2018
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2018 Outsourced- CIO Survey
Asset owners seek OCIO partnerships to navigate increasingly challenging conditions amid a growing lack of internal resources and the need for better risk management
I
n 2018, our annual outsourced chief investment officer effort to handle larger portfolios, sometimes to add more account(OCIO) survey shows institutional investors across the ability and take on more fiduciary responsibility. A growing trend that board have been working hard to find the right OCIO Russell Investments is seeing: some asset owners are adding internal partnerships to navigate increasingly challenging conditions. management structures to improve accountability. The key challenges for the year: a jump in the lack of internal “To improve risk management, institutional investors such as resources, even as the need for better risk management also Harvard Management Company are moving from a portfolio of climbs. A lack of internal resources was cited a “critical” reason for asset class sleeves to a model in which all members of the investoutsourcing this year by 71% of respondents, up sharply from 58% ment team take ownership of the entire portfolio,” said Weeks, the year prior. Better risk management, meanwhile, was cited as “for example, near the end of the investment cycle, bond portfolio “critical” by 52% of respondents from 32% last year. managers gravitate toward high-yield bonds and equity managers That follows the trends of 2017, when OCIO services were key seek out the scarce companies that could grow when the economy to diversifying investments and helped to navigate returns through slows down.” the frothy waters of geopolitical risk. In 2016, a bifurcation began The model works smoothly if the investment decisions are well between the largest and smallest OCIO firms, as asset owners coordinated, but if they aren’t, a portfolio may develop unintenleaned away from a boutique approach. tional risks. “To meet the need for holistic risk management, OCIOs As conditions become more challenging, institutional investors are offering a multi-asset approach and total-portfolio perspective,” are asking for more from the best providers. said Weeks. In 2018, our annual outsourced chief investment officer (OCIO) This year, 36% of respondents said they currently outsource or survey shows institutional investors across the board have been intend to outsource. Behind the lack of internal resources and better working hard to find the right OCIO partnerships to navigate increas- risk management, additional fiduciary oversight was a key driver, ingly challenging conditions. with 48% of respondents (up from 43% last year) expressing it as The key challenges for the year: a jump in the lack of internal a critical need; 19% expressed a critical need to increase returns resources, even as the need for better risk management also (down from 28%). climbs. A lack of internal resources was cited a “critical” reason for Most of our respondents were from corporate pension plans outsourcing this year by 71% of respondents, up sharply from 58% (43%), and endowments and foundations (31%), with 23% from DC the year prior. Better risk management, meanwhile, was cited as plans, and 20% from public plans. Most (55%) are outsourcing to “critical” by 52% of respondents from 32% last year. de-risk their portfolios. Those with smallest staff and portfolios in That follows the trends of 2017, when OCIO services were key the range of $100 million to $500 million tend to outsource the most. to diversifying investments and helped to navigate returns through Europe is showing an avid interest in outsourcing, with 50% of the frothy waters of geopolitical risk. In 2016, a bifurcation began respondents planning to, or already using, OCIO services, up from between the largest and smallest OCIO firms, as asset owners 11% in 2017. In the US, the number rose to 42% from 40% last year. leaned away from a boutique approach. Yet, as the industry faces augmented pressures from institutional As conditions become more challenging, institutional investors investors for increased transparency, reduced fees, and skepticism are asking for more from the best providers. from lack of hedge fund performance, the number of respondents “The barrier to entry in a fragmented OCIO market is currently who outsource or intend to dipped by 4% from 2017. In the UK, low, but the combination of scale, infrastructure, and results will other factors are also at play that could lead to an uptick in 2018. increasingly matter and differentiate successful firms from marginal “My view is that the reasons for outsourcing investment players. Providers are building risk management, technology, pricing, management for pension funds remain the same so, to start with, and performance capabilities that will ultimately differentiate them there would be no reason for a reduction in activity,” said Nigel along with performance results,” Bryan Weeks, head of Russell Bottom, FPMI, international pensions manager, Motorola SoluInvestments’ Americas Institutional business, told CIO. “Increasingly, tions, UK Limited. “However, I can add a personal opinion, which we hear from clients that OCIO experience really matters, i.e., clients is that the UK-based FCA review, which is currently underway, may do not want to give their OCIO provider on-the-job training,” have dampened immediate activities as potential participants wait Accountability has been a key theme since the financial crisis. for the outcome. If my view is correct, I would expect a subsequent Asset owners are strong believers in hiring OCIOs, sometimes in an increase in activity.” —Christine Giordano ©1989-2018 Strategic Insight. All Rights Reserved. No reproduction or redistribution without prior authorization. For information, call (203) 595-3276 or email
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Chief Investment Officer / ai-cio.com/surveys / Art by Chris Buzelli
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2018 Outsourced- CIO Survey Methodology Responses from 70 asset owners, aggregated for the charts that follow, were accepted for the survey from January 16 to February 6, 2018. CIO would like to extend a special thank you to all those who submitted responses for the survey, as well as those vendors, asset owners, and consultants who helped the CIO editorial and survey teams construct the survey. For more information, contact
[email protected].
©1989-2018 Strategic Insight. All Rights Reserved. No reproduction or redistribution without prior authorization. For information, call (203) 595-3276 or email
[email protected]
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2018 Outsourced- CIO Survey
©1989-2018 Strategic Insight. All Rights Reserved. No reproduction or redistribution without prior authorization. For information, call (203) 595-3276 or email
[email protected]
Chief Investment Officer / ai-cio.com/surveys
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2018 Outsourced- CIO Survey
©1989-2018 Strategic Insight. All Rights Reserved. No reproduction or redistribution without prior authorization. For information, call (203) 595-3276 or email
[email protected]
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2018 Outsourced-CIO Buyer’s Guide A total of 34 firms that offer Outsourced Chief Investment Officer (OCIO) services volunteered information this year. For the purposes of this guide, “full discretion” is defined as the OCIO firm having the authority to hire and fire managers without prior client approval. Total full discretionary assets under management represented by these 34 firms is $1.45 trillion among 10,688 clients. Median discretionary assets are $22 billion. An Excel data file, containing more information on each provider, is available by contacting
[email protected].
Angeles Investment Advisors
OCIO + other
2002
9
10
Aon Hewitt Investment Consulting
Implemented consulting
2009
83
19
Artemis Wealth Advisors, LLC
OCIO only
2009
2
2
BlackRock, Inc.
Prop/non-prop
2006
n/a
n/a
BNY Mellon Fiduciary Solutions
Prop/non-prop
1983
10
3
<1%
$8.36b
60
Callan LLC
OCIO + other
1996
14
*
10% $23.68b
9
Cambridge Associates
OCIO + other
2001
3
9#
14% $29.92b
108
$13.27b
Commonfund1
OCIO + other
1971
26
32
40%
$11.91b
298
DiMeo Schneider & Associates, L.L.C.
Implemented consulting
2005
3
11%
$3.1b
28
Discretionary Management Svcs, LLC
OCIO only
2007
11
3
100%
$346m
Fund Evaluation Group, LLC (FEG)
OCIO + other
2003
15
7
35%
$2.89b
Goldman Sachs
Other
1995
282
Hirtle, Callaghan & Co.
OCIO only
1988
12
Other
9
Health Care
2006
Endowments/Foundations
Implemented consulting
401(k), 403(b), other DC
Alan Biller and Associates
Defined Benefit
4
# of clients full discretion
2003
AUM full discretion
OCIO + other
(see abbreviations)
OCIO % of total firm revenue
Aetos Capital, LP
Business model/type
Portfolio managers
Relationship mgrs/salespeople
Year entered into OCIO business
Discretionary assets by fund type
18
49%
$1.84 b
4
$0
$0
$0
$0
$0
70%
$41b
15
$39.5b
$100m
$20m
$1.08b
$300m
$469.8m
$104.1m
$1.72b $375.4 m
$775.1m
343
$74.15b
$17.19b
$360m
$3.35b
$3.69b
10
$0
$0
$110m
$0
$740m
75 $70.88b
$0
$3.46b
$0
$11.41b
$20m
$80m
$220m
$280m
$534 m $22.57b
$576m
$0
$0
$0
$13.14 b
$563m
$2.94 b
$0
$0
$11.05b
$858m
$0
18
$83.4 m
$0
$79.8m
107
$436m
$4 m
$2.18m
289 $ 47.02b
$0
44% $98.75b 100%
$600m $85.75b
$73.49b 20
100%
$21.5b
Abbreviations
Full Description
OCIO only
Open-architecture (no proprietary products used): Investment outsourcing is only business line.
OCIO + other
An open-architecture/manager-of-manager investment outsourcing platform as one of multiple business lines.
Implemented consulting
i.e. consulting firm that also has discretion over some assets.
Prop/non-prop
An investment outsourcing platform that offers proprietary products alongside non-proprietary products.
244
$7.76b
$1.1b
$0 $182.7m $68m
$205m
$10.46b $809.5m
$15.2b
$260m
$9.9b
$3.3b
$7b
* Investment Committees # 9 dedicated OCIO teams 1 The Common Fund for Nonprofit Organizations 2 100% of SEI’s Institutional Group revenue is represented by OCIO business. SEI’s Institutional Group revenue represented 22% of SEI Investment Company’s 2016 total annual revenue. ©1989-2018 Strategic Insight. All Rights Reserved. No reproduction or redistribution without prior authorization. For information, call (203) 595-3276 or email
[email protected]
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2018 Outsourced- CIO Buyer’s Guide continued
OCIO + other
1995
274
NEPC, LLC
Implemented consulting
2011
14
Northern Trust Asset Management
OCIO + other
1979
75
59
Partners Capital Investment Group
OCIO only
2001
0
36
PFM Asset Management
OCIO + other
2007
20
8
Prime Buchholz LLC.
Implemented consulting
2011
18
Russell Investments
OCIO + other
1980
84
83
SEI Institutional Group
OCIO + other
1983
46
21
Spider Management Company
OCIO only
2006
State Street Global Advisors
OCIO + other
1994
10
Strategic Investment Group
OCIO only
1987
TIFF Investment Management
Other
U. S. Trust
75
Other
Mercer
28%
Health Care
2006
Endowments/Foundations
Implemented consulting
401(k), 403(b), other DC
Meketa Investment Group
$66.64 b
Defined Benefit
1988
392 $22.63b
$2.08b
$14.41b
$0
$27.52b
$1b
$800m
$300m
$0
$119b $76.38b
$8.4 b
$25m
$13.97b
# of clients full discretion
585
Prop/non-prop
AUM full discretion
1,400
J.P. Morgan Asset & Wealth Management
OCIO % of total firm revenue
Portfolio managers
(see abbreviations)
Relationship mgrs/salespeople
Business model/type
Year entered into OCIO business
Discretionary assets by fund type
$7.4 b
34
44% $217.75b
1,188
10%
$5.3b
$15.75b
41
$7.2b
$5.0b
$1.49b
$1.67b
$383m
$72.1b
92
$36.8b
$5.2b
$2.3b
$500m
$27.3b
90%
$8.23b
90
$852m
$0
$4.39b
$0
$2.99b
15%
$10.88b
201
$2.78b
$3.72b
$643m
$293m
$3.45b
$375m
8
$0
$0
$375m
$0
$0
75% $224.41b
474
$69.51b $23.23b
$2.86b
22% 2
$93.2b
$6.25b
$10.53b
$9.43b
$4.25b
100%
$4.56b
29
$0
$0
$4.56b
$0
$0
61
<3%
$109.8b
10
$74.1b
$0
$0
$0
$35.7b
8
43
100% $25.25b
29
$11.34 b
$0
$4.42b
$1.58b
$7.92b
1995
5
12
100%
$9.1b
645
$0
$0
$9.1b
$0
$0
OCIO + other
1853
39
29
7%
$25.1b
455
$11.18b
$0
$14.72b
$0
$0
UBS Asset Management
OCIO + other
2007
5
4
<1%
$13.08b
12 $12.54 b
$0
$158m
$0
$381m
Vanguard
Other
1997
55
36
$11.79b
n/a
$15.16b
n /a
$9.05b
Wells Fargo
Prop/non-prop
1932
NA
NA
Willis Towers Watson
Implemented consulting
1998
85
28
$57.6b
$12.47b
$3.08b
$0
$118m
NA
525 $62.72b
$6.45b $122.36b
$36b
979
$32.7b
3717
$73.3b
159
Abbreviations
Full Description
OCIO only
Open-architecture (no proprietary products used): Investment outsourcing is only business line.
OCIO + other
An open-architecture/manager-of-manager investment outsourcing platform as one of multiple business lines.
Implemented consulting
i.e. consulting firm that also has discretion over some assets.
Prop/non-prop
An investment outsourcing platform that offers proprietary products alongside non-proprietary products.
* Investment Committees # 9 dedicated OCIO teams 1 The Common Fund for Nonprofit Organizations 2 100% of SEI’s Institutional Group revenue is represented by OCIO business. SEI’s Institutional Group revenue represented 22% of SEI Investment Company’s 2016 total annual revenue. ©1989-2018 Strategic Insight. All Rights Reserved. No reproduction or redistribution without prior authorization. For information, call (203) 595-3276 or email
[email protected]
Chief Investment Officer / ai-cio.com/surveys
7
