Home ListingNovember 21, 2013

OCIO Business Expected To Increase by 54%

<i>Investment consultants expect their outsourced CIO business will comprise 18.5% of their total assets by 2016, Cerulli Associates’ research has found. </i>

Reported by Featured Author

(November 21, 2013) — The outsourced chief investment officer (OCIO) movement is becoming the fastest growing segment of investment consultants’ business, according to research from Cerulli Associates.

The Boston-based analytics firm found consultants expect that OCIO business would comprise 18.5% of total assets in 2016, up from an average of 12% at the end of 2012.

“Over the past decade, institutional investors have been seeking more proactive advice and ceding portfolio decision-making, as investment options have grown increasingly complex and markets have become more volatile,” Michele Guiditta, associate director at Cerulli, said.

“A number of institutional investors have opted for an OCIO arrangement, delegating oversight and decision-making for all or part of their investment portfolios.”

The growth of OCIO business is also considered to be among the biggest pressures facing consultants, with 73% of them believing that the increased competition due to new entrants in the OCIO space was a major or moderate threat to their future.

The full Cerulli report can be found here.

Cerulli’s conclusions about growth in the sector has been supported by the growth in size of fiduciary pots within investment consultancies. Aon Hewitt announced in October that 145 employers and their 220 pension funds are now run by Aon in a fiduciary capacity, totalling $40 billion of assets under advisement.

Mercer too had embraced the OCIO trend: its UK fiduciary management business has grown by 31% in terms of assets over the year to June, while Towers Watson reported that two-thirds of its new business in the last year has been fiduciary.

Elsewhere Cardano published some strong results this month: the fiduciary manager published its first five-year results, showing its clients outperformed their peers on a liability base by 30 percentage points. It has challenged other OCIO firms to now publish their clients’ results for comparison.

The Anglo-Dutch firm works with more than 40 major European pension funds and insurance companies and in the UK alone, Cardano works with pension funds with assets totalling £50 billion, of which £10 billion is managed on a fiduciary basis.

And KPMG’s annual report into the UK fiduciary management industry found the assets under fiduciary advisement topped £29 billion this year—equating to 2.6% of the pensions market. Interest has particularly grown among smaller pension funds, with 91% of the market now made-up by mandates less than £250 million in size.

Can OCIO’s unstoppable rise continue? aiCIO’s European edition, published in December, tackles what could bring the growth of outsourced investment to a halt.