Increasingly, plan sponsors are redefining their investment consulting relationships by affording the consultant discretionary authority over investment decisions.  This concept is known as Outside Chief Investment Officer or OCIO.  As this is a relatively new development within the Taft-Hartley sector, we have asked Brian Schroeder of OCIO Monitor to provide some background on the trend and talk about how to evaluate the services provided by the consultant.

For a list of OCIO search providers, email Traci at

Narrator  00:00:

This is The World of Multiemployer Benefit Funds podcast with your hosts, Tom Shanklin and Traci Dority-Shanklin, managing partners at Sisu Investment Partners. If you’re interested in labor and union benefit funds, well you’ve landed in the right place. We are a go-to source for all things union benefit fund related, and we are going to bring you interviews with key decision makers and fund professionals that guide these plans. They’ll share their insights, experience, unique perspectives, all of the latest developments and tips to unlock the mysteries of multiemployer benefit funds. The time is short, so let’s get started. Please welcome Tom and Traci.

Traci Dority-Shanklin  00:44:

Today’s guest is Brian Schroeder who is the founder for OCIO Brian is an investment professional with over 25 years of institutional experience as both a manager and consultant working with multiemployer plans. In 2010, he trailblazed a path and became a consultant, assisting plan sponsors to perform due diligence on their investment consultants. Not only did he answer for the plan sponsor the question, “Does our investment consultant add value?” But his work also helped plan sponsors to improve their processes through pattern and decision analysis. Earlier this year, he pivoted his business focus to help plan sponsors monitor their outside chief investment officers. Brian has an undergraduate degree in economics and a master’s in financial analysis. He is a published author and a regular speaker at industry conferences. He lives in Salt Lake City. This interview is definitely for any plan sponsor considering hiring an outside chief investment officer for a consulting firm that has an out OCIO model as part of their business and for the money manager who sees the client development landscape changing. So, with that, let’s dive in. So, welcome, Brian. We’re so excited to be here today and to have this conversation about OCIO’s. Knowing that OCIO model has become quite popular these days. So Brian, we like to start all of our interviews just asking you, how did you come to this career of monitoring, um, OCIO’s?

Brian Schroeder  02:27:

Well, every story has a beginning and you know, mine actually goes back to, uh, somehow investing is in my blood. I mean, I remember in sixth grade, I actually read Adam Smith’s “Money Game,” which is probably one of the – the first kind of exposing wall street books and I’ve just always had a fascination, uh, with markets and investments and went to school, studied economics and you know, my first job out was, uh, working in the financial industry and I slowly evolved and graduated, if you will, to joining a money management firm that focuses on the Taft-Hartley world, which is just so unique. It really is a family, which is kind of the focus that you’ve, I’ve heard in all your previous podcasts that it really is a different animal if you will. And so 16 years I was working for a money manager and I noticed that, you know, after we had four or five good years, we, we got hired and after having four or five bad years, we were getting fired.

Brian Schroeder  03:36:

So, I kind of figured out that what we’re doing as money managers didn’t really seem to make a lot of difference in the sense that once you have multiple, multiple money managers and you diversify your active manager risk, the real decisions that are really affecting, uh, the outcome for a plan sponsor isn’t happening at the money manager level. It’s happening at the consultant level. Things such as strategic asset allocation, rebalancing, hiring, and firing. So, after a 16 year career in money management, uh, I set out in 2009 and I founded my own company and we help plan sponsors perform due diligence on their investment consultant. And now, I made the strategic decision of no longer analyzing nondiscretionary investment consultants. The market’s going OCIO and I want to be on the cutting edge of providing the best, independent, objective, quantifiable, and understandable reports to help plan sponsors do the best they can when it comes to monitoring their OCIO.

Traci Dority-Shanklin  04:42:

Are more and more plan sponsors turning to the outsource chief investment officer model?

Brian Schroeder  04:50:

Well, there are many reasons why institutional plan sponsors are interested in the OCIO structure and more and more are adopting it. There’s just an increasing amount of complexity in the financial markets, and the need for faster execution and greater fiduciary protection in these more complicated markets make it a very attractive option, uh, for institutional plan sponsors. In addition, there is, I would call them non pecuniary benefits such as performance, attribution, clarity. There’s much greater a definition when it comes to governance of who owns the actual decisions and results of the investment outcomes. It’s really about streamlining the process and clearly defining responsibilities with the overall goal of improved outcomes.

Tom Shanklin  05:49:

Are there any standard pay structures for this service or is that still evolving?

Brian Schroeder  (05:56):

It’s definitely still evolving, Tom. It’s – it’s, we’re still kind of in the wild, wild West, if you will, of – of the OCIO uh, evolution. But ultimately, you know, price is what you pay and value is what you get. Although there is no type of say standardization or formal or informal databases talking about OCIO pay and performance. The, it seems that many of the RFPs that are being submitted to plan sponsors, it’s kind of having a floor of around five basis points of, uh, assets under management. That seems to be the fee. I’ve certainly seen some that are higher and some that are a little lower, but ultimately it’s up to the plan sponsor to, uh, understand that what they’re, the extra that they’re paying for should yield them greater returns, greater fiduciary protection and better outcomes.

Traci Dority-Shanklin  06:59:

Is there any performance, um, model or performance fee associated with these models or is it just a flat asset under management fee?

Brian Schroeder  07:08:

Well, I, I assume kind of like the hedge manager model of two and 20 and, and high water marks and things like that for a pay is out there. Uh, I haven’t seen any of it, uh, specifically, but it’s generally pretty much just a flat basis point fees. So in a sense, as the assets grow or potentially shrink, so will the pay for the OCIO.

Tom Shanklin  07:36:

Sort of an alignment of interest if you will. Do you see most plans simply giving the discretionary influence over to their consultant or are they doing RFPs for this or, or what is the trend today in the market?

Brian Schroeder  07:51:

Well, I think many plan sponsors, if they have an existing relationship with their investment consultant that they would certainly want to give first crack. If they’re going OCIO, obviously they have a relationship and track record of trust and converting to the OCIO would be a step in the right direction for the aforementioned benefits. But again, being a non-discretionary or three 21 investment consultant is an entirely different thing. Converting to an OCIO because an OCIO really isn’t a consultant anymore. They are a super manager, if you will, they’re manager of managers, and there are some consultants out there that are staying in the non-discretionary world. They say, we do not do OCIO. So, even though you may have trust in your existing consultant, simply giving them the OCIO mandate and converting because it’s a totally different strategy, it’s probably prudent for plan sponsors to at least test the market, send out an RFP, and just to see what else is available out there.

Traci Dority-Shanklin  09:05:

If you’re looking at a consulting firm, if a consulting firm is, is doing the OCIO or it is a specialized OCIO firm, do they have to have a certain threshold for their research team in terms of the depth of that bench?

Brian Schroeder  09:20:

Well, certainly having a deep bench and having research capabilities in the alternative space, that seems to be the more important area as say, publicly traded markets because so many plan sponsors and OCIO are turning more to passive strategies in the publicly traded, uh, markets. Uh, that being said, you know, more people, doesn’t necessarily make for better decisions. And so depending upon the higher strategies, if you will, of asset allocation and being able to work more directly with the specific needs of the plan sponsor vis-a-vis cashflow, funding status, overall, you know, risk and uh, you know, outlook and needs and comfort levels of the plan sponsor. I think that is probably more important than say how big the research department is.

Traci Dority-Shanklin  10:22:

I have a question though that’s a piggyback from that. I have noticed, um, or I’ve, I’ve been become aware on some of the funds that I’m talking to that there are almost like carve out OCIO situations. So in essence they have like you mentioned hedge funds that there’s a section of the assets that are alternatives that a hedge fund manager or others might even have discretion over or I know in the case of like one client where the consultant has a discretion over a certain chunk of the assets and it might be the private equity or are you seeing that? I mean it’s almost like the segmented segmentation of it.

Brian Schroeder  11:05:

Definitely that – that’s a very true point in that, first of all, there is no cookie cutter model and many plan sponsors and consultants are saying, well, we don’t need to be an OCIO when it comes to your large cap strategy, to your, you know, domestic, uh, bonds or international, et cetera. Because either they could be passive or be, it doesn’t necessarily require quick action or movement. I mean maybe the occasional rebalancing. So some plan sponsors are hiring OCIO specifically for the alternative space, so they can kind of bifurcate having a, the non-discretionary in the publicly traded sectors and OCIO or three 38 in the more private, more esoteric, the more, you know, deep dive into research.

Traci Dority-Shanklin  12:06:

If there is a fund, a plan sponsor that is interested in hiring an OCIO, how should they set out to conduct a search?

Brian Schroeder  12:15:

Well, conducting a search for an OCIO as you’re looking for someone to take on a lot more responsibility and authority to command plan assets. It’s a little bit different from just finding the average ordinary investment consultant. Traditionally, most plan sponsors would hand it off to a trusted provider. Often, an attorney or plan administrator to send out an RFP and kind of bring in, you know, the usual suspects that they know and may work with other mutual clients. But an OCIO is no longer a consultant. They are a manager. And when you are hiring a manager currently you’d do a search and you bring in an expert, your existing consultant to do a search. That same care and fiduciary process of really dotting the I’s and crossing the T’s. You should probably have someone perform a specialized search that knows the market, not just regionally or you know, the type of industries that you may be familiar with, but to actually go beyond. And there are a lot of firms out there that do specialize in an OCIO search. So if you’re going to go from a kind of small flat fee to paying, you know, five basis points and giving immense control and responsibility, you should probably pay up and get a true professional that, that specializes in hiring those CEOs.

Tom Shanklin  13:49:

Right. I would imagine there are different ways of implementing the OCIO model as well. Could you go into that a little bit in terms of how various plans, uh, chosen to give these responsibilities to the consultant?

Brian Schroeder  14:03:

Absolutely, Tom, and there is a wide spectrum on how a plan sponsor can go OCIO and it’s not a matter of just handing over the car keys and say, go for it. There will still be an investment policy statement that the OCIO will follow. Of course, they will have implementation in it, but the needs of the plan sponsor will still be represented in that investment policy statement.

Brian Schroeder  14:30:

For instance, limitations on amount of cash, amount of leverage, the amount of high yielding bonds, things like that will still be part of the constraints that an OCIO, uh, will be working under. So again, it doesn’t have to be all or nothing. If for instance, it may be that the OCIO has ability to fire a manager, but the trustees will then be involved in a search. So it’s really how much discretion and authority that the plan sponsor feels comfortable with handing over to the OCIO. So again, it doesn’t have to be an all or nothing type of proposition. One thing that plan sponsors, you’re starting to see more and more of, especially in the public space, is you don’t have to give it all to one OCIO because if you do, by definition you have zero diversification. So, if your plan is sufficiently large enough, why not have two or three OCIO’s so that you don’t have that one source of wisdom and putting all your big strategy eggs into one OCIO basket. So again, there are so many different ways that you can approach it and there is no right or necessarily wrong way. It’s what is best for the plan sponsor that they’re comfortable with. They still understand and can really feel comfortable that they are fulfilling their fiduciary duty.

Tom Shanklin  16:11:

Brian, could you give me a little idea about how multiple hosts OCIO’s would work? I mean exactly how would you align responsibilities and ultimately who’s accountable for the overall plan?

Brian Schroeder  16:23:

Well, when it comes to using more than one OCIO as as we talked about, a different part of the interview is sometimes the OCIO could just be for the private market area and you can still be non-discretionary in the public market. So, you can also then have multiple OCIO’s each managing to the same guidelines. So with that, that’s the case then they are in a competitive slash comparative environment to ensure that you’re always getting the best service and you actually have a – a way that if they’re both managing to the exact same guidelines, you can really tell who’s doing a good job in delivering return, alpha, and managing risk. The one drawback of it is it will raise costs because it’s an OCIO and if you further split up money manager mandates, you essentially double and or triple the amount of money managers and economies of scale are lost.

Tom Shanklin  17:32:

Right. I guess the natural question comes in as terms of how do you measure the performance of the OCIO and I would question as to whether or not there is an appropriate pure group universe to compare it to. And what benchmarks do you use? I mean, how are we going to evaluate how these OCIO’s are doing over time?

Brian Schroeder  17:52:

That – that is a very important question. Just as there are so many different universes and databases for money managers, for instance, if you’re a small cap manager and you’re managing against the Russell 2000, you can very easily be compared to A – your benchmark, and B – other managers that are managing specifically against the same benchmark, very easy to do. It’s objective and you really can’t hide from the numbers. Comparing OCIO two different OCIO is very difficult to do because the circumstances of every client is different. Their funding status, are they in positive cash flow? Are they in negative cash flow? What is their actuarial assumed rate? Those are just kind of three of the big ones, uh, that make it very difficult to compare the performance of an OCIO firm versus a different OCIO firm. So even within an OCIO from comparing client to client is also very difficult.

Brian Schroeder  18:56:

That being said, uh, I have heard of attempts of firms to build an OCIO database. And these are some of the firms that are also in the OCIO search business, so they’re trying to get a good handle on how an OCIO performs versus other ones. That being said, I know that the CFA Institute is also starting to address in their next year update of the GIP standards starting to address the OCIO question. So as this grows, the OCIO database and comparison will necessarily grow with it.

Tom Shanklin  19:36:

Well, it’s clearly a situation that’s evolving. I wonder if in the interim, should plan sponsors hire an independent monitor to evaluate the OCIO?

Brian Schroeder  19:45:

Well, I’m so glad you asked that question, Tom, because that’s exactly what I do. Uh, my firm, we do monitor OCIO’s, and it is very difficult for plan sponsors to understand how well their OCIO is performing. Uh, many reasons for this is that the OCIO is also providing their own performance report, and it’s very difficult for a plan sponsor who is no longer part of the decision making process to then evaluate how we’re doing because they’re no longer involved.

Brian Schroeder  20:24:

They don’t necessarily see all the changes that are happening from meeting to meeting. In addition, plan sponsors can benefit because having a monitor of the OCIO will actually improve their performance. And there’s several reasons for that. Just like an umpire that calls balls and strikes accurately, they will become a better pitcher if you have accurate feedback and accurate and objective and quantitative metrics on how they perform in each of their client duties. And there’s also something called the Hawthorne effect, and I won’t get into the history of it, but basically people perform better when they’re being monitored. It’s just like having a supervisor at work and a manager and just the fact that you’re being observed and monitored and scored objectively, uh, will certainly ensure that the best and brightest and attention to detail will come to your account. Uh, the third reason is OCIO’s logically have some difficulty when it comes to entering and exiting strategies or asset classes because they can’t necessarily do it all at once.

Brian Schroeder  21:44:

They’re going to have to do some prioritization of which accounts which clients move in and out first. They simply can’t flip a switch and you know, move 2 billion out of a boutique manager in a blink of an eye. So it will raise your priority in the OCIO’s universe of clients. So, it is very important to get an independent monitor of the OCIO. And one of the worst things you could probably do is having a competing OCIO be the monitor. I think it’s unfair to the OCIO, and it is something that has the potential to affect your returns because here you have a competitor or friend of me, if you will, uh, learning what one of their, uh, competitors are doing so they can actually get a little bit of an advantage. And in fact I was just, we’re here we are in San Diego at the international foundation.

Brian Schroeder  22:44:

I was speaking with a pretty major consultant, and he said that there are four clients where them and a competitor are either the OCIO or monitor on four different accounts. So, it makes it kind of interesting. Kind of politics is strange bedfellows that would you ever say anything critical of the other consultant that you’re monitoring for fear of reprisal. So, it’s an interesting, uh, a dilemma.

Tom Shanklin  23:15:

For those plans that do have an OCIO, how do they know comprehensive evaluation program at this point? How do they know when to put their OCIO on watch or to terminate?

Brian Schroeder  23:25:

That’s a good question. The watch list is a tool that plan trustees are pretty familiar with when it comes to monitoring their money managers. If they’re underperforming over a certain period of time, they’re often put on the watch list. This means that they better turn things around, or else they may be terminated.

Brian Schroeder  23:48:

OCIO’s are de facto managers, you might even call them again, super managers as they’re not only in charge of asset allocation and rebalancing, but they also hire and fire money managers. That being said, there really are no part and set rules for putting a manager on watch. And academic studies have shown that plan sponsors do not have a very good track record at hiring and firing money managers. So that same phenomena can be applied to how and when do we put an OCIO on watch or actually terminate them. So that being said, plan sponsors may well encounter poor performance as inevitable. Whether you’re a manager, investment consultant, OCIO, you’re going to have your turn of underperformance. So I suggest first when hiring an OCIO have a firing methodology predetermined. This will eliminate any arbitrary decisions, remove emotions, remove reactiveness. For example, if you’re using a specific universe for your plan performance.

Brian Schroeder  24:59:

If our performance is worse, say than the 60th percentile over a five-year period, the OCIO is put on watch. So there’s absolutely no dilly dallying around when it comes to its objective. We know the universe, we know the time frame, we know the ranking, and then if their performance is still worse than the 60th percentile over the seven year period, the OCIO is terminated. So I would actually recommend when hiring an OCIO, simply ask them, you know, when should we fire you? So, but more importantly, you know, there are five functions that every investment consultant, or OCIO performs: it’s strategic asset allocation; tactical asset allocation; rebalancing; manager hiring; manager firing. It may be that the OCIO performs well in multiple of those disciplines and maybe not in others. So you may do, say a micro watch on a certain skill that they are executing for you.

Brian Schroeder  26:03:

So, for instance, they may be really good at asset allocation but not so good at say, manager firing. So you can then address that. But the final thing I would say that plan sponsors really need to contend with is: are we underperforming when the OCIO is making a lot of changes? Because if they are constantly making changes and you’re not seeing results, that’s a lot worse than if they are sticking to their long-term strategy. They’re sticking with the managers and it’s, they’re just waiting for the, you know, the wind to come back, the market winds to come back in their sails. So those are really two different questions. And having an independent monitor, again, one that isn’t in competition with them and will certainly help plan sponsors make that right decision.

Traci Dority-Shanklin  26:59:

So, I have a question that is directly related to – to the business as a whole. And you may or may not have an answer for it, but the question is: how does OCIO, the movement that towards the OCIO model, change the way in which money managers go about their business?

Brian Schroeder  27:22:

Well, money managers will probably not be marketing directly to the plan sponsor as much. I think it will be a lot more behind the scenes of what are our numbers, what is our process, what is our personnel, you know, what is our outlook, how are we addressing the future, if you will, and how is our strategy poised to do well in the future? I really think that going to an OCIO model will alleviate a lot of the performance chasing and defendable decision making. And what do I mean by that? So, it’s very difficult to ask a board of trustees to hire a manager that has been poor performing, say they’re in the 90th percentile because that’s a very difficult decision to defend. Whereas if the consultant is bringing managers who have been in the top desks, I’ll say over the last five years and they present that to the trustees, wow, this is something we can hire. Look how great they’re doing and I can defend making that decision because they were in the top desk style. If they subsequently have poor performance after that, well again, you can defend that. So, I think from the business perspective, Traci, that money managers I think will appreciate having the an OCIO who is looking to do the best forward-looking decision. It will be helpful to them because it’s not going to be only yesterday’s winners that are getting hired.

Traci Dority-Shanklin  29:02:

I guess what I am seeing though as a potential issue is that the OCIO firms could in essence have their bench and only pull from their bench, which would kind of box a lot of new, up and coming managers when in whatever asset class they are managing for out of the picture.

Brian Schroeder  29:24:

That’s certainly a possibility. However, many consulting firms OCIO’s and non-discretionary specifically have research in-house to seek out those emerging managers. They really want to bring in the newest, freshest, best ideas to their clients and they want to be the first ones to do that. So while certainly there is that phenomena of having your people, your stable people that you’re familiar with, can trust, that you have a good relationship, that they can really tell you what’s going on in the portfolio. That’s definitely needed. And I understand how familiarity and longstanding relationships are such an important part of the business, especially when you’re a fiduciary taking care of other people’s money but still being open to new opportunities. And there are firms that specifically seek out emerging managers because they do want the next great idea and they want to be the ones first to find it before you know, the strategy fills up.

Traci Dority-Shanklin  30:27:

A lot of firms are moving into the OCIO space and I’m guessing that some are more equipped to move into that space than others. Is there any, call it however many things I mean observed like a bullet point list of what you think a firm needs to have before they should strategically think about it as a business?

Brian Schroeder  30:50:

Well, the decision to move from a non-discretionary investment consulting solution to an OCIO does mean ramping up the horsepower for sure. You have to really become an in-house expert on every type of asset class. It’s not just that you look at the public markets and you look at databases and you use your computer tools. You really have to have the bench strength to really dig in deep, especially when it comes to alternatives. So the move to OCIO certainly entails, you know, upping your game, if you will. That being said, necessarily having more horsepower, more people, more people behind screens and going out and visiting managers doesn’t necessarily make you a better manager. You know, one of the funniest things in my last 10 years of doing the evaluations and due diligence of investment consultants on behalf of plan sponsors, the best performing consultant of all the studies I’ve did for plan sponsors was from a small, regional, uh, consulting firm.

Brian Schroeder  32:05:

The consultant in charge didn’t have any of the fancy alphabet soup after their names, didn’t have all the fancy degrees. And this particular consultant was very patient, did not make a lot of changes and worked very well with the trustees. So necessarily making a lot of changes, having the deep bench strength, having all the high profile people doesn’t necessarily make you a better manager or consultant. So again, it’s really one of these things where the plan sponsor is really going to have to do some due diligence and perhaps hiring a professional search service to find that OCIO that fits their needs.

Traci Dority-Shanklin  32:50:

I think you touched on this earlier, but are there organizations out there that are starting to develop these databases of OCIO’s?

Brian Schroeder  33:01:

Yes, there are. Uh, there’s an outfit in the South that I know is working on creating a database, but again, it’s going to be very difficult to A – get the information, and B – to really create an apples to apples comparison given the very type of clients, their mandates, their constraints, their objectives. So it’s going to be really difficult, but at least it’ll be a step in the right direction.

Traci Dority-Shanklin  33:27:

There seems to be a lot of movement into this. The OCIO space to me from a, from the plan sponsors perspective, which is something that I worry about, if you will. How did they make sure that if they decide that this is a model they want to pursue, that they are doing a proper search. Cause there’s, I mean it almost seems like the universe is quite big. What would be the first step for them to starting that search? And I know we’ve talked about the search but I just am, you know, rather than them go after the necessarily just go to their, I think you mentioned, their fund professionals for advice. Is there a more structured methodology that they could pursue?

Brian Schroeder  34:10:

Well again it’s, this is kind of the wild, wild West and it is an evolving. I’d be happy to furnish you with a list so that the listeners here that really want to, you know, do their best practices in going OCIO. I can give you and Tom a list of people that specialize in just OCIO searches.

Traci Dority-Shanklin  34:32:

I think that would be excellent. I do, I really think that that would be a really valuable to the firms that and then plan sponsors out there that are looking.

Brian Schroeder  34:39:

Absolutely. And it is a big undertaking. There’s a lot of expense in the difference between non-discretionary and then going to an OCIO that that little bit of ounce of prevention will really go a long way when it comes to making sure that a plan sponsor making such an important decision really follows a good process and these professionals will help you ensure that you are dotting your I’s, crossing your T’s, and following best practices in governance.

Traci Dority-Shanklin  35:10:

Yeah. All right. Well, Brian, we covered all of our basis I think today and um, there may be more questions that come up as this, as the OCIO conversation continues to evolve and change and grow. So we’ll have you come back and chat with us again.

Brian Schroeder  35:30:

That would be great. Traci, I really appreciate the opportunity to sit down and speak with your audience and hopefully they got something out of it and if they didn’t, I’m sure they’ll reach out to you and say, “Hey, get that Brian Guy back. We have these questions.” So, thanks again.

Traci Dority-Shanklin  35:44:

And we’ll be sure to put all of your information in our show notes. So, if anybody wants to reach out to you about what you do, we would love for that to happen as well. So thank you for joining us.

Narrator  35:57:

And that’s it for this week’s episode of The World of Multiemployer Benefit Funds podcast. We would love to hear from you, and if you have any comments, questions, or suggestions, head over to and let us know, Tom and Traci, thank you for joining us and we look forward to next time.

Narrator  36:15:

For even more information and resources, head over now to and get involved. The World of Multiemployer Benefit Funds podcast, unlocking the mysteries of multiemployer benefit funds.