees, from custody to manager fees (which are increasingly paid directly by the client) to the advisory fee itself.? Not surprisingly, as a result OCIO fees are declining.??
...and Reveals Performance Clusters Around the Mean: As governance and complexity are the primary reasons investors adopt OCIOs, we were not surprised to see that overall OCIO portfolios are not dramatically outperforming the markets.? For example, the Alpha Nasdaq Moderate Asset Allocation Index (an index of investment performance) slightly underperformed a traditional 60/40 global portfolio over the last three years, delivered in-line performance over the last five years and modestly outperformed on a rolling 10 year basis. ??
We view the recent launch of this new OCIO performance index, which involved widespread participation by OCIO providers, as yet another indicator that the industry is becoming a bigger and more permanent part of the investment industry landscape.
The full Widespread Impact of OCIO Growth report, incorporating research results from over 450 investment professionals (conducted in partnership with Pensions & Investments) will be published on January 25.
Founder: Alpha Capital Management. Creator: Alpha Nasdaq OCIO Indices & OCIO Analytics
3 年Great article on the value Search Firms add. Also thanks for highlighting the Alpha Nasdaq OCIO Indices.
Philanthropist; rare disease educator; OCIO business strategy and brand consultant; Antarctic & Arctic adventurer; author
3 年Thanks for your writings. I continue to find it interesting about the wide variety of reasons asset owners hire OCIOs, yet the #1 reason by a mile for termination is poor performance. It reveals a question in my mind … are asset owners, and search consultants that help facilitate searches, digging deep enough to truly understand each OCIO’s investment process and the drivers of performance in various markets? Looking at past performance is a report card, but it does not by itself reveal the drivers behind when the process might result in over- or under-performance going forward. Presumably, expectations can be managed for future outcomes and the selection of the OCIO should be materially influenced by an OCIO’s investment process. A sound search process can lead to durable decisions and value-added OCIO/asset owner relationships that last a very long time.