Institutional portfolios provide necessary income for the efficient and effective management of the non-profit entities they are affiliated with. Many (most) colleges have an associated endowment (institutional portfolio) or investment management company. The larger the portfolio the more the resources available for managing the portfolio. Large portfolios (defining large as at least $2 billion) usually have an investment team that can handle most of the tasks involved (initial due diligence, on-going due diligence, performance reporting, risk management, etc.). Smaller portfolios do not have the resources to properly fund an investment office and procure the necessary talent. In the recent past (about 10 years ago) a common way to manage the smaller institutional portfolio was with the oversight of a consultant who performed due diligence, recommended managers, provided macro insights and handled performance reporting and elements of risk management. More recently, there has been a move to the outsourced chief investment officer (OCIO) model, where an investment office has responsibility (and often discretion) over several institutional portfolios. In the consultant model there were issues with the better investment funds having capacity constraints and the smaller portfolios having limited (or no) access to these better funds. Similarly, in the OCIO model small portfolios are often unable to find acceptance with the most desirable OCIOs. With the growth of the ETF market there may exist an opportunity for a smaller portfolio to obtain similar returns in a low-cost framework.
Jeffry Haber, Iona College, United States
Stream: Economics and Management
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