2023 Outsourced Chief Investment Officer Survey

Asset owners are increasingly adopting outside help, as 7% expect to go the OCIO route over the next several years.

Farming out management is a trend that continues to pick up speed, according to our 2023 Outsourced Chief Investment Officer Survey. Of the respondents, 2% plan to adopt the OCIO approach in the next 12 months, and 7% in the next 24.

Our survey offers a snapshot of the OCIO movement, which now oversees $3 trillion in institutional assets. That’s up from $2.4 trillion as of 2021, per a survey by consulting firm Cerulli Associates.

These services are concentrated among smaller funds, with only 24% of OCIO clients outsourcing assets of more than $1 billion, our survey showed. For the smaller defined benefit pension plans, “an OCIO is very compelling, as they may not have the range,” says Jim Scheinberg, CIO and managing partner at North Pier Search Consulting, which helps funds find providers.

Internal investment staffs tend to be on the small side, as public pension programs have an average of eight staffers; corporate plans, seven; and insurers, three, while sovereign wealth funds have the most, 16, our survey indicated. Better risk management and lack of internal resources are the two top reasons to hire an OCIO, the respondents said.

The funds usually do not outsource their entire portfolios, with only 35% giving all of their assets to OCIOs.

Once the money is outsourced, how much discretion do CIOs retain to make allocations? The answer: It’s split fairly closely. The survey found that 53% turned over full discretion to OCIOs, meaning the outsourced managers have total control; 47% give partial discretion, in which the asset owners retain a say.

How do OCIOs get paid? Most—47%—opt for flat fees. But that is down from 67% in last year’s survey. The biggest gainer this year was a sliding fee based on assets, with 35% using that technique, up from 28% last year. Other methods gaining traction this year include those using performance-related fees.

Of course, allocators and OCIOs do not mate for life. Regardless of how OCIOs get paid, asset owners need to continually watch how their outside help is doing. In a webinar on outsourcing investments held in April by CIO, panelist Karyn Vincent, senior head of global industry standards at the CFA Institute, suggested that allocators use a performance “threshold to see whether to keep them.” —Larry Light

Methodology

The 2023 CIO Outsourced Chief Investment Officer Survey was conducted from April 19 through May 23, 2023. Responses from 57 asset owners, aggregated for the tables that follow, were accepted. Topics included the reasons why owners did or did not outsource their investments; the goal of outsourcing and the outsourcing fee structure; the size of their investment staff; the outsourcing arrangement used; and how much of their portfolio was outsourced.

In addition, responses from 47 OCIO providers detailing their OCIO profiles were collected during the same period. This included respondents’ OCIO business model; the year they entered OCIO business; the number of salespeople/relationship managers and OCIO managers; the number of total full discretionary OCIO assets and clients; and the distinct methodology used in constructing the portfolio.

CIO would like to extend a special thank you to all those who submitted responses for the surveys, as well as those vendors, asset owners and consultants who helped the CIO editorial and survey teams construct the survey.

For more information, contact surveys@issgoverance.com.