95 percent of asset managerssay that they've gotten business via OCIO mandates. (Photo:Shutterstock)

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The outsourced chief investment officer market looks set tooffer opportunities for asset managers, in spite of heightened marketvolatility, with many asset managers hiring or considering hiringdedicated OCIO distribution professionals (80 percent),relationship managers (83 percent) and client services resources(72 percent).

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New research from Cerulli finds that as of year-end 2017,U.S.-based OCIO assets represented more than $1 trillion in assetsunder management (up 12.7 percent from the previous year) andaccounted for 67 percent of global AUM.

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Even increased volatility isn't likely to slow down the growingdemand for OCIOs, the report “OCIO 2.0: The Next Phase of the OCIOIndustry” says, since 95 percent of asset managers say that they'vegotten business via OCIO mandates and further say that mandatesaccounted for 14 percent of their new business in the past year.And that hiring spree? That's because “the OCIO sales process tendsto be lengthy, complex, and resource-intensive,” the reportadds.

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Lengthy and complex or not, the OCIO trend is spreading. LauraLevesque, a senior analyst at Cerulli, says in the report, “OCIOmodel adoption is growing with nearly all types of institutions:corporate defined benefit plans, endowments, foundations, sovereignwealth funds, health and hospital systems, and defined contributionplans.”

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Levesque adds, “We're seeing more institutions looking toimprove management and oversight of their investment portfolios byceding discretion and day-to-day portfolio managementresponsibilities to a third party under an OCIO arrangement.Furthermore, an increasing number of clients are choosing an OCIOto improve overall corporate governance and to transfer thedecision-making responsibilities to an unbiased third party.”

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So what sort of growth does Cerulli anticipate in thissector?

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Between now and 2023, it predicts OCIO AUM (under full orpartial discretion) will be as much as $1.671 trillion. This“modest estimate” Cerulli says is because of the need totake into consideration interest rates increasing andfluctuating volatility of the market.

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And that is “modest,” since it points out that OCIO worldwideAUM growth for assets under full or partial discretion grew to$1.564 trillion as of year-end 2017, up 14.3 percent from 2016.

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While there isn't an industry standard for OCIO fee structure,there's broad variation depending on which services are provided toclients, with basis point fees, fixed fees and performance-basedfees used individually or in combination; further, they may bepresented “all-in” or broken out by fee type.

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Marlene Satter

Marlene Y. Satter has worked in and written about the financial industry for decades.