Bruce Friesen spent his career building a boutique investment advisory in Oakville, Ont. Now that he’s set to retire, the president of Global Investment Solutions wants his clients, a mix of high-net-worth families and foundations, to remain in good hands.
To Friesen, that means recommending they hire outsourced chief investment officers (OCIOs).
“It’s just a much better platform than a traditional advisor, because the OCIO can own the assets, where I can only advise,” says Friesen. “So, I make my clients make the decision.”
Friesen isn’t alone. While the OCIO model is more popular south of the border—OCIO assets nearly doubled between 2016 and 2023 in the United States, according to investment firm SEI—it’s an investment management trend that’s gaining traction among family offices in Canada, too, Friesen says.
The reason is simple: OCIOs, as asset management firms or consultants, are responsible for the management and administration of a family office’s investments. They also make asset allocation decisions and simplify portfolio management for endowments and foundations that lack the resources to hire an in-house portfolio management team.
The result is a single set of documents and performance reports—rather than one from each manager—which reduces administrative burdens. And, as third-party providers, OCIOs free up family office staff, who can then focus on core priorities or philanthropic ventures.
For a fee of 15 to 30 basis points plus manager fees, OCIOs offer adaptive strategies, diverse manager lineups and clear communication, says Friesen. The asset classes they invest in may be liquid, such as ETFs and other index strategies, with some exposure to illiquid investments or other alternatives. Conversely, some OCIOs focus solely on alternative investments and illiquid investments, according to SEI. The end goal is to develop and actively manage an investment strategy that meets the family’s aims.
Brennan Carson, partner and portfolio manager at Equate Asset Management, an OCIO based in Toronto, says family offices are looking for OCIOs that can provide an independent perspective on strategy and asset allocation, as opposed to the larger consulting firms that integrate in-house investment management products into their consulting model.
“I think the organization, whether it’s an institution or a pension, they step back and say, ‘Look, we don’t have this expertise in house—and homogeneity doesn’t work,’” he says.
“[OCIOs] really arm the client with a broad, deep perspective on what’s happening out there, as opposed to any sort of bias or groupthink.”
Freeing up time
For endowments and foundations, working with multiple managers can be problematic and time-consuming, says Friesen.
“They have to sign all the forms, they have to get all the reports,” he says. “Then they have to blend it all together to get one report on how they did as an entity.”
With an OCIO, the client ends up with one set of documents and one report, he says.
“They get the charts and graphs and they can then look at these numbers and say, ‘Wow, my manager did really well,’ or ‘I need to have a conversation with my manager, because things didn’t turn out so well,’” says Friesen.
Exposure to more funds
Continuing volatility in the markets makes choosing the right investment managers and strategies more important than ever, says Craig Harrison, president of Global Manager Research, a data aggregator based in Oakville that produces investment reports on the performance of institutional and high-net-worth funds.
“In the past, you had to have multiple managers, which caused a lot of work for an endowment fund, or you had a single manager,” he says, a reality that can limit performance.
“There’s no way a single manager can be best-in-class in every asset class. If you want best-in-class of every asset class, you need to find an OCIO manager who’s on a platform that can have access to that kind of exposure to those funds,” Harrison adds.
Fees must be considered, too, says Arthur Salzer, founder, CEO and CIO of Northland Wealth Management in Oakville.
“Once you get outside large and medium-sized pensions and foundations and endowments that might go to a Mercer or a Russell in the United States—and those fees start at the low end at $250,000 or go to $500,000 to a million dollars a year, base fee—many Canadian participants don’t have that kind of budget,” Salzer says.
Plus, the dealer channel in Canada is limited in its offerings, he adds.
“They might have some bank products, some external equity managers, but it’s far from being open architecture where the investor has access to pretty much every asset class, as well as many vetted managers,” he says.
Salzer says OCIOs can help clients find higher-quality managers, which results in better reporting, better compliance and potentially higher returns, as well as fewer conflicts of interest.
“You really need to go to a solution outside of the dealer channel,” he says.
Carson says his role as an OCIO allows him to pull in best-in-class managers who can serve the individual needs of the clients he works with.
“You can go out and source the best risk management tools, the best reporting tools in terms of consolidated reporting and cash flow management. It really allows that OCIO to be as flexible, responsive and adaptive to the client’s needs as possible,” he says.
“It’s an open-architecture, fiduciary-oriented approach with the OCIO,” Carson adds, “where I really feel like we’re stripping away conflicts of interest, optimizing fees and really creating the opportunity to have true active management.”
Also: How to choose the best outsourced CIO for your family office or foundation
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