When TIAA’s outsourced chief investment officer business unexpectedly shut down in November, clients were shocked.
With the industry becoming ever more crowded, it’s likely that TIAA won’t be the only OCIO business to close. So what’s an allocator to do?
OCIO consultant Dennis Sugino, founder of Kansa Advisory, shared his advice with Institutional Investor about how clients can get ahead of another firm’s closure.
What to Do If You Get “TIAAed”
Have an exit plan — including measures like below — that you refresh from time to time.
- Temporarily bridge the portfolio by indexing liquid assets
- Retain the OCIO who came in second in a recent search
- Get familiar with advisors who could conduct a replacement OCIO search
- Remember that this plan may be no different than the exit plan your OCIO has in place for an underlying manager in your portfolio
Consider specifically what to do about illiquid private equity investments in commingled funds.
- Typically, when you terminate an OCIO, the private equity fund documents still require that the OCIO continue to manage the fund for up to 10 to 15 years
- If the OCIO terminates you by going out of business, who will manage that fund?
- Clients may want to create a private equity advisory board to hire a general partner to manage or oversee the portfolio, liquidate and distribute it, or sell it on the secondary market. This is all subject to the language in the OCIO’s private equity fund documents and negotiations with the firm.
Monitor the business of your OCIO in addition to its investment performance.
- Ask for the firm’s financial statements
- Find out who the other clients are, and whether the OCIO’s assets under management are growing or shrinking
- Ask about clients the OCIO provider has gained and lost, and to explain the losses
- Ask about other products available or planned beyond the OCIO strategy
- Conduct a comprehensive business and investment portfolio due diligence review of your OCIO every three to five years