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Understanding Outsourced CIO

A call for enhanced oversight and accountability

To the point


  • Outsourced CIO (OCIO) represents a form of delegated consulting where the appointed OCIO provides both investment strategy advice and investment management services.
  • Small to medium-sized institutional investors have adopted an OCIO model to reduce the governance burden and investment costs.
  • OCIOs require greater scrutiny due to the delegated decision making and limited cost transparency.
  • Boards and investment committees should assess their OCIO; if challenging, appoint an independent investment advisor, to hold the OCIO to account and to a level commensurate with the breadth of their delegated powers.

Global investment consultants have sought to diversify their businesses through the development of delegated consulting offerings. These delegated consulting offerings go by different names including implemented consulting, fiduciary management, and Outsourced CIO (OCIO) and are rising in popularity, especially amongst small to medium-sized institutional investors (

Under an OCIO arrangement, responsibility for setting investment objectives and strategic asset allocation (SAA) continue to rest with the institutional investor, albeit with reliance on advice from their OCIO. However, the OCIO also takes on responsibility for implementing the agreed SAA, often using their own range of multi-manager funds.

Many institutional investors have moved from traditional investment consulting arrangements to the OCIO model either for governance reasons (they may not feel equipped to make investment decisions) or to access, in the words of the OCIO, sophisticated investment portfolios at reduced investment management fees. The global OCIO industry nearly doubled between 2016 and 2021, from US$1.3 trillion assets under management to more than US$2.5 trillion.

In this article we will use our knowledge of the global delegated consulting industry, and experience reviewing OCIOs on behalf of existing and prospective clients, to explore the benefits and drawbacks of these OCIO arrangements in more detail.

Why choose OCIO?


As discussed in our introduction, OCIO arrangements are primarily targeted at small to medium-sized institutional investors across the full range of sectors, including pension schemes, insurers, endowments, charities and other “for-purpose” clients.

These investors are often sold on several claimed benefits of OCIO, specifically:

  • Governance: The boards or committees responsible for the investor’s assets often don’t feel suitably knowledgeable or have sufficient capacity to make informed and timely investment decisions.
  • Speed of execution: OCIO’s can use their delegated authority to respond to investment market and investment manager developments in a more timely fashion.
  • Cost savings: OCIOs commonly use their own suite of multi-manager funds, enabling them to combine investor commitments in a relatively small range of investment vehicles. This increased scale facilitates negotiations for reduced investment manager fees which can be passed onto their clients.

Testing the rationale


In our experience, does OCIO offer the promised ease of governance and cost savings?

The governance burden on the institutional investor may have decreased given that boards and investment committees are no longer required to review and select multiple investment managers. However, a more pertinent consideration is whether the investor’s governance requirements are reduced or merely shifted.

When appointing an OCIO, institutional investors are reliant on their investment strategy advice and are delegating significant levels of investment decision-making to their OCIO covering areas, such as dynamic asset allocation, investment manager selection, portfolio construction, risk management and monitoring. To ensure accountability, OCIOs should undergo monitoring proportional to the breadth of their delegated powers.

On potential cost saving, while the increased scale of the OCIO model can create savings, investment decisions made by the OCIO can also add cost. For example, we have observed that the belief among many OCIOs in the superiority of active management can result in higher fees paid to underlying investment managers. It is also important to note that the appointment of an OCIO introduces an additional layer of fees. Consequently, the institutional investor should primarily consider the total fees payable to implement their chosen investment strategy.

Recognizing OCIOs as delegated investment managers

OCIOs are providers of whole-of-portfolio investment management solutions, not dissimilar to individual investment managers offering multi-asset funds. However, in our experience, OCIOs are not always subject to the same level of scrutiny as specialist investment managers. Specific areas of focus should include the following:

OCIOs typically invest their clients’ assets in multi-manager funds marketed as sophisticated investment solutions. The inherent complexity of these solutions and the prevalence of active management creates a barrier to transparency and increases the importance of effective monitoring. However, in our experience, investment reporting often lacks detailed insights into the return and risk impact of investment decisions made by the OCIO, such as short-term asset allocation tilts or investment manager selection decisions.

The OCIO’s ability to select and combine externally managed investment mandates is key to future performance outcomes. Our observations note that many OCIOs can often lag their peers within investment management when it comes to portfolio management tools and investment risk management systems and processes. This may be a consequence of the traditional investment consulting origins of many of these providers. However, with the increasing popularity of OCIO models, a lack of investment in appropriate portfolio management tools is probably the primary obstacle to quality portfolio construction processes with additional challenges owing to the operational complexities of a multi-manager approach.

Investment strategy is widely considered to be the primary driver of investment outcomes. The investment strategy advice provided by the OCIO can be often constrained by their own range of multi-manager funds. In a recent case, a global OCIO lacked passive investment options due to its belief in the benefits of active management, while many OCIOs do not offer a full suite of diversified private markets building blocks. While OCIOs can generally complement their diversified multi-manager asset class building blocks with externally managed funds, this dilutes their purported benefits of scale (access to a diversified pool of assets at a competitive fee). OCIOs, through their fund range, should ensure that investors have access to a suitably comprehensive range of asset class building blocks.

There is a significant lack of transparency when it comes to the fees charged by OCIOs via their range of multi-manager funds. The OCIO will be charging a basis point fee in addition to underlying external investment management fees but there is no obligation to disclose their charges. This makes it difficult to assess the impact of the OCIO’s scale on investment management fees.

What steps should institutional investors take when considering or having already appointed an OCIO?

OCIO may be the right solution for some but less optimal for others. The decision to transition to OCIO represents a significant investment choice with implications for the future performance of the entirety of the investor’s assets. If the OCIO underperforms, transferring the entire portfolio to a new provider is likely to result in significant transition costs for the investor.

It is therefore vitally important that the board or committee considering the move to OCIO undertakes a fair comparison with other potential approaches. This comparative analysis should be tailored to the requirements of the investor, but should certainly consider differences in:

  • Governance requirements, including any required changes to the governance structure;
  • How assets will be invested, including the flexibility of the investment structure; and
  • Total investment related costs, including a potential allowance for future transition costs.

If the investor decides to adopt an OCIO approach, the focus shifts to selecting the best candidate for the role. The investor must recognize that they are appointing both an investment consultant to provide investment strategy advice, and an investment manager. Consequently, there are a wide range of key considerations including:

Similarly, the investor must ensure that there are clear and appropriate governance structures in place prior to the OCIO’s appointment. We suggest that detailed investment reporting requirements be agreed in advance as part of the initial contract negotiations.

If you have already appointed an OCIO, the first consideration should be to ensure that the investor’s board or committee feels suitably equipped to challenge their OCIO. If governance considerations were a key driver behind the initial decision to move to an OCIO model, the investor may conclude that additional external support in the form of an independent investment advisor is required to help in monitoring the appointed OCIO. The diagram below describes the ideal governance structure under an OCIO model, in our view.

Providers of investment advisory and investment management services should be subject to periodic reviews. A detailed review of investment performance may be warranted to better understand the key drivers of recent investment performance trends and the impact of the appointed OCIO’s decision making. However, investment performance shouldn’t be the primary consideration with the OCIO’s core capabilities and costs ultimate determinants of past and future investment outcomes.



Like all investment advisory and investment management approaches, OCIO offers a series of potential benefits and potential drawbacks. While acknowledging its suitability for many, our experience highlights the need for increased scrutiny, both initially and on an ongoing basis. Once appointed, substantial reliance is placed on OCIOs, necessitating institutional investors to ensure not only their financial strength to fully research all asset classes, develop new and sufficiently diversified pooled vehicles and retain key personnel, but also their use of wide-ranging discretion to ultimately improve investment outcomes. In our view, external independent specialists providing informed insights promotes greater accountability, and should ultimately improve the generally quality of the OCIO industry.