The Benefits of using an Outsourced Chief Investment Officer

In today’s insights, we will discuss some of the key benefits of using an Outsourced Chief Investment Officer.  Outsourced Chief Investment Officer (OCIO) is a growing service, where financial advisors, family offices, endowments, pension funds and other institutions seek an outside firm for help to manage their core assets. Employing an OCIO can be an essential step in improving the efficiency of the investment decision-making process by employing the resources and the expertise of an outside firm.

In fact, the 2016 NACUBO – Commonfund study of endowments revealed that 43 percent of the respondents had substantially outsourced their investment management function, up significantly from 2010’s report of 34 percent. Eighty-four percent of the study participants reported using a consultant for various services related to investment management


Managing growth

One of the most common reasons why clients seek our services is to manage their growing asset base. While fast growth is a good problem, it brings more responsibilities and higher investment and operational risk. For instance, one of our key clients increased their asset base 400% within 12 months. In that short period, we created an infrastructure to integrate new incoming accounts into the existing portfolio structure. While at the same time we worked on eliminating operational deficiencies and establishing an investment committee.

Asset complexity and customization

Organizations have unique investment goals and appetite for risk.  We regularly observe customer portfolios with significant investment concentration and need for diversification.  Additionally, we see that many organizations have specific tax or liquidity constraints that can hinder their investment decisions.  There is also a growing need for socially responsible and faith-based investing.  An outside CIOs can help clients efficiently navigate through the ever-growing complexity of customized investments and financial decisions.

Asset Liability management

As of December 31, 2017, the average endowment surveyed by NACUBO-Commondund Study has generated a 10-year return of +4.6%. This return is substantially lower than their long-term target rate of 7% which is necessary to support spending and operational cost. For a $10m foundation, this gap could result in a $3.9m asset shortfall in just 10 years and over $14m shortfall in 20-years.

Real-time oversight

Investment portfolios need real-time management.  Financial markets are risky and often move very fast. Our customers know that their complex portfolios require continuous supervision from experts who can monitor investment risks and take advantage of tactical opportunities.

Performance pressure

The rise of ETFs and low-cost index investing created enormous pressure on organizations to improve their returns. Our team of experts can establish a dynamic process for evaluating external managers and passive investment strategies. We are a firm believer of risk-adjusted performance. Therefore we continuously scan the investment universe for managers with an outstanding history of achieving risk-adjusted returns and recommend them to our clients.

Risk management

Identifying and understanding the risks in our clients’ portfolios is a critical element in our investment management process. A robust risk and trading system can make a huge difference in a volatile market environment. As OCIO, we can implement ongoing risk management using daily monitoring, hedge strategies, portfolio stress testing, and risk modeling.

Free up internal resources

Our clients often rely on an investment committee and small internal staff to operate and manage their assets.  Hiring a full-time portfolio manager can be a lengthy, challenging and often costly process. By engaging an external CIO, our clients can free up their already stretched internal resources and focus on their core services in a cost-effective way.

Accelerated investment process

In a dynamic market environment, many of our clients benefit massively from an accelerated investment process. Our OCIO service helps our clients make faster strategic and tactical investment decisions. We also assist in the timely implementation of portfolio infrastructure and operational tasks.

Fiduciary advice

Our clients highly appreciate the value of fiduciary advice aligned with their specific goals, needs, and objectives. As a fiduciary OCIO, we must provide advice, investment management and guidance in our clients’ best interest.

Open architecture

An outsourced CIO can implement an open architecture investment portfolio to allow for expanded investment options in all asset classes and categories. The open structure can lower cost and provide diversification.  With our ongoing investment due-diligence process, our customers can choose from a broad pool of investment options including index funds, factor-based ETFs, and top-ranked portfolio managers.

Cost control

As OCIO, we can help clients reduce their overall investment management and administration cost. We often see clients locked-in expensive investment management agreements or using high-cost mutual funds and fee-loaded strategies with lackluster performance. Our fiduciary client commitment allows us to evaluate a wide range of investment strategies and recommend those with the lower cost and higher risk-adjusted return.



About the author: Stoyan Panayotov, CFA is the founder and CEO of Babylon Wealth Management, a fee-only investment advisory firm. Babylon Wealth Management offers highly customized Outsourced Chief Investment Officer services to professional advisors (RIAs), family offices, endowments, defined benefit plans and other institutional clients. To learn more visit our OCIO page here.

Disclaimer: Past performance does not guarantee future performance. Nothing in this article should be construed as a solicitation or offer, or recommendation, to buy or sell any security. The content of this article is a sole opinion of the author and Babylon Wealth Management. The opinion and information provided are only valid at the time of publishing this article. Investing in these asset classes may not be appropriate for your investment portfolio. If you decide to invest in any of the instruments discussed in the posting, you have to consider your risk tolerance, investment objectives, asset allocation and overall financial situation. Different investors have different financial circumstances, and not all recommendations apply to everybody. Seek advice from your investment advisor before proceeding with any investment decisions. Various sources may provide different figures due to variations in methodology and timing,


About Stoyan Panayotov

I am a fee-only financial advisor and the founder of Babylon Wealth Management. As fiduciary advisors, we provide bespoke wealth management and personalized financial planning to busy families in the Bay Area and nationally. Many of our clients are tech workers, physicians, business owners, professionals preparing for retirement and young families looking to build financial independence.

I started Babylon Wealth Management to help young families and successful professionals build, grow and preserve their wealth. Being a fee-only financial advisor, I never earn sales commissions or sell investment products. Furthermore, I am committed to acting in my clients’ best interest by providing trusted advice and bespoke wealth management solutions. I enjoy helping clients develop robust and personalized long-term financial plans to achieve their personal and financial goals.

After completing a bachelor’s degree in Accounting at Varna University of Economics in Bulgaria, at the age of 23, I moved to New York City to pursue a Master of Business Administration at Pace University. I was fortunate enough to have a full merit-based scholarship and finished graduate school with no student loans. Upon completing grad school, I joined the ranks on Wall Street for nearly two years. I specialized in risk management and option strategies for equity and fixed income products for Deutsche Bank and Wells Fargo. In 2006 I obtained a highly recognized CFA designation.

Living in New York without family support was a life-changing experience for me. II arrived at JFK Airport on August 24, 2002. I stayed in a hostel for two weeks and later moved in with three of my fellow Bulgarian students into a one-bedroom apartment in the Bronx. There was a time in life when all I owned was $200, just enough to pay for the next month’s rent. Many times, I contemplated returning to Bulgaria, but somehow, I always pushed through life’s adversities. I’ve learned to appreciate each moment, big or small, that life presents. These challenges have helped me develop strength and flexibility, which supports my practice as a financial advisor.

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