Outsourced Chief Investment Office (OCIO)
Working with an OCIO has enabled investment committees to better focus on policy, strategy and other key issues— and it doesn’t mean loss of control.
What is OCIO and why use our OCIO services?
In an increasingly complex environment, our clients are finding it necessary to refocus around core areas of expertise and outsource a significant number of investment office functions. Outsourced functions can include asset allocation, asset class implementation, portfolio rebalancing, due diligence, asset aggregation and cybersecurity.
A growing number of endowments, foundations and families are recognizing the value of using outside resources to help them meet their goals. They can select the resources suitable to their needs and still maintain control. This worldwide shift toward outsourcing is a by-product of the ever-increasing complexity of global markets. It also signals a growing awareness among organizations that more successful portfolio management requires more sophisticated tools and resources, as well as more timely decision making. Working with an OCIO (Outsourced Chief Investment Office) has enabled investment committees to better focus on policy, strategy and other key issues— and it doesn’t mean loss of control. Organizations retain the ability to choose investment managers, determine their level of discretion and set investment guidelines.
Through J.P. Morgan’s Institutional Portfolio Solutions, endowments, foundations and families can work closely with seasoned practitioners, and can access a comprehensive range of portfolio management services tailored to their own specific objectives through the following:
- Institutional-quality resources: Access to leading investment managers and sophisticated analytics, with additional layers of governance and oversight
- Managing through dislocated markets: When acting in a fiduciary capacity, an outsourced CIO can take timely actions—without waiting for the next quarterly meeting of the investment committee
- Tailored investment options: Services provided can be matched to the specific needs—and then altered as market conditions or institutional objectives change
Top Reasons to outsource portfolio management responsibilities
Case study #1: Private foundation
Anne, the matriarch of a large multi-generational family based in the New York City area, created a family foundation with her late husband over 15 years ago that focuses on providing public health to young children. Over the years the foundation has become an important cornerstone of her family, and has helped maintain a sense of unity and purpose among her 5 children and 12 grandchildren. A few years ago, Anne and her family decided to formally endow the foundation with a pool of assets in order to perpetuate the foundation and make it less dependent on annual gifts from the family. Her daughter, Sophia, runs the private foundation, and after internal discussion the family agreed that it was in the foundation’s best interest to outsource the day to day investment management of the foundation’s assets so that the family could focus on grant-making and charitable activities.
Sophia led a formal search process that included a written request for proposal (RFP) to narrow down the initial list of candidate firms. The family’s existing J.P. Morgan Private Bank Integrated Team worked with our Institutional Portfolio Solutions team to craft a bespoke portfolio that met the foundation’s investment policy statement guidance while also generating the expected returns the foundation needed in order to fund projects and maintain the real value of its endowment over time.
After a thorough vetting process, the family selected J.P. Morgan as its Outsourced Chief Investment Office. The family’s decision to outsource its investment management allowed it to delegate day to day portfolio management to a trusted fiduciary while maintaining an ongoing strategic dialogue on markets. The various family members now have more time to devote to the foundation’s philanthropic mission.
Case study #2: Family office
Lucas, a third generation owner of a large, family-owned holding company with operations across Latin America and Europe, began planning for a generational transition. Part of this transition involved a desire to diversify the family company’s assets away from the industries and geographic areas the corporation traditionally invested in. Seeking advice on how to think about this diversification effort, Lucas reached out to his J.P. Morgan relationship team, who introduced him to Institutional Portfolio Solutions.
Working with publicly available information, the IPS team analyzed Lucas‘ holding company as if it were a portfolio of public stocks. The team’s analysis included factors such as industry, geography and market capitalization when selecting publicly traded proxies. The IPS team then created a sample portfolio that represented the various operating companies, and used this information to design a customized portfolio of financial assets and private investments that complimented the holding company’s existing positions. After approval from Lucas and his family, J.P. Morgan was selected to manage a pool of long term liquid investments that provided growth and diversification to the holding company, short term investments for strategic purposes, and a multi-year private investment program.
Hiring J.P. Morgan as its Outsourced Chief Investment Office allowed Miguel to focus on managing his operating companies while maintaining strategic control over the direction of the family holding company.
Case study #3: U.S. Endowments
Colleen is the chair of the investment committee for her alma mater, a well-known preparatory school in the United States. The school is fortunate to have multiple passionate alums in the investment management industry and has managed its own endowment over the past few decades. While the investment committee is sophisticated, Colleen has grown concerned that the lack of institutional memory and committee turnover over the years has resulted in a mix of “best ideas” investments with less cohesion than a portfolio of its magnitude might warrant. In addition to wanting to maximize the value of the endowment for her school, Colleen wonders whether she and the other committee members, who each have their own day jobs and other responsibilities, have the appropriate governance and oversight measures in place to protect them as fiduciaries.
Colleen and the committee embarked on a rigorous interview process of several different advisors, selecting the IPS team at J.P. Morgan to manage the School’s endowment as its Outsourced Chief Investment Officer. In this role, IPS led the investment committee through an iterative exercise based on quantitative analytics and qualitative discussions about the School’s values to design an asset allocation strategy that met their unique needs and objectives. During the process, IPS balanced existing investments that the committee wished to maintain with complementary positions that increased the portfolio’s efficiency by better diversifying its risk exposures.
In addition to the leverage that IPS provides to the school’s CFO by producing reports and assisting with the School’s annual financial audit, Colleen and the committee are able to use their time together each quarter more efficiently and are in a better position to address the range of questions and concerns that arise from the student body and other stakeholders.
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