In Part 1 of this series, we examined several of the foundational questions firms have been asking as they implement the Guidance Statement for OCIO Portfolios. The responses provided through the GIPS Helpdesk reinforced a consistent theme: the guidance is principles-based rather than prescriptive. Firms have meaningful flexibility in defining OCIO portfolios, evaluating discretion, establishing client classifications, and determining composite eligibility—but flexibility must be supported by documented policies, consistent application, and sufficient disclosure.

Part 2 turns to the operational challenges that many firms are now encountering as they put those principles into practice. Questions surrounding managed versus advised assets, legacy investments, liquidity disclosures, benchmark construction, and composite representation are proving to be among the most complex aspects of implementation.

While the guidance provides firms with latitude in these areas, the CFA Institute’s clarifications make clear that flexibility has limits, and that the ultimate objective remains fair representation of the OCIO strategy presented, including meaningful comparability across portfolios and peers

The Industry’s Biggest Concern: Representative Relative to What?

The guidance requires OCIO composites to fairly represent the OCIO strategy being managed. But many firms have questioned how that standard applies when they advise on a broader portfolio than they directly manage. For example, an OCIO provider may oversee strategic allocation across the full balance sheet while an operating cash reserve or legacy private investment remains outside the firm’s discretion.

Would excluding those assets distort the composite’s risk profile or asset-allocation disclosures? According to CFA Institute, not necessarily. The clarification emphasizes that excluding assets outside the firm’s discretionary management responsibility does not automatically make disclosures misleading. Instead, firms must assess whether the managed assets remain representative of the OCIO strategy and provide enough disclosure to support fair representation. Qualitative disclosures may be even more important to understand the impact excluded assets have on quantitative disclosures.

Legacy Assets: Flexibility Within Defined Boundaries

Legacy assets remain one of the most nuanced areas of the guidance. The guidance statement provides three permitted approaches for handling legacy assets: exclude portfolios where legacy assets materially impair implementation, include the full portfolio despite legacy assets, or include only the non-legacy portion of the portfolio.

The implementation clarifications reinforce an important limitation: Firms cannot simply choose the approach that produces the most favorable disclosures or liquidity profile. Instead, firms must adopt a composite-specific policy, apply it consistently, and support why the chosen treatment appropriately reflects discretion and strategy implementation.

This becomes especially important for liquidity disclosures.

The Liquidity Disclosure Problem

Many firms raised concerns that excluding legacy assets could materially change growth and risk-mitigating percentages, private markets exposure, hedge fund allocations, or overall liquidity characteristics.

For example, excluding illiquid legacy investments may make the composite appear significantly more liquid or more aggressively allocated than the client’s total portfolio experience.

CFA Institute’s response was effectively this: that outcome may be acceptable, provided the disclosures clearly explain the exclusions and the composite still fairly represents the managed strategy. The guidance anticipates this issue and requires firms to disclose excluded legacy assets and the related policies. In practice, firms will likely need more robust disclosure language than many initially expected.

Benchmark Implications Are Bigger Than Many Firms Realize

One often-overlooked consequence of excluding legacy assets is benchmark construction. The guidance explicitly states that when firms exclude legacy assets from composite performance, they may also need to adjust the benchmark if the exclusion is material.

This is a critical operational point. If a portfolio excludes legacy private equity, concentrated real estate, restricted hedge funds, or other inherited investments, the benchmark may need to exclude those same exposures to remain comparable as that mismatch could create materially misleading comparisons.

Composite Construction Will Become More Policy-Driven

Across these clarifications, one theme continues to emerge: the OCIO guidance is less rules-based than many firms expected. Instead of prescribing a single approach, the guidance repeatedly requires firms to establish policies, document their rationale, apply methodologies consistently, and provide sufficient disclosure for fair representation.

This creates flexibility—but also governance risk. Two firms with very similar OCIO mandates may legitimately reach different composite inclusion decisions based on discretion assessments, legacy asset treatment, asset classification methodology, retail and client definitions, or strategic allocation interpretation. That means firms should expect heavier reviewer scrutiny, more verifier focus on documentation, and increased importance of written composite policies.

Firms Best Positioned for 2025

The firms most likely to navigate the OCIO guidance successfully are not necessarily those with the most sophisticated composite structures. They are the firms that can clearly demonstrate why a portfolio qualifies as OCIO, how discretion is evaluated, why assets were included or excluded, how benchmarks were constructed, and how disclosures support a clear, consistent, and comparable presentation of the strategy implemented.

The guidance statement repeatedly returns to two foundational GIPS principles: fair representation and full disclosure. For OCIO providers implementing the Guidance Statement today, those principles may matter more than any single technical rule.

For additional guidance regarding implementation of the OCIO Guidance Statement, please reach out to connect@cascadecompliance.com.

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