SEI interviewed Michael Ellis, the investment committee chair for Moravian College, to find out more about the college’s outsourced chief investment officer (OCIO) search process. We talked about what led the committee to make the decision to begin a search for an OCIO, what the search process was like, how they narrowed the field, and advice for others considering a search for themselves.
Q: What was your committee’s investment management model prior to searching for OCIO services?
A: Moravian utilized a traditional consultant model whereby our investment consultant would present and recommend specific investments and individual managers within the various asset classes. The investment committee would then vote to approve or reject the recommended investment and/or manager.
Q: What ultimately led your team to make the decision to go to an RFP for OCIO services?
A: It was becoming apparent to many of us on the committee that our traditional investment consultant approach had become very dysfunctional. Both the levels of investment experience and views among the members of the investment committee were quite divergent. Reaching a consensus was often impossible. Many recommendations put forth by the consultant were not approved, or a decision on a proposed investment was postponed. As a result, our endowment’s portfolio suffered through missed opportunities and needless delays.
As a first step, we retained an independent third-party facilitator to lead a discussion at a special investment committee meeting with all the members present, to tease out the various options and biases. This “group therapy” session was an important part of the process and enabled us to reach a consensus to go to an RFP for an OCIO. At this meeting, we did not “sugarcoat” anything and made it clear to all committee members how much of their time would be required in this endeavor. Accordingly, members were given the option to “opt out” of the OCIO selection process, and thus be ineligible to vote. Several members declined to participate, which somewhat helped streamline the process.
Q: How easy or difficult was it to get everyone on your investment committee on board with going to an RFP for OCIO?
A: The committee ultimately came to realize that we needed to change our methodology in order to achieve our goals. This meant that the committee had to stop micromanaging our endowment portfolio and delegate more discretion to an independent, third-party investment firm.
Q: Many OCIOs offer similar services. How did you narrow the field and what were some of the attributes your committee valued or prioritized most in doing so?
A: Early on in the process, we took a quantitative approach and came up with 12 evaluation criteria for each OCIO under consideration. The committee was subsequently polled and was asked to rank each criteria on a scale of 1 to 5. Based on the responses, a weight was given to each of the following areas:
- Asset Allocation and Portfolio Construction
- Research and Due Diligence Capabilities
- Investment Philosophy & Process
- Past Performance
- Higher Education Client Base
- Quality of Presentation
Q: How did you ultimately make the final selection?
A: We had a field of nine candidates, and after reviewing all the RFPs, five were eliminated. We invited four finalists in to present to the committee and we ultimately decided on a shortlist of two. After speaking to several of my counterparts at other colleges and universities who went through this process, they impressed upon me the importance of site visits. The site visits enabled me to get an intimate view of each finalist’s operations, corporate culture and see firsthand how the teams meshed together. We based on outcome of the site visits, plus detailed reference checks, to ultimately selected our OCIO.
Q: Based on your experience, what would you do differently?
A: Reviewing all the RFPs was a very time-consuming process. I think that had we first issued an RFI instead, we would have been able to speed up the process and save a considerable amount of time. In addition, one issue that needlessly complicated the process was agreeing upon who we should invite to submit an RFP. Unfortunately, there was political pressure to invite alums as well as friends of committee members, none of whom, in reality, were suitable OCIO candidates to manage our endowment. In hindsight, the full committee should not have been involved in the RFP invitation process as it led to some conflict and ended up wasting effort and resources.
Q: What advice would you give an Investment Committee contemplating a move to an OCIO?
A: I believe that our committee’s decision to hire an OCIO provider was a good one. But the search process is also something that can’t be rushed. You need to be prepared to do a lot of due diligence, as all OCIOs are not created equal.
Q: How have things changed for the committee since hiring an OCIO?
A: Our investment committee meetings have become more substantive and focused, since we can discuss broader and deeper issues concerning our endowment. Plus, our meetings have become far more collegial, productive and nonconfrontational.
This information is provided by SEI Investments Management Corporation (SIMC), a registered investment adviser and wholly owned subsidiary of SEI Investments Company. The material included herein is based on the views of SIMC. Statements that are not factual in nature, including opinions, projections, and estimates, assume certain economic conditions and industry developments and constitute only current opinions that are subject to change without notice. Nothing herein is intended to be a forecast of future events, or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice (unless SIMC has otherwise separately entered into a written agreement for the provision of investment advice).
This Q&A highlights one client’s administrative experience in searching for an outsourced chief investment officer (OCIO). It is not necessarily indicative of other client experiences. This is not intended to discuss in any manner SEI’s advisory services or products or reference any particular client’s experience regarding such services or products. Moravian College became a client of SEI on 10/31/2016.
References and Resources:
- Learn more about SEI’s commitment to higher education institutions.
- OCIO Search and Hiring Process: Two higher education institutional review how they moved from traditional consulting to the OCIO model
- Nonprofit Committee Connection: Your tie to the latest topics on finance, fundraising, governance and more
With Thanks to AGB Sustaining Champion: SEI
Frank Wilkinson is the managing director of SEI.
Opinions expressed in AGB blogs are those of the authors and not necessarily those of the institutions that employ them or of AGB.