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When an Endowment Should Outsource the CIO Role
Adapted for endowment and foundation boards from Chapter 17 of The Single Family Office by Richard C. Wilson.
Most endowments under $1 billion can't afford a full investment office. That is the plain reason outsourced CIO firms exist.
I first wrote about outsourced CIOs for single family offices. The logic carries straight over to endowments and foundations, because the same firms serve both. Many outsourced CIO firms already work with multiple families, endowments, foundations and pension plans at once.
What you are really buying
When a board hires an outsourced CIO, it is buying three things it would struggle to build alone.
- Talent. A seasoned CIO plus analysts for each asset class is expensive. A $150 million college can't pay for that team and still meet its spending policy.
- Pattern recognition. A firm advising dozens of institutions has seen more manager blowups, more fee negotiations and more rebalancing mistakes than any one in-house person.
- Tools. Risk reporting software and manager databases cost real money. For a small institution, those systems can eat a big share of the budget.
The size question
NACUBO's FY2025 public tables show 172 of 657 reporting U.S. institutions had endowments under $100 million, and another 154 sat between $101 million and $250 million. That is about half the field. Those are the institutions where the math on a full in-house office rarely works.
That doesn't mean big endowments never outsource. Some do it for one sleeve, such as hedge funds or private credit, while keeping the core in house.
Questions to answer before you hire
- Do we want the firm to advise only, or to make trades and pick managers for us?
- Which assets will stay with our own staff or committee?
- How will the committee measure the firm, and against what benchmark?
- What does it cost to leave if the fit is wrong?
From my work with families and institutions
The families I have seen do this well treat the outsourced CIO as a hire, not a vendor. They get references, talk to other clients and get to know the people over months before signing. Endowment boards should do the same. A three-year contract with the wrong firm is a long time in a portfolio that is supposed to last forever.
Make sense?
If you are on an investment committee weighing this, start with the list above. Write your answers down before the first pitch meeting, not after.
Frequently asked questions
Is an outsourced CIO the same as an investment consultant?
They overlap. A consultant usually advises and the committee decides. An outsourced CIO often has discretion to act, depending on the contract.
What size endowment usually outsources?
There's no fixed line. The pressure is highest below a few hundred million dollars, where a full staff costs too much relative to assets.
Can we outsource only part of the portfolio?
Yes. Many institutions keep some assets in house and hand one area to an outside firm.
Sources
- The Single Family Office, Chapter 17, Richard C. Wilson .
- NACUBO-Commonfund Study of Endowments, FY2025 public table, number of respondents by size: https://edge.sitecorecloud.io/nacubo1-nacubo-prd-dc8b/media/Nacubo/Documents/EndowmentFiles/2025-NCSE-Public-Tables--Number-of-NCSE-Participants-FINAL.pdf
