EXPLORING OCIO VALUE
Recommendations for an uncertain road ahead
Investment, economic and social factors throughout 2020 brought a variety of unique challenges for pension plan sponsors. Overcoming these challenges starts with a plan that is made before it is needed and then focuses on making informed, timely investment decisions that prudently balance risk and return.
We are pension investment managers. We can help.
Decades of portfolio management experience have endowed us with insights that can help you navigate market challenges. Watch our video series below to learn what our pension investment leaders have observed—and what they recommend for your portfolio.
Client Case Study 1
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Client Case Study 2
Client Case Study 3
Client Case Study 4
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The plan sponsor of a large, frozen defined benefit plan is seeking an OCIO with pension expertise and a proven platform
To improve funded status, the sponsor has made small discretionary contributions over time and now seeks a sophisticated de-risking strategy that can protect the progress made without sacrificing too much return potential across the portfolio
Insights, Answers, and Four Case Studies
As pension plan sponsors chart the path to achieving their funded status goals, Outsourced Chief Investment Officers (OCIOs) have increasingly been considered as a solution to portfolio management challenges. Yet despite their prevalence, many defined benefit plan sponsors have questions about what an OCIO does and whether the model can fit their unique needs.
De-risking to protect funded status improvements while continuing to grow
Ability to minimize funded volatility while generating needed returns
Actuarial investment skill and experience, in order to develop a sophisticated liability hedge and glide path
A track record of identifying and accessing investment opportunities that would add value to the portfolio
To de-risk, CA shifts a sizable portion of the growth portfolio to a hedging allocation, efficiently implementing the decision in time to mitigate the impact of a subsequent market decline
CA establishes a glide path based on interest rate triggers and funded status levels, using derivatives to enhance the interest rate hedge ratio and leveraging its streamlined implementation process to achieve essential execution speed
CA constructs and implements a diversified growth portfolio of high-quality managers designed to achieve the plan’s return targets
Over more than three years, the plan funded status has not only been protected but has improved, despite a period of falling interest rates. While incurring periods of sharp market volatility during this timeframe, plan objectives have been achieved.
CLIENT CASE STUDY #1
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De-risking to protect funded status improvements while continuing to grow
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Realizing the differing objectives of multiple investment pools while ensuring capital efficiency
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Achieving growth for an underfunded plan without sacrificing liquidity
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Restructuring a plan sponsor's underperforming private investment portfolio
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Over 10+ years, CA has helped achieve plan goals while building a strong relationship with the investment committee. As a result of a more efficiently aligned portfolio strategy and strong partnership, the hospital has been able to achieve needed outcomes while avoiding undue strain on its own internal investment and operational resources.
Outcome
CA provides strategic guidance on optimizing each asset pool for returns, liquidity and other unique objectives of hospital
CA leverages its institutional scale and synergies across the multiple pools to source managers and, where possible, negotiate favorable fees and terms
Investment committee meets quarterly with CA to review performance and approve manager hires/terminations while delegating rebalancing authority to CA
Solution
Understanding of complex hospital investment systems and their investment pools, and their direct impacts on the enterprise’s financial health
An investment partner who can source best ideas while allowing the Investment Committee to retain veto power
Significant investment and operational support, in light of hospital’s budgetary constraints and lean staff
Client Needs
A hospital’s highly engaged investment committee is responsible for multiple mission-critical investment pools, each with distinct liquidity needs and investment objectives
The committee recognizes the need to optimize value and capital efficiency across pools and seeks an OCIO to develop a more sophisticated and coordinated plan, and manage day-to-day oversight
Background
Total Portfolio | Semi-Discretion | Non-Profit Hospital with Multiple Asset Pools
Realizing the differing objectives of multiple investment pools while ensuring capital efficiency
CLIENT CASE STUDY #2
By implementing a more sophisticated manager lineup, the plan sponsor has been better positioned to achieve its return targets while incurring a lower overall investment cost. As a result, funded status has improved without compromising on the plan’s liquidity goals, investment committee buy-in has strengthened, and all constituents have a greater sense of transparency and confidence in their plan.
Through an enterprise and program review,
CA determines the existing program is both too simplistic and too costly to achieve plan objectives
CA develops a plan to upgrade the portfolio through a diversified combination of liquid managers with high equity orientation and defensive managers to help dampen volatility
To lower the total investment cost, CA uses its institutional scale and established manager relationships to negotiate favorable fees and terms for the client
CA leads regular educational sessions to build committee members’ investment understanding and ability to participate in strategic discussions
A comprehensive analysis of the current strategy and investment choices
An investment partner that can create a path toward improving funded status
A partner that can educate and engage a group of stakeholders with widely varying investment knowledge, all of whom need to understand and endorse the portfolio strategy
An underfunded, open public pension plan sponsor recognizes that its current investment program is not delivering the strategy and high-quality ideas that will move the plan towards fully funded status
Total Portfolio | Full Discretion | Public Plan
Achieving growth for an underfunded plan without sacrificing liquidity
CLIENT CASE STUDY #3
As a result of CA’s full-service approach, the plan sponsor’s administrative burden has been minimized, enabling the in-house investment team to focus more effectively on overall portfolio strategy and investment decisions outside of the PI portfolio. In addition, CA’s contributions to the PI program have helped the plan sponsor better meet expectations for this critical contributor to the plan’s growth.
Internal CIO and investment staff set overall asset allocation policy, including target PI allocation, while CA develops formal guidelines and PI program framework, including pacing plan
CA evaluates the legacy assets, identifies opportunities to streamline and enhance the portfolio, facilitates the sale of legacy assets in the secondary market, and reinvests proceeds into higher performing PI investments
CA curates a list of high-conviction manager ideas, secures access, performs legal reviews and submits subscription documents
CA manages all investment operations and meets all of the plan sponsor’s reporting requirements
Enhance overall portfolio performance and improve funded status
Partner with a knowledgeable PI practitioner to create a framework and overall program structure
Leverage experience and skill to source manager ideas, diligence and implement program
Evaluate secondary sale of underperforming legacy portfolio
A public defined benefit plan has an internal CIO and investment team who oversee total portfolio risk as well as manager selection for long-only asset classes
With limited investment staff, the team does not have the resources or skillset to effectively cover the vast universe of private investment (PI) managers and consequently is not achieving expected returns
Single Asset Class (PI) | Full Discretion | Public DB Plan
Restructuring a plan sponsor’s underperforming private investment portfolio
CLIENT CASE STUDY #4
What does success look like?
How will we work together?
Where can an OCIO play a role?
What are my decision-making options?
What assets can be outsourced?
What needs can an OCIO help us meet?
Outsourcing is a multi-faceted decision and in order to achieve the right solution, plan sponsors should consider the various inputs that shape an outsourcing relationship. To help determine how outsourcing may fit your unique needs, consider the following questions.
OCIO and your unique needs
1
Motivations
Assets
Authority Model
Functions & Roles
Relationship
Investment underperformance
Pension management
knowledge gap
Resource ROI / Cost management
Risk mitigation
Different organizational priorities
Multiple asset pools or plans
A single defined benefit plan
Multiple asset classes
A single asset class
Grant OCIO full discretion
Retain veto/approval and grant partial discretion
Different levels across pools or asset classes
Pension plan strategy
Investment strategy
Manager selection
Investment operations
Portfolio oversight
Reporting & performance measurement
Consistent connections with Investment Committee
Frequent engagement
with investment staff
Regular collaboration
across levels
OCIO relationships look different depending on the needs of each unique plan. To help illustrate these differences and demonstrate the benefits of OCIO across different situations, below are four high-level case studies outlining real client experiences.*
OCIO for your needs
OCIO success metrics look different based on the unique needs of the plan
Explore different situations and OCIO relationships below in our client case studies
Your plan is unique.
Contact us to discuss your specific needs and objectives.
Explore OCIO and Your Unique Needs
Answers to Commonly Asked Questions
OCIO Client Case Studies
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Answers to commonly asked questions
Sona Menon, Cambridge Associates' North American Pension Practice Head, answers plan sponsors' commonly asked questions, sharing her insights on the evolution of OCIO, what different OCIO relationships look like, and what she considers to be the keys to success.
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4
*These narratives have been fictionalized to ensure anonymity, but are based on actual client work.
**CA does not benefit nor receive compensation from managers in negotiated situations. All economic benefits accrue to our clients directly. Does not reflect the complete scope of feedback and influence on terms; includes negotiations that are no longer actively available to new capital. Terms may not be available to all CA clients; may be contingent on certain criteria such as client type, investment amount or aggregate CA capital invested with a manager or in a specific product; and are subject to change at the manager’s discretion. For CA clients with non-discretionary relationships, fee, access, minimum, and other preferential terms are offered at-will. Managers may cease any such concessions at any time unless formal documentation between the manager and the client(s) has been executed.
Total Portfolio | Full Discretion | Corporate DB Plan
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Connect with a pension investment professional
What Value Can OCIO Provide to Pension Plan Sponsors?
Overview
Grant OCIO full discretion
Retain veto/approval and grant partial discretion
Different levels across pools or asset classes
Pension plan strategy
Investment strategy
Manager selection
Investment operations
Portfolio oversight
Reporting & performance measurement
Consistent connections with Investment Committee
Frequent engagement with investment staff
Regular collaboration across levels
Consistent connections with Investment Committee
Frequent engagement with investment staff
Regular collaboration across levels
OCIO success metrics look different based on the unique needs of the plan
Explore different situations and OCIO relationships below in our client case studies
Solution
Client Needs
Background
ANSWERS TO COMMONLY ASKED QUESTIONS
CONTACT US
CLIENT CASE STUDIES
EXPLORE OCIO AND YOUR UNIQUE NEEDS
Jump to:
Solution
Client Needs
Background
Outcome
Outcome
Solution
Client Needs
Background
Outcome
Solution
Client Needs
Background
Grant OCIO full discretion
Retain veto/approval and grant partial discretion
Different levels across pools or asset classes