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  • Writer's pictureOCIO Monitor

Does your OCIO effectively manage volatility?

With historic point swings, all-time low interest rates, central bank intervention and potential “black swans” swirling around the globe, there is heightened volatility in financial markets. And volatility is opportunity for skilled investors.

One of the advantages of converting to an Outsourced Chief Investment Officer (OCIO) is adding nimbleness. Markets move fast and opportunities are lost for those that move at the pace of quarterly meetings.

An OCIO has discretion to change portfolios at will. In times of volatility, your OCIO you should be managing risk and capturing incremental returns through effective rebalancing. They may be doing this through futures trading or buying & selling between asset classes and managers. Or, they may be strategically doing nothing at all.

But how does the plan sponsor client know if their OCIO is adding value through effective rebalancing? Does the OCIO provide a specific rebalancing or tactical asset allocation report? What about rebalancing opportunities missed? Are these rebalancing actions quantified? Are they truly buying low and selling high?

It has been my experience that OCIO reports are insufficient when it comes to reporting on rebalancing. Here are few tips and questions every plan sponsor should consider when managing their OCIO.


Q. What is your rebalancing strategy?

OCIO’s may have a methodical approach that if a certain asset class reaches an upper or lower bound, then rebalancing is automatically triggered. If this is the case, be sure to know what those bounds are, discuss the appropriateness of the ranges, and then ensure rebalancing occurs per the strategy. An OCIO may also adopt an automatic rebalancing strategy based on time.

Other OCIO’s may have more of a “feel” approach. There are advantages and disadvantages to every method. They may let an asset class “run” or fall (thus avoiding a “value trap” or catching a falling knife.) If the OCIO has skill, this can be quite profitable. But the opposite may be true due to overweighting at tops and underweighting at bottoms.

No matter if your OCIO uses an objective or subjective method, it remains difficult, if not impossible, for the plan sponsor client to learn if their OCIO is adding value without objective documentation.

Q. Did you miss any rebalancing opportunities?

Asset classes often make “roundtrips.” Looking at equities in 2015 and 2018, there were many opportunities of 15% to 20% moves with accompanying reversals within just a few months. It may be your OCIO did nothing during these movements and simply reports “there has been volatility.” It is incumbent on the plan sponsor client to hold their OCIO accountable for opportunities missed.

Q. Has your past rebalancing managed risk and captured returns?

Do not accept a simple yes verbal answer to this question. Rebalancing is critical to long-term success for any institutional investor. Next is what every plan sponsor client should demand of their OCIO to answer this important question.


At the very least, an OCIO should report a chronological list of rebalancing actions taken. This should include date, amounts, asset classes and managers. They should include asset weightings before and after the rebalancing action. Further, context should be provided with a graph of the asset classes’ valuations before and after while indicating the point in time when the rebalance was executed.

If your OCIO is unable or unwilling to provide these reports, visit to learn more about how we can help you monitor your OCIO.


A multi-point, chronological and graphic report will not only answer the last question above but will also serve as a guide for improving future rebalancing. For example, it may be that the OCIO tends to pull the trigger too early or too late if they follow a subjective or “feel” method. Perhaps, if following objective triggers, the written report will indicate that the bounds need to be expanded or narrowed.

Only by documenting and analyzing the past can an OCIO and plan sponsor client improve going forward. Otherwise, as Jorge Santayana said, “Those who cannot remember the past, are condemned to repeat it.”

Please comment and share this important and timely piece with your network.

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