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Matching an Outsourced CIO to What Your Endowment Already Owns
Adapted for endowment and foundation boards from Chapter 17 of The Single Family Office by Richard C. Wilson.
In the book I gave a simple example. If a family has big Latin American holdings, it needs a CIO firm that actually understands Latin American economies. Otherwise the firm will either ignore those assets or sell them to make the portfolio look like everyone else's.
Endowments have their own version of this problem.
The legacy portfolio is real
Few endowments start from a blank page. They inherit:
- Gifts of stock in one company, sometimes the donor's own
- Commitments to private funds that still have years of capital calls left
- Real estate given by alumni or bought decades ago
- Mission-related investments the board approved
- Restricted funds with their own investment terms
An outsourced CIO has to work with that, not around it.
A simple test before you hire
Hand each finalist a one-page summary of your current holdings. Then ask three questions.
- What would you do with this portfolio in the first 12 months?
- Which positions would you sell, and why?
- Which ones are outside your team's skill set?
The third answer matters most. A firm that says it can handle everything is either very rare or not being straight with you.
Private fund commitments deserve their own look
If you already have a book of private equity or venture funds, ask how the firm will monitor those managers. Will they treat them as legacy and let them run off? Will they reup with the strong ones? Who on their team knows those general partners?
A switch of outsourced CIO can quietly break relationships with managers who are hard to get into. That costs you for a decade.
Regional and sector exposures
Some institutions hold a lot in their home region. A Texas school may have oil and gas royalties. A Midwest college may own farmland. Ask for the firm's actual experience with that asset type, with names of clients you can call.
From my experience
The families I have watched do this well wrote down what they owned and what they wanted to keep before they ever met a firm. That one page changed every conversation. Pitches got specific fast, and the weak firms dropped out on their own.
Frequently asked questions
Should we sell legacy assets before hiring an OCIO?
Not by default. Some positions are hard to rebuild once sold. Get the new firm's view first.
What if a donor restriction ties up a gift?
The OCIO has to follow the gift terms. Counsel should review any restricted fund before the firm touches it.
How do we value gifted assets for the OCIO?
Usually through an independent appraisal, reviewed by your auditors.
Sources
- The Single Family Office, Chapter 17, Richard C. Wilson .
