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

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

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

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

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

So what sort of growth does Cerulli anticipate in this sector?

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

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

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

One chief investment officer's advice for 2018

3 takeaways on trends in advisor investing

Instant Insights /

OCIO demand pays off for asset managers: Cerulli

More From HR Executive

Related Stories

Recommended For You