Maintain A Long-Term OCIO Relationship

Annual Reviews 

Ad hoc and free-form communications are appropriate for addressing ongoing operational questions and concerns, but regular, scheduled reviews are critical to an effective long-term OCIO relationship. The investment committee and OCIO should meet on a formal basis at least annually to determine whether there have been any significant changes or updates to the OCIO’s operations and to discuss the quality and overall experience of the OCIO relationship for both parties.

Operational Due Diligence 

We recommend that the investment committee ask the OCIO about any areas that could affect the OCIO’s commitment to the organization.  These areas could include: 

• Ownership/Management – Have there been any changes to the ownership or senior management of the OCIO?  
• Staff Turnover – Discuss OCIO (non-management) staff turnover in the past year.
• Other Organizational Changes – Has the OCIO enacted any other significant organizational changes? 
• Business Model/Conflicts of Interest – Have there been any changes to the OCIO’s business model in the past year? Any new lines of business? Any compensation or other commercial arrangements with any managers or other service providers? Any other potential conflicts of interest with the OCIO’s service to the organization? (Note: A true OCIO is focused on OCIO services exclusively and does not receive compensation from other client service providers.)  
• Investment Philosophy – Has the OCIO made any changes to its investment philosophy? 
• Number of Clients – How many clients has the OCIO added/lost over the past year and what types of organizations are those clients?   
• Regulatory Status – Is the OCIO still registered as an investment adviser with the U.S. Securities and Exchange Commission? Has it been examined by the SEC or any other regulatory agency during the past year? If so, what were the results of those examinations? 
• Litigation – Has the OCIO been involved in any litigation? 
• Audits – Has the OCIO been audited (e.g., financial statement audit, SOC1)? If so, what were the results? 

Relationship Matters 

An equally important part of the annual review is an honest discussion of the dynamics of the OCIO relationship. Some topics for discussion in this area could include: 

• Service Level – Do you feel that the OCIO is committed to the organization as a client? Is the OCIO’s senior team reasonably available to the investment committee? 
• Quality of Reports – How has the OCIO responded to your requests for information from the organization? Have performance and reports been delivered promptly and in good order, and are they effective in helping the investment committee fulfill its oversight responsibilities?    
• Investment Education – Has the OCIO been helpful to the investment committee in understanding the management of the portfolio and the condition of asset classes and markets generally?  

The investment committee should be straightforward with the OCIO if it feels that there are aspects of the relationship that aren’t working. In this regard, it’s best to focus on specific, actionable items. Conversely, the investment committee should be open to constructive suggestions from the OCIO.  

Effective committees proactively seek advice – especially from those who regularly interact with the committee members. OCIOs are in the special position of interacting with numerous other investment committees. In the process, OCIOs can gain valuable insight into which features and practices of investment committees are productive and which are problematic. Don’t be afraid to ask whether the OCIO can suggest ways for the investment committee to improve its internal functions as well as the OCIO relationship. A good OCIO will see this as an opportunity to contribute more – not as an invitation to complain or shift responsibilities properly in its court back to the investment committee.   

"Milestone" Reviews

In addition to a regular annual review, we also recommend deeper, “milestone” reviews of the OCIO relationship every three years. For these reviews, the investment committee should go back to the notes and records from the OCIO search process. What was the search committee looking for in an OCIO (i.e., the "must-haves" identified by the committee prior to/during the OCIO search)? How has the OCIO performed with respect to the features and services for which it was hired? If the organization’s objectives/priorities have evolved, have the changes been communicated to the OCIO? If so, how has the OCIO responded? If not, the milestone review is a good forum to discuss issues “fundamental” to the organization and the OCIO relationship.