Art by Cristian Tundera
Amidst the growing tension between chief
investment officers and outsourced-CIO providers,
the second iteration of this survey suggests that it
is all coming down to three things: resources,
resources, and resources.
The travails of the county pension fund of San Diego are well
known. Following the financial crisis, the fund's board agreed to
hire an external portfolio strategist—the former Texas Teachers'
deputy Lee Partridge—to help run the $9 billion portfolio.
Interestingly, an internal Acting Chief Investment Officer (CIO),
Lisa Needle, was kept on board. Chaos ensued.
"The decision to outsource should be a decision to fully outsource,
or not at all," Tim Barrett, formerly the CIO of fellow
Californian pension San Bernardino County, told aiCIO in 2011
(Barrett now runs the Rochester-based Kodak pension system).
He wasn't talking about San Diego, but he could have been, for
Barrett's comments and the San Diegan situation highlight the
inherent tension between chief investment officers and firms that offer outsourced chief investment officer
services. Vendors will tell you otherwise—it's in their interest to do so, after all. Chief investment officers
who've had part of their portfolio taken away, either by outsourcing or pension-risk transfer, will claim there
is more nuance to the situation—which is also correct. But taken as a whole, there is a tension built into
the very outsourcing business structure. How funds navigate this tension is essential to the productivity of
This survey offers insight into why the tension is arising, and it can be described in three words: resources,
resources, and resources.
On one hand, CIOs want to keep their jobs; on the other, they feel squeezed for staff and the support
structures necessary for the job. There is a clear connection between staff size and the decision to
outsource—an average outsourcing fund has 4.7 staff members, as opposed to 6.6 for those that do not
outsource—and a clear link between asset size and the willingness to hand off discretion over investment
decisions. Most decisive is this: 46% of all outsourcing plans claim that the lack of internal resources is the
number one driver behind their decision. Cost, a desire for a strategic partnership, and faster implementation
all fall far behind.
Evidence of this exists even with those who chose not to outsource their investment management functions.
Of that group, 67% said they had the required expertise in house, and 66% said they liked the full
control that not outsourcing brought. These trends were more noticeable as respondents got larger—with
83% of the largest plans (above $15 billion) claiming they had the internal expertise.
How will this tension play out? Headline deals in the pension risk transfer space, as well as the increasing
frequency of consultants reorganizing as asset managers, suggest that this tension will not soon dissipate.
But CIOs, with some exceptions, will surely fight the trend—or at least adapt in a way that still offers them
a place in their organization. It's a topic that is not going away. Want proof? It should come as no surprise
that our CIO Summit in New York City—April 11 and 12, for those interested—is headlined by the following
panel: How to Reconcile A Strong CIO Suite with Investment Outsourcing and Pension-Risk Transfers.
Responses from 229 asset owners were accepted for the survey over a period of three weeks, ending
January 25, 2013. Year-over-year comparisons for the survey are not reliable, as the definition of "investment
outsourcing" was changed and outsourced-CIO vendors were encouraged to have their clients complete
the survey. aiCIO 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 aiCIO editorial and
survey teams construct the survey. For more information, contact Quinn Keeler at