2011 Investment Outsourcing Round Table

Pensions & Investments published the transcript for the 2011 Investment Outsourcing Round Table that was held on June 1st.  There were six participants from different roles in the investment community.  They were:

• Christopher Delany - associate treasurer in finance and administration at Gettysburg College
• Jay Gepfert - senior consultant at New England Retirement Consultants LLC which evaluates investment outsourcers for institutional investors
• Jonathan Hirtle - CEO of Hirtle, Callaghan & Co. which manages $20 billion in portfolio outsourcing strategies
• George Mateyo II - senior director of investments at the Cleveland Clinic Foundation
• R. Bruce Myers - managing director of consultant Cambridge Associates LLC which manages $105 billion in outsourced strategies
• Kevin Quirk - founding partner and principal of Casey, Quirk & Associates LLC, a money manager consultant

Some interesting ideas discussed were:

There is a movement towards outsourcing as an investment solution because of poor performance in the equity and bond markets, increased demand for alternative investments and institutional investors spending less money and time on managing their money.  Outsourcing has traditionally been confined to the worlds of pensions, endowments and foundations.  Corporations with defined contribution plans (i.e. 401K's) are starting to look at outsourcing to protect themselves against fiduciary risks.

Delaney at Gettysburg College decided to partially outsource the university's endowment.  The college defined the responsibilities of the board, employees and the consultant based on where everyone would add the most value.  The consultant would have access to the best fund managers.  An analysis was done by Delaney to determine where each person would be comfortable and keep those responsibilities.  Any weaknesses would be outsourced.

The current investing environment needs to have disciplined portfolio management across all asset classes.  Currently, the fund industry is based on where the manager invests and the benchmark for that universe (the performance of large cap managers are compared against the Standard & Poor's 500).  This started in the easy investing decades of the 1980's and 1990's.

Outsourcing also has conflicts of interests that need to be avoided.  Consultants that are paid fees by fund managers, paid soft dollars because they are broker/dealers and paid by manager search.

The source for this article can be found here.