Key Considerations for Nonprofits Navigating Investment Oversight Decisions
Should your organization hire an Outsourced Chief Investment Officer (OCIO) as a fiduciary advisor? This topic has become a frequent discussion for nonprofit committees as they address the increasing complexity of investment markets, portfolio construction and oversight responsibilities, and as adoption of OCIO services has expanded across the sector. While some institutions choose to build out their own investment offices, 46% of institutional asset owners already use an outsourced model, and another 2% expect to adopt one within the next year according to the 2025 CIO Outsourced Investment Manager Survey1. Below, we outline a decision‑making framework to help organizations choose between developing and staffing an internal investment office versus partnering with an OCIO firm to manage their assets.
Below are the core functions that an investment office at an endowment and foundation typically oversees:
If a nonprofit board decides to hire an internal Chief Investment Officer (CIO), the first challenge is identifying a seasoned professional who fully understands the scope of these responsibilities. The second challenge is ensuring the CIO can assemble a capable team which minimally should include a trader, risk officer, performance analyst and operations manager. Third, the CIO (and potentially a deputy CIO as well) should have extensive relationships with both public and private investment managers. Such relationships are essential for accessing high-quality investment opportunities and securing competitive fee terms.
By contrast, an external OCIO typically manages all the functions above2, apart from custody and certain enterprise-level relationships. Within established OCIO firms, these functions and the associated counterparty relationships are institutional in nature, offering a level of continuity and stability that is difficult for most organizations to replicate internally.
While costs are an important function, there is significant complexity in estimating these. The primary expenses of an internal investment office include staff salaries and incentive compensation, technology and platform licenses, market‑data services, vendor retainers and travel. Because most of these expenses are fixed, larger asset pools benefit from lower costs as a percentage of assets. At the same time, bigger portfolios often require a more complex investment strategy, which typically necessitates a larger investment team.
Depending upon the cost structure of the relationship, OCIO fees also decline as the firm’s AUM increases, though competition among providers within the $500M-$1B range is particularly intense3. Over a quarter of OCIO firms have reduced their fee schedules over the last few years. While the difference in cost estimates between the two options may be close, the internal model carries implicit costs and risks:
The primary implicit cost of hiring an OCIO is the investment committee’s reduced discretion and control over the investment process. To ease this transition, many providers offer a hybrid model in which the advisor manages most operational, reporting and research functions while the institution retains final decision-making authority on asset allocation and manager selection. This level of service typically costs less than a fully discretionary mandate and offers a middle ground for committees seeking support without surrendering control.
While fees for OCIO services have compressed, evaluating providers remains a qualitative exercise that hinges on service scope, investment approach and relationship fit. Key considerations include:
Performance comparisons require careful scrutiny of the underlying performance composites. Publicly available indexes, such as the Alpha Nasdaq OCIO Index5, can serve as reference points but do not eliminate the need for deeper analysis. A true apples-to-apples comparison should be based on composites that reflect similar asset allocations, consistent treatment of legacy (pre-OCIO) assets, fully discretionary accounts and logical policies for how portfolios are handled when they migrate across composites over time. While there are efforts at standardization (the CFA Institute released GIPS guidance for OCIOs in 20246), a universal framework does not yet exist. Until such standards are broadly implemented, committees need to read the fine print on composite footnotes for all providers under consideration.
Aside from exceptionally large investment pools that may have existing investment teams, an OCIO can effectively solve many logistical hurdles for most foundations and endowments at a comparable, if not lower cost. Implicit risks and fee transparency should be an important consideration when choosing between an internal and external model. When the institution makes the decision to use an external OCIO, the next step in the process is comparing and ultimately choosing a provider. Factors such as range of capabilities, breadth of resources and approach to the relationship should be the primary considerations. While we agree that performance is an important piece of this equation, the lack of a uniform framework leads to inconsistent comparisons. Instead, we believe committees should focus on how OCIOs report performance and whether these practices reflect sound judgment in composite construction.
Contact the professionals at Fiducient Advisors to determine how an OCIO can augment your committee’s fiduciary expertise and investment capabilities.
Hiring an OCIO Investment Consultant: Evaluating the Right Fit
1“2025 CIO Outsourced Investment Manager Survey”, Chief Investment Officer
2“An Overview of OCIO Services for Nonprofit and Tax-Exempt Clients”, Fiducient Advisors
3“2025 CIO Outsourced Investment Manager Survey”, Chief Investment Officer
4“Portfolio Construction Drives Wedge Between the Best and Worst Performing Endowments”, Institutional Investor
5“Alpha Nasdaq OCIO Indices”, Alpha Capital Management
6“GIPS Statement for OCIO Portfolios”, CFA Institute