The first task for many families looking to set up a new family office following a liquidity event or the growth of their fortunes is to look for a CIO to manage their investment strategy.
But several executives in the industry have agreed that following this path too quickly can have negative implications down the road; they instead urge families to work on other aspects of establishing a family office, such as governance, tax, estate planning, and a legacy.
One option that offers families an alternative to hiring a dedicated CIO is to work with an OCIO, an external advisor that represents multiple clients. Outsourcing can lower costs and the workload — and it can have additional benefits, especially in the turbulent macro environment.
Sud Murugesu, partner and head of West Coast at Partners Capital, an OCIO with more than $60 billion from endowments, foundations, and families, told II about the value of outsourcing investment decision-making capabilities.
Murugesu said that at the start of this year there was optimism that upcoming policies were going to be positive for risk assets. Deregulation, the rise of AI, more M&A, the reopening of the IPO markets, and the extension of tax cuts were all expected to bring positive tailwinds, particularly within private markets.
When things took a turn after April, with the introduction of tariffs and the labor market dropping off, this tide started to change. But Murugesu said that optimism is now creeping back for his clients, and risk assets are once again in vogue. The bigger questions now, as II wrote back in April, are what the future of the dollar holds, how much exposure families should maintain to the currency, and the balance of U.S. assets and international investments. Add to this the debate surrounding how much exposure families should have to the private markets — alongside the complexity of actually managing that exposure — and it is clear why external expertise can be beneficial for some organizations.
Partners Capital has tried to position its OCIO services and how it advises families as an evolution of the endowment model. The firm ensures that portfolios are working in the interest of the family in as bespoke a fashion as possible, while leveraging scale to attain market access as cheaply as possible.
“We’ve really pushed on having first mover advantage. We spend a lot of our resources, time, and energy on the research team — we've got more than 50 people globally looking for opportunities and turning over every rock to see the market moves early,” he said. “That means we can dictate terms and partner with and introduce families to other LPs to get preferential access.”
For example, the private credit space has exploded during the last five years, but the firm has been meaningfully increasing its allocations to the asset class for a decade and a half.
“When everyone was starting to do direct lending in the upper middle market, we had moved to the lower middle market, to specialists and asset-backed lending, which is a trend that we're starting to see today as people are starting to worry about large-cap credit lending.”
There’s also the risk management piece. Because the firm has been able to gather large volumes of data and build extensive in-house systems that can be applied to portfolios at any time, families and endowments can look at their portfolios holistically and determine things like dollar exposure and mitigate potential issues that could surface.
The OCIO model isn’t right for every SFO, however.
By Murugesu’s own admission, those with assets over two to three billion dollars or so are more likely to want to hire their own investment officer that is focused exclusively on just one portfolio. These families will also have the resources to hire the best person available with the institutional experience to make the best decisions for them. But there are many others for whom that is not an option, for whom utilizing an OCIO will lead to more fruitful results.
The current market is particularly testing; there are great opportunities to be found, but the risk-reward trade-off is extremely high amid volatility. So a deep bench of resources and experience to rely on might not be such a bad idea.
This article first appeared in Officium, our weekly family office newsletter. To receive it in your inbox every Thursday you can subscribe here.
