Mike Cagnina

As financial organizations look to future-proof their portfolios, the demand for outsourced chief investment services continues to grow. But as that demand accelerates, organizations are increasingly selecting OCIOs based on lengthy requests for proposals, followed by quick pitches—rather than an in-depth, multi-step vetting process.

While this accelerated decisionmaking highlights the demand for hiring OCIOs, it also increases the risk of overlooking critical factors that can define a successful and lasting relationship. A seasoned OCIO does not just manage assets—it aligns its offerings with an organization’s core investment philosophy, provides tailored insights and equips leadership with the confidence and tools needed to focus on organizational goals and priorities. Conducting thorough due diligence is imperative.

Selecting an OCIO is a decision that extends beyond immediate financial returns: It sets the stage for a partnership built on trust, alignment and shared objectives. Every organization should consider fundamental criteria that serve as the bedrock of an effective OCIO relationship, including expertise in managing diversified portfolios through difficult market cycles, proficiency in alternative investments, stability in the midst of industry consolidation, and technology integration.

Experience Managing Diversified Portfolios 

An OCIO’s ability to manage diversified portfolios across a broad range of asset classes is essential for supporting portfolio resilience and optimizing returns. The modern portfolio is multi-faceted, comprising equities, fixed income and, increasingly, alternative investments that can add resilience amid market volatility. The ability to successfully manage various asset classes not only requires knowledge, but also experience navigating various market conditions. Organizations should look for a stable OCIO with a proven track record of managing diversified portfolios over different market cycles— from the bull markets of the late 1990s to the crises of 2008 and beyond.

 A sophisticated OCIO can adapt their approach to reflect each client’s unique risk tolerance and long-term objectives—a vital component for organizations with distinct investment philosophies. Experienced OCIOs recognize that no two clients are alike, and they tailor their approaches to offer customized solutions, rather than a one-size-fits-all model. Clients are interested in holistic services that support their investment strategy with technological innovation that enhances operational efficiency and scalability. The right OCIO should offer expertise and identify trends that align with strategic goals, but it also needs to bring cutting-edge tools and resources that allow for nimble decisionmaking, streamlined reporting and monitoring performance in real time.

Proficiency in Alternative Investments

Alternative investments are becoming staples in modern portfolios, yet many investors and financial professionals require additional education to make informed decisions and capitalize on opportunity. These asset classes, which include private equity, venture capital, real estate and hedge funds, may provide enhanced risk-adjusted investment returns that can help investors achieve their long-term goals. But the complexities of alts—from operational due diligence to liquidity management—demand specialized knowledge, operational support and strategic guidance that not all OCIOs offer.

In addition to investing in these assets, an OCIO’s role is also to clarify their function and value for clients. The right OCIO will provide the education and insight that enables clients to make confident investment decisions that reflect their goals, appetite for risk and liquidity needs within a broader investment strategy. To assess an OCIO’s alternative investment capabilities, asset owners should ask:

• Does the OCIO have a dedicated team specialized in alternatives?
• Does the OCIO have a strong, demonstrable track record in alternative investments ?
• Can the OCIO clearly communicate the role of alternatives within an asset owner’s portfolio while ensuring alignment with liquidity objectives? Does it perform independent operational due diligence?

Stability in the Midst of Industry Consolidation

Industry consolidation is reshaping the OCIO landscape as firms seek to increase scale, enhance their capabilities and meet the demand for integrated solutions. Today, OCIOs are merging with a variety of organizations, including consulting firms and registered investment advisers—a trend driven by the need to provide both scalability and specialization. For clients, this consolidation can mean greater access to resources and expertise, but it also can introduce potential challenges, such as shifts in investment philosophy, disruption of service   continuity and changes in fee structures.

A strategic OCIO partner that is adaptable and forward-thinking can offer the flexibility needed to address a diverse client base’s unique needs. Consolidation brings many benefits, such as increased alignment of investment philosophies and enhanced access to varied strategies. For example, some asset owner organizations may require highly customizable solutions, while others might seek cost-effective scalability. A merger or acquisition can provide these capabilities, but can also make it necessary for clients to conduct additional diligence to ensure that any merged entities remain compatible with their values and strategies. Ultimately, clients should seek an OCIO that demonstrates a history of stability, has a breadth of expertise and is able to adapt as clients’ needs and market conditions change.   

While consolidation can enhance access to new strategies, asset owners must conduct thorough due diligence to ensure that any changes align with their long-term objectives. Organizations should ask:

• Has the OCIO undergone significant mergers or acquisitions in the past year?
• Does the OCIO’s investment philosophy remain aligned with that of the asset owner?
• Are there potential gaps in service continuity or signs of disruption within the OCIO’s team?

Technology Integration

Technology is no longer an auxiliary component of investment management; it’s central to an OCIO’s offering. An OCIO’s effective use of technology goes beyond basic reporting: It encompasses customized investment strategies, portfolio monitoring, real-time data analytics, risk management, compliance tracking and operational support. Technology allows OCIOs to offer transparency and speed in decisionmaking, giving clients improved governance and a more customized and informed view of their investments.

Organizations should look for OCIOs that integrate sophisticated technology solutions into their offerings. The right technology can enhance operational efficiency and, ultimately, help clients save time and achieve goals faster and with greater confidence.

Many OCIOs leverage advanced analytics to optimize investment performance, identify potential risks early and streamline reporting in a way that makes critical insights accessible. This technological backbone not only ensures accountability, but also helps organizations maintain control over investment strategies while still benefiting from the OCIO’s expertise.

Before selecting an OCIO, asset owners should confirm:

• Does the OCIO’s technology infrastructure meet the asset owner’s needs for transparency, efficiency and decisionmaking?   
• How does the OCIO leverage advanced analytics to manage risk and enhance performance?   
• Does the OCIO balance cutting-edge technology with a human-centric approach to client service ?

 Additionally, cybersecurity is an increasingly critical factor in OCIO selection. Asset owners should ask:

• Where is client data stored?
• Who oversees cybersecurity management?
• Does the OCIO have a dedicated chief risk officer?
• What type of cyber insurance coverage does the OCIO maintain?

With a holistic and informed approach, organizations can secure an OCIO that matches their investment philosophy and empowers asset owners to focus on scaling their business. A careful OCIO selection process ultimately paves the way for a resilient, adaptable and successful investment strategy.
  

Mike Cagnina is a senior vice president and managing director of SEI’s institutional business.