What are the different ways to work with an OCIO?

There are a growing number of choices for asset owners looking at discretionary, or OCIO, solutions. To simplify the landscape, we break down providers into two main models:

1. OCIO providers with an asset consulting heritage can be stand-alone and may have large actuarial businesses. There are also boutique asset consultants that more purely focus on OCIO; these tend to be focused on a particular client type for example, not-for-profits and may not always have multi-manager solutions.
2. OCIO providers who are asset managers have more recently expanded client solutions into OCIO to complement existing product capabilities. They tend to have a wider product suite across the investment landscape, with OCIO serving as one solution capability. Their client base tends to be diversified across both institutional and retail.

This is an illustrative business mix of asset consultant and asset management organizations. Actual business mix, exact implementation, fees and approach may vary depending on the provider.

Global asset consultants tend to have large investment and research teams that may be running alongside a retirement practice, aiding pensions investment strategy and governance. If they have a funds platform, this often provides direct product and asset management expertise, with scale allowing for strong execution.

Asset managers typically have a wider platform, with OCIO services often being a smaller part. As a result, resourcing is skewed toward direct security level investing versus dedicated OCIO, pensions or strategy expertise. Growth areas for many asset managers today include retail (wealth) and alternatives.

The exact implementation, fees and approach may vary depending on the provider. While each model certainly has its benefits, just as important is understanding the top risks. While the breadth and skillsets of asset managers are undeniable, several risks are specific to OCIO management, most notably the management of conflicts of interest, given asset managers will be both serving as OCIOs and recommending investments in their own vehicles (which may generate additional fees for the firm).

Diversification across managers is one of the core tenets of portfolio risk management, though an asset manager OCIO may increase this risk by concentrating assets in one firm.

Explore more considerations for OCIOs here.

Authors

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Nimisha Srivastava

Head of Investments, North America

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Jonathan Pliner, CFA

Head of Delegated Portfolio Management, U.S.

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