ADVERTISEMENT

Outsider CIOs to Thrive in Race for $1.7 Trillion From Pensions

Hired-Gun CIOs to Thrive in Race for $1.7 Trillion From Pensions

(Bloomberg) -- Pensions, nonprofits and family offices are increasingly bringing in outsiders to manage their investment portfolios, according to consultant Cerulli Associates.

The institutions have turned to them at a pace that shows no signs of abating. Assets controlled by the outsourced chief investment office, or OCIO, industry will jump more than 50 percent to $1.7 trillion by 2023 in the U.S., Cerulli said Monday in a report.

The growth, led by endowments and foundations, will look different than it has previously, according to Michele Giuditta, director at Cerulli. The Boston-based research firm warned that the nascent industry has reached an “inflection point,” with large consultants and money managers controlling an increasing share of the business as turnover grows.

“Many early adopters are conducting due diligence to see whether their OCIO is keeping up with the market,” Giuditta said.

Outsourcing took off in the last decade after the success of small firms like Investure that were given control of endowments at elite institutions such as Smith College, replacing investing chiefs. Larger institutions embraced the concept, with the American Red Cross shuttering its investment office last year and giving discretion to consultant Cambridge Associates to manage $3 billion of assets.

Outsider CIOs to Thrive in Race for $1.7 Trillion From Pensions

The industry controls about $1.1 trillion of assets for nonprofits, corporate and public pension plans, and family offices, up from almost $760 billion in 2014, Cerulli estimated. The consultant interviewed 45 institutions with more than $25 billion of assets and found that almost 100 percent were satisfied with the decision to use an outside firm to run investment operations.

The report was sponsored by BlackRock Inc., the asset management behemoth that competes in the OCIO industry.

The survey found that more than half of the nonprofits, pension plans and family offices have done or are planning to do searches to possibly replace their outsourcing firm. Of those who have already done so, half went ahead and hired someone new. The most important priority for those surveyed was investment performance, Cerulli said.

To contact the reporter on this story: Michael McDonald in Boston at mmcdonald10@bloomberg.net

To contact the editors responsible for this story: Margaret Collins at mcollins45@bloomberg.net, Melissa Karsh, Josh Friedman

©2019 Bloomberg L.P.