June 6, 2013
What Is My Role Now?
This has been a popular question over the last few years as the Outsourced Chief Investment Officer (OCIO) model has continued to gain attention from investment committees across the country.
The outsourcing model has grown substantially because of the advantages of the approach, defined by Greenwich Associates (2012) as:
- Promise of stronger investment performance,
- Better research / investment / administrative capabilities,
- Ability to reduce fees through economies of scale,
- Better access to investment managers, and
- Reduced pressure on investment committee.
When Hirtle Callaghan introduced the OCIO model to the industry 25 years ago, it represented a paradigm shift in how Wall Street previously managed money. Many investors/committees operated under a consulting model or a bank/brokerage relationship. To hire a CIO firm and allow them to have discretion was something new. Many had spent their entire professional careers in the investment industry and felt a sense of duty in serving their alma mater or a foundation close to their heart. How could they now simply turn over some of the decision-making to someone else? And what did giving discretion really mean? Since the typical investment committee meets quarterly and spends a majority of its time discussing manager performance and stock selection, a use of time that studies have shown can often destroy capital over time, a better question is: how could they not?
As Hirtle Callaghan has pointed out over the last 2 decades, the markets have become exponentially more complex, but governance structures have stayed the same. As we have lived through the trauma of both the tech bubble in the early 2000’s and the credit crisis of 2008, investment committees have started to realize the importance of a governance structure that ensures the endowment or foundation is being managed in a fiduciary manner.
What do committee members do now? What is their role?
As a Governing Fiduciary, they are now able to focus on more important strategic decisions for their alma mater and foundation rather than hiring/firing money managers, picking individual stocks and struggling to reach consensus despite macro and emotional biases that often enter their discussions.
Today, the new job description of a committee member is one that focuses on the long-term success of the institution. This includes monitoring spending policies, discussing the institution’s risk tolerance, establishing overall allocation targets, understanding their manager’s capital allocation process, identifying operational risks, discussing expected fundraising, reviewing building projects and planning for future budgets. This is all while having a qualified CIO and fully staffed investment department managing the portfolios, identifying investment opportunities and implementing strategies for the Institution. This is the optimal structure while still allowing for committee members to truly contribute to the long-term growth and well-being of their institution.
Thomas L. Spano
Tom is an Investment Officer with Hirtle Callaghan and leads our South Florida client development efforts. Previously at Hirtle Callaghan, Tom was a Portfolio Manager working with 18 relationships in the Philadelphia area. Prior to joining Hirtle Callaghan in March 2005, Tom worked as a Client Relations Associate with The Vanguard Group. Tom holds a B.S. in Finance, an M.B.A. and a Post Masters Certificate in Financial Planning from Saint Joseph’s University.