GIPS Compliance Comes to Outsourced CIO Providers

The world of Outsourced Chief Investment Officers (OCIOs) is about to change as the CFA Institute's path to OCIO portfolio compliance with the principles of the Global Investment Performance Standards (GIPS) takes effect Dec. 31 of this year.

This is good news for asset owners who reach out to OCIO providers and want the GIPS seal of approval. To secure that approval, though, CFA officials will require OCIO portfolios to “follow all the applicable requirements of the GIPS Standards for firms and the applicable requirements in the Guidance Statement for OCIO Portfolios when providing a GIPS Report to an OCIO Portfolio prospective client.”

To help with compliance, the CFA is defining in its guidance statement that an OCIO portfolio is “a pool of assets of an asset owner for which a firm provides both strategic investment advice and investment management services. The OCIO Portfolio is managed by a firm according to the asset owner’s investment mandate, which is typically composed of multiple asset classes and underlying portfolios.”

The OCIO provider must offer “both strategic investment advice and investment management services to OCIO portfolios of asset owners, such as pension funds, endowments, and foundations.”

An OCIO will also have to act as a fiduciary and offer strategic investment advice activities based on “the asset owner’s financial objectives, including any return objectives or liabilities. It then helps develop the strategic asset allocation and investment policy statement for the OCIO Portfolio,” according to the CFA. The client, or the client's oversight body, typically approves the strategic asset allocation and investment policy statement.

Once approved, the OCIO is responsible for implementing the investment mandate in accordance with the approved strategic asset allocation and investment policy statement. Investment management services include portfolio construction, pooled fund and manager selection, tactical asset allocation, and ongoing portfolio management.

CFA officials note that the guidance statement does not apply to portfolios “for which the firm provides investment management services but does not recommend a strategic asset allocation or work with the client to develop or assess the investment policy statement. For such portfolios, the firm would instead follow the GIPS Standards for firms. The Guidance Statement for OCIO Portfolios also does not apply when a firm provides only strategic investment advice and does not provide investment management services.”

Among the key issues covered by the OCIO guidance, which has been around for a year, are:

• Fiduciary Management Providers in the U.K.
• Examples of when the Guidance applies
• Examples of when the Guidance does not apply
• The required OCIO Composites
• Recommended Asset Classifications
• Concerns about legacy assets
• Benchmark Selection

Industry participants do not have long to conform to the new rules.

“GIPS Reports for Required OCIO Composites that include performance for periods ending on or after 31 December 2025 must be prepared in accordance with the Guidance Statement for OCIO Portfolios. Firms are encouraged but not required to apply this guidance prior to the effective date and for more than the minimum five-year period,” according to the CFA.

The full text of the guidance can be found here: https://shorturl.at/vlCdT