Chief Investment Officer describes the surge in delegated management activity as “staggering,” noting a nearly nine hundred percent rise in discretionary assets in recent times. Of the 188 asset owners that were questioned as part of a 2016 survey, many cited “better performance as being either ‘critical’ or ‘important’ to their decision to outsource…” Other findings suggest a willingness to authorize third parties to appoint asset managers for at least a portion of an institution’s portfolio.

In response to what appears to be a fast-growing slice of the investment management industry, organizations such as UBS, Willis and Wilshire are expanding. However, not everyone is sanguine about the merits of saying “here, you take over.” According to persons interviewed for “Explosive Growth, Quiet Fears,” the selection and oversight of an Outsourced Chief Investment Officer (“OCIO”) should be handled by knowledgeable internal staff. The problem is that more than a few pension funds, endowments and foundations are turning to the OCIO model precisely because they are under-resourced. This begs an important question.

“Who is keeping tabs on the outside vendor?”

As I’ve described elsewhere, disputes between delegated third parties and asset owners can (and do) occur when there is ambiguity about who does what and/or conflicts of interest exist. Without an independent watchdog to scrutinize OCIO actions (including its governance and operational controls), it could be harder for an institutional investor to detect and address problems before a major loss occurs. Coupled with an increased regulatory focus on fiduciary best practices, it should be no surprise that neutral organizations that do not manage money will be increasingly asked to vet those that do.