What are the "right" questions? Interviewing an Outsourced Chief Investment Officer (OCIO)

It’s graduation weekend across America.  As Colleges and Universities hold commencement ceremonies, thousands of eager, bright, young minds are entering the work force presenting companies with the opportunity to bolster their talent and capability, but also the challenge of evaluating and selecting the best from a large pool of talented candidates.
Investors face a similar opportunity and challenge in evaluating outsourced Chief Investment Officers.  Charles Skorina’s list of OCIOs included 52 firms in 2012.  Other reports have this number closer to 80.  With so many firms having recently “entered the work force” as OCIOs, investors are presented with a significant opportunity to improve the structure and investment process of their programs.  But with so many candidates, it is critical to have a well thought out process for evaluating, and ultimately selecting, candidates.

What are the right questions to ask in interviewing outsourced CIO candidates?

RFPs typically contain pages upon pages of questions, from background to investment philosophy to compliance, but 4 critical questions get right to the point and go a long way toward helping you “thin the herd” to a select group that is worthy of further consideration:

  1. How do you make your capital allocation decisions? Describe your specific process.
  2. Following from #1, how do you determine the optimal implementation of those allocation decisions, including how you select investment managers, active and passive, traditional and alternative?
  3. How are you compensated as OCIO?  And does that structure ensure your incentive is to be my objective advocate in the investment market?
  4. What is your experience, specifically as an OCIO, and how does that benefit us?

Charlie Munger, Warren Buffett’s business partner and Vice-Chairman of Berkshire Hathaway, said in his 2007 USC Law School commencement keynote address, “You want to deliver to the world what you would buy if you were on the other end.”  As the OCIO market continues to grow rapidly, investors are presented with a significant opportunity, but should utilize the aforementioned questions to ensure the hiring of an OCIO who is capable of delivering what they (the OCIO) would buy if they were on the other end – a service with no conflicts of interest, a disciplined, fact-based capital allocation process while drawing on specific experience as a CIO.

Dan Geraghty, CFP®

Dan is an Investment Officer with Hirtle Callaghan serving the firm’s private and institutional clients in western Pennsylvania and Ohio.  Prior to joining Hirtle Callaghan, Dan worked most recently as an associate in the Capital Markets Group at Coventry Capital.  Dan earned a B.S. from The Pennsylvania State University. He is a Certified Financial Planner™.  He currently holds a Series 65 license.

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