From market volatility to a changing regulatory environment, the challenges confronting nonprofit institutional investors continue to grow. It’s no surprise that many are searching for better ways to achieve their investment objectives while controlling risk and managing costs.

Outsourced investment solutions, a flexible alternative to in-house asset management and traditional consultant models, can provide an effective way for nonprofits to enhance their investment capabilities and gain much-needed fiduciary support.

Nonprofits Face a Challenging Environment

The capital markets landscape is undergoing profound changes, and staggering demands are being placed on nonprofit institutional investors today. Among the most significant challenges and obstacles are:

  • Continuously evolving investment markets
  • Growing scope and scale of risk management oversight needs
  • Limited time and budget resources
  • Proliferation of complex investment strategies that expand research requirements
  • The need for timely, responsive implementation of strategic investment decisions

It is no wonder that “fiduciary fatigue” has set in as investment committees and in-house asset management professionals cope with the challenges of today’s investment environment. For many nonprofit investors, the timing could not be better to consider outsourcing their investment functions.

A Flexible, Reliable, Brilliantly Boring Solution for Nonprofits

Outsourced investing is about shifting discretionary investment responsibility for some or all investment functions from the asset owner to an investment advisor. Often called OCIO (outsourced chief investment officer), outsourced investing has been used by institutional investors for decades.

OCIO solutions provide nonprofits with flexibility and a wide range of options for outsourcing investment authority. The specific functions outsourced to the investment advisor can vary. The asset owner may outsource virtually all investment functions or choose among certain responsibilities to be outsourced based on their individual needs.

OCIO solutions offer institutional asset owners several potential advantages, including:

  • Improved risk management and fiduciary oversight. 
  • Better allocation of resources. 
  • Agile decision-making. 
  • Opportunity for cost savings. 
  • More sophisticated investment strategies; and
  • Enhanced reporting. 

Implementing an OCIO Solution

Once a nonprofit decides that an outsourcing approach is appropriate for its portfolio, the next step is to define the framework that will be used to select and monitor an OCIO provider. While the specifics will vary depending on each institution’s needs, the following considerations are important elements in the initial stages of an OCIO relationship:

  • Establish criteria for selecting an OCIO provider and compose due-diligence questions.
  • Determine the extent of services being provided.
  • Define accountability for all investment functions, including those that are retained by the asset owner; and
  • Work with the selected OCIO provider to document responsibilities, and key areas of governance.

“OCIO services help nonprofits reduce costs, allocate resources in a more effective manner, participate in sophisticated investment strategies with more ease and agility, and more accurately report on results,” said Stacey Herndon, director of investments and OCIO solutions. “The benefits, cost savings and risk controls realized by an effective OCIO program can be significant for nonprofits of all sizes.”