How much authority should we give our “experts”?

In our hectic lives, we outsource many tasks to the relevant experts. We send our clothing to the dry cleaners, have others mow and landscape our lawns and even have companies sell our unwanted personal items on eBay.

We relinquish these tasks not only because it saves us time, but also because we trust the specialists to do a better job than we could ourselves. The same principles apply to the institutional investment world.

There’s a new trend taking hold among endowments, foundations, health care organizations and pension plans. These organizations typically work with investment consultants to help them manage hundreds of millions of dollars of funds. Now, these organizations are asking their consultants to do more; they are outsourcing their decision-making authority to their consultants.

In the 2014 Outsourced Chief Investment Officer (OCIO) survey conducted by Chief Investment Officer magazine, 43% of asset owners surveyed currently outsource or plan to do so in the next 24 months. Benefits of discretionary consulting include more active, timely implementation, increased staff efficiency and more efficient use of Investment Committee time. The asset owners say they’re moving in this direction to achieve better risk management, a need to increase returns and cost savings. They also claim that an OCIO arrangement compensates for a lack of internal resources, and provides additional fiduciary oversight and quicker implementation and decision-making.

J Keith Mote Jr, Managing Director of Pavilion Advisory Group says it’s not an all or nothing approach. With discretionary consulting, organizations can choose how much of their decision-making authority they wish to delegate.

The key factors to success for any sort of discretionary relationship is clear articulation of roles and responsibilities of the investment consultant, the board, the committee; having firm policy and governance structures in place and, ultimately, trust in who that advisor is.

Mote says Pavilion views discretionary consulting as a strategy, not a product.

We can act as an extension of staff by providing additional resources for responsibilities such as retaining and terminating managers, implementing changes in asset allocation strategy based on pre-determined parameters and /or actively managing certain assets in your portfolio.


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