Investors Embrace Outsourcing—If Not OCIO

A quarter of institutional investors are already outsourcing to some extent, and that number will only grow, according to Natixis Global Asset Management.

Asset owners are looking to asset-class outsourcing as they struggle to stay on top of the latest strategies, but few want to give up the reins entirely, a survey found.

A quarter of the 660 institutional investors surveyed have turned over at least part of their portfolios to an outsourced-CIO or fiduciary manager. Natixis’ respondents included 336 pension plans, 131 endowments and foundations, and 69 sovereign wealth funds.

But while institutions were willing to pay for outside expertise in less efficient parts of the market, they are unlikely to outsource entirely. Three-quarters of the survey respondents said they use passive strategies to manage at least part of their portfolio, with 90% citing the desire to minimize fees.

The primary reason for outsourcing? To better manage increasingly complex portfolios, Natixis found. Nearly half of the investors surveyed reported difficulty in staying abreast of new investment strategies at the current “rapid pace of change and innovation.” The use of outside managers granted access to specialist capabilities and expertise, according to 49% of respondents.

Want the latest institutional investment industry news and insights? Sign up for CIO newsletters. 

Others, representing 18% of the respondents, said they achieved better returns with outside help, as 64% admitted that alpha was becoming harder to obtain. Likewise 72% said they were worried they would not be able to fund long-term liabilities.

“Most frequently they are looking to add expertise to research-intensive asset classes where building capabilities in their own staff could wind up being more more expensive and less efficient,” Natixis found.

The average investor outsourced about 9.5% of their total assets. The top asset class for outsourced management was real estate, picked by 53% of investors. Also favored were emerging market equities and private equity, picked by 49% and 45%, respectively.

These asset classes “require unique expertise, and success depends on the ability to evaluate a broad investment universe in order to identify inefficiencies and real opportunity,” Natixis explained.

Gerard van Olphen, incumbent CEO, APGEurope’s largest pension manager APG has hired Gerard van Olphen as its CEO, succeeding Dick Sluimers.

Van Olphen will take up the role for a four-year term beginning in mid-March, APG said in a statement. Angelien Kemna, chief finance and risk officer, will continue as acting CEO until van Olphen joins.

In 2013, van Olphen moved into the top role at SNS Reaal at the request of the Dutch finance minister following the financial services conglomerate’s nationalization. Under his leadership, the group sold its insurance arm VIVAT to Chinese insurer Anbang for €150 million ($164 million).

Van Olphen exited the group in September last year.

For more stories like this, sign up for the CIO Alert newsletter. 

Bart Le Blanc, chairman of APG’s supervisory board described van Olphen as “exceptionally knowledgeable and experienced.”

However, Le Blanc added that the new CEO would need to help navigate APG through a period in which “potentially far-reaching changes in the Dutch pension system will occur.”

“These changes might trigger new requirements in the nature and the quality of APG’s services,” Le Blanc added. “With his extensive experience in the financial world, Gerard will be of great value to APG, our customers and their participants. We sincerely welcome Gerard and we look forward to an inspirational cooperation.”

Van Olphen will receive a fixed salary of €500,000, plus a total €66,000 pension contribution, but with “no variable remuneration or bonus,” APG said.

“This represents a 10% decrease in salary level compared to the previous CEO,” the group added.

Former CEO Sluimers stepped down as CEO on January 1 after a 25-year career at APG and its main pension fund client, ABP. This included overseeing a restructure of APG during the past three years.