What are Outsourced Investment Officer (OCIO) Services?
An Outsourced Investment Officer services or OCIO provide support in terms of research and analytics for investment decisions by a company, Private Equity or Venture Capital Fund, Hedge Fund, Family Office, or an Investment Bank. Simply put, An Outsourced Chief Investment Officer fills in for a regular Chief Investment Officer as and when required. Mostly it comprises activities that support a CIO in performing his services effectively.
When is OCIO needed?
Outsourced Chief Investment Officer services are designed for funds like Private Equity, Venture Capital, and Hedge Funds, and for Family Offices, Investment Banks, and M&A functions of Corporates
When it makes sense to outsource Chief Investment Officer?
It’s not possible to hire a full-time CIO in all situations. In many business scenarios, there is a requirement of a team that supports the CIO. This size of the team changes as per the deal flow. Some of these situations are:
-The fund is small and cannot afford a full-time CIO
-The fund is still raising and cannot onboard a full-time CIO unless the fund reaches its target close
-A full-time CIO is there but there are way too many investment decisions that need analysis and hence the requirement of a trained investing team
-A Corporate house is looking for a specific opportunity of M&A and does not want to hire a full-time CIO for a few deals here and there
What are the advantages of an Outsourced Chief Investment Officer?
Outsourced Chief Investment Officer makes an absolute sense when looked at from the cost perspective. When outsourced to a low-cost country, OCIO could produce a benefit of a 30-70% reduction in cost by either outsourcing the CIO or the team or some of the functions and projects. A specific function where the in-house team lacks the expertise could be outsourced as well. Here are the typical advantages of outsourced CIO:
–30-70% reduction in the costs depending on the location from where the outsourcing takes place
–A plug and play outsourced Chief Investment Officer model where a CIO comes into play when required. If there is only one deal that has to take place in a year, it makes sense to hire a CIO for only as many days as required. Outsourced CIO fits in perfectly for this requirement
–A specific Skillset requirement: With complex investing scenarios and multiple complex options in investing, there are many niche skills that are required to make an investment decision. Outsourcing could be done for these niche skills whenever required
–Team Augmentation: This is the most important advantage of outsourcing the CIO. It’s not about replacing or hiring an outside CIO, it’s about augmenting the team under the current CIO. It may so happen that business requires enhanced analyst capacity due to increased deal flow or a few special one-time projects. Outsourced Chief Investment Officer Services fill in perfectly here and augment the team as required
Activities under Outsourced CIO
The activities that come under OCIO are either the overall decision analytics or a particular subset of activities that lump under the investment decision making process. Here are the activities that form the major part of Outsourced CIO services:
Activities provided under OCIO services
Investments
Research and Analytics services for investments are performed under this service. The investment could be done in companies, stocks, funds, or real estate. Almost all the subset of activities could be outsourced. Here are the typical examples of the projects
-Finding out the right price for a company stock
-Finding out the valuation of a private or a public company
-Doing due diligence of a fund or a company before investment
-Originating deals as per the investment objectives of the fund
-Maintaining and populating the deal pipeline for future deals
-Profiling potential companies or investing
-Profiling various Hedge funds for investing in case of Fund of Funds
-Other Strategy, Research, or Marketing tasks
Portfolio Management
Research and Analytics services that are required for the smooth functioning of portfolio companies come under this. For Hedge funds, it will be continuously evaluating long-short positions. Here are the typical projects that could be outsourced:
-Valuation of portfolio companies
-Research support for portfolio companies
-Marketing and Business development support for portfolio companies
-Evaluating long term long and short positions of a long-short equity hedge fund
-List generation for a portfolio company to sell its products
-Lead generation for further acquisition or finding a buyer of the company
-Market entry strategy for a new market or a new product
-Annual business plans
-Key accounts management for major clients of the portfolio companies
-New product development and related market research for portfolio companies
Operations
Under these services are the activities that enable the smooth functioning of a fund. This comprises Middle and Back office operations outsourcing. Some of the examples of the projects undertaken are:
-Fund administration services
-Annual and quarterly audits
-Tax preparations
-Investor portfolio accounting, subscriptions, and redemptions
-Fee waterfalls
-Middle office outsourcing
-Back office outsourcing
-Trade accounting
-Exception handling
-Cash and Trade reconciliation
Under this multiple software also could be used to make sure many of these activities are automated and processes efficiently
Outsourced Chief Investment Officer Model
The way an outsourced CIO model works is by hiring FTEs offshore. FTE stands for Full-Time Employees/Equivalents. These are the offshore-based analysts who support multiple tasks related to investment research and decision making. Apart from hiring full-time resources, there are options for buying analyst hours or outsourcing a specific project.
Magistral Consulting has helped multiple funds and companies in outsourcing CIO related activities. It has service offerings for Private Equity, Venture Capital, Family Offices, Investment Banks, Asset Managers, Hedge Funds, Financial Consultants, Real Estate, REITs, RE funds, Corporates and Portfolio companies. Its functional expertise is around Deal origination, Deal Execution, Due Diligence, Financial Modeling, Portfolio Management and Equity Research
For setting up an appointment with a Magistral representative visit www.magistralconsulting.com/contact
About Magistral
Magistral is a leading research, analytics, and consulting services provider for Investment Banks, Private Equity, Venture Capital, Family Offices, and Hedge Funds. It has more than 100 clients across the globe. If you need any of Magistral’s work samples or need to talk to any of its existing clients and referenced drop a line at www.magistralconsulting.com/contact
About the Author
The Author, Prabhash Choudhary is the CEO of Magistral Consulting and can be reached at Prabhash.choudhary@magistralconsutling.com for any queries or business inquiries.