About eight years ago, Temple University evaluated various investment models, ultimately zeroing in on an OCIO model for its endowment, pension and post- retirement funds, said Ken Kaiser, the university's senior vice president and chief operating officer.
"We went through a pretty rigorous RFP process where we hired a consultant to help us because it was pretty complicated and the universe of possible OCIOs is vast," Mr. Kaiser acknowledged.
Temple officials ultimately selected Strategic Investment Group to manage all of its $803 million endowment, along with $68 million and $361 million in pension and post-retirement assets, according to board documents.
Mr. Kaiser said the OCIO has "professionalized" the school's investment operation.
"They have strengthened our board's fiduciary responsibility to the university by making sure that we are getting the best guidance, best advice, and best execution of all of our investments vs. being driven by a board that is not investment professionals."
He added: "From a staff perspective, it (the OCIO model) really shields the staff from what I would call nonsense where you are being asked by the board or others to 'talk to this firm' and it turns out to be a firm with local political ties trying to get a piece of the endowment or something. It's very easy to punt that to the OCIO, and in most cases, those firms don't make it through the OCIO's filter."
The ability to change course quickly in fast-moving markets is another benefit of the OCIO model, Mr. Kaiser said.
"Prior to working with an OCIO, if something was happening and we needed to make a move, you'd have to wait until the next investment committee. You'd possibly have to bring in two or three managers. So by the time you're ready to make a move in response to something or in anticipation of something, it's too late. With the OCIO they just execute where appropriate."
Temple's board set the asset allocation according to an investment policy statement the board created with input from the OCIO, which then executes on allocation decisions. The OCIO is responsible for all of the risk management, and hiring and firing of managers. A separate consultant monitors the OCIO, which Mr. Kaiser declined to name.
Mr. Kaiser said going through the OCIO RFP process helped crystallize Temple's investment philosophy because staff had to get specific about what they wanted the OCIO provider to do.
"I think the big misconception is that the investment committee is not fulfilling our duty if we give an OCIO full discretion over our portfolio," Mr. Kaiser said. "However, through our research, as we were deciding on which investment model to select, everything pointed to us actually improving on our fiduciary duty and fulfilling our responsibilities with an OCIO as long as we are monitoring them and not just handing them the keys and walking away."