Best Practices for Evaluating Investment Consultants

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Our experience with private foundations tells us that these groups place great importance on ensuring that all parts of the organization are working in alignment with their stated mission. A useful tool employed by many is the performance evaluation process, which measures how well a person or a function of the organization compares to a predefined objective or benchmark. Some examples of performance evaluations include the establishment of guidelines for measuring the performance of individual employees, or the development of a performance evaluation process to measure the effectiveness of the foundation’s program or grant-making activities.

Another key area where performance evaluation is critical is in measuring the return on the investments of the foundation. Typically, the foundation uses one or more outside investment advisory firms to manage investment portfolios. Each investment advisory firm assigns an investment manager to oversee the portfolio and to provide the foundation Board or Investment Committee with monthly, quarterly and annual performance reports. Benchmarks are used to measure how well these managers perform.

An growing trend we have noticed with many investors, including foundations, is the use of a single discretionary investment consultant to manage and oversee all of the investment portfolios. These are known as Outsourced Chief Investment Officers or Outsourced CIOs. An Outsourced CIO relationship often involves the delegation of decision-making authority for portfolio structuring, strategic and tactical asset allocation, global investment manager selection, and day-to-day investment portfolio oversight.  As the trend toward OCIO relationships continues, we would expect to see growing interest within the foundation community for evaluating the performance of these key, high level relationships.

Please also examine an excellent paper written by Brian A. Schroeder at WGU assessments