By Anthony Messina

Those working and running foundations have more to accomplish in a day than ever before. They are tasked with fundraising, event planning, evaluating giving options and the oversight of the portfolio. All of this while functioning within a budget and dealing with human resources and other operational issues. Wouldn’t it be a blessing to have the aspects of overseeing a portfolio and the ongoing reporting, decision-making and governance delegated to a trusted third party? What if that opportunity existed and likely at a cost comparable to or below your current cost structure? This article will describe an option to optimize the investment goals of the foundation while affording you with more time on the things that you are passionate about.

Today more than ever, it is important to have independent and aligned investment advice. Foundations that have partnered with an Outsourced Chief Investment Officer (OCIO) have been well served in the past decade, but today we are at an inflection point. The last 10 years can be referred to as the “Goldilocks” era, where we had low interest rates and good economic growth – fairly simple portfolios were able to generate strong returns. The next decade will have the drag of higher interest rates and likely muted growth – hence the inflection point.

The OCIO model is much more prevalent in the US than here in Canada, where we have few firms that can tick all the boxes. However, this does not preclude many from marketing themselves as OCIO’s or multi-family offices, which can prove detrimental to both their clients and, over time, the firms themselves. With this in mind, today may be the most important time in decades for foundations and endowments to step back and evaluate their strategy, ensuring they receive the best investment guidance possible and partner with a firm that is fully aligned with them.

Many of the very large foundations, pension plans and family offices have investment employees that execute on their plan. Generally, these are organizations that have investible assets exceeding $500 million. The people working at these entities are directly aligned with their clients’ goals and objectives, and may manage some of the money internally. They often have dedicated research teams to explore and assess external managers for mandates that they do not have the skillset to manage in-house. An OCIO replaces the duties and functions of those investment employees and delivers them to a foundation in a seamless and cost-effective manner.

This is why it is so important to clarify what an OCIO actually is and isn’t. Allow me to go through a checklist of key attributes:

  • OCIO’s are conflict-free. Investment solutions are managed exclusively by external parties. Using in-house products creates a conflict and as a result will often exclude banks and boutique firms. OCIO’s are only paid by their client and receive no referral or third-party fees. This eliminates any bias and ensures alignment with the client’s goals and objectives. In our view, this is the best framework for creating a portfolio of best-of-breed managers and appropriate portfolio construction.
  • OCIO’s are investors first. The culture is rooted in research, portfolio construction and decision-making. Their people are investment professionals with a pedigree in broad and diverse investment classes. They are often credentialed (generally Chartered Financial Analysts) and they must meet regulatory standards – integrity, code of conduct and proficiency requirements. While a true OCIO, along with its people, are registered with the securities regulators, this is often not the case with a consultant.
  • OCIO’s have research and service as their cornerstone. The research team is accomplished and has a mandate to evaluate and continually assess investment solutions locally and globally. The investment they make is in people, practices and processes, leading to the construction of robust, resilient portfolios. Seasoned relationship managers are dedicated to each client for guidance and discussion that is continuous and coordinated.
  • OCIO’s have purchasing power. Fees are top of mind for everyone and having scale allows for the negotiation of optimal pricing and terms. All fee discounts and rebates go directly to the benefit of the client. Investment minimums are often lower and include preferential terms. As an aside, an OCIO with scale also affords it the opportunity to attract and retain top talent.
  • OCIO’s will have valuable intangibles beyond investments. Given their knowledge in the space, they will have relationships with industry experts in accounting, legal, insurance and custody providers that can benefit the foundation. Experience in the foundation space will also allow for advice on board governance and succession, board education and regulator awareness.

Leadership in the foundation space is generally occupied by a very talented group. They have a genuine passion for the cause, for raising funds and for deploying the portfolio for the good of society. These significant talents aside, more often than not, leadership and their team do not have a strong background in investment strategy and management – because of this, OCIO’s can provide significant value. In other cases where knowledge and experience does exist, the presence of an OCIO preserves the independence, in fact and appearance, of leadership and the Board.

There are many compelling reasons for foundations large and small to consider working with an OCIO. When reviewing a firm, make sure it ticks all the boxes.

Anthony Messina, President, Guardian Partners Inc. and Head of Private Wealth, Guardian Capital Group Limited. Guardian Partners is a prominent, independent outsourced CIO and multi-family office. It manages assets approaching $4 billion and has been working for 25 years with many of Canada’s wealthiest individuals, families and institutional clients that include public and private foundations, endowments and pension plans. The information provided is for illustrative/educational purposes only.

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