2024 Outsourced Chief Investment Officer Survey
In reversal, appetite for doing an OCIO transfer shrinks from the year before.
The long-term trend of shipping out investment management appears to have slipped for asset allocators, despite several large outsourcing arrangements being announced in recent months.
In the last year, some large U.S.- and U.K.-based companies have outsourced their pension operations to asset managers. Most recently, UPS in May said it will outsource its U.S. and Canadian pension funds, totaling more $43.3 billion in assets, to Goldman Sachs Asset Management.
The UPS announcement came at a time when many corporate pension plans are in surplus funding territory, and plan sponsors are considering what to do with their pension funds and the surplus pension assets.
The 2024 Outsourced Chief Investment Officer Survey found that no asset owners wanted to outsource in 12 months and just 2% intend to do so in the coming 24 months. In the 2023 poll, 2% of allocators said they would go the OCIO route in the coming 12 months, and 7% would in the next 24 months.
At the same time, there is an apparent restiveness among CIOs that currently outsource: 25% of them, with assets over $1 billion, plan to initiate a search to replace their OCIO providers, and 19% of all respondents want to switch. This is a new question in our poll, and thus cannot be compared with previous years’ sentiment.
Perhaps as a consequence of discontent, the assets under management of outsourcing managers declined 9% from year-end 2021 through 2023, according to Cerulli Associates. Meanwhile, OCIO firms have been consolidating lately. Recently, for instance, Agility announced its merger with Cerity Partners and Mercer acquired much of Vanguard Group’s OCIO unit.
This has come amid avid efforts from OCIO purveyors to enlist new outsourcing clients. In our survey, 45% reported that other OCIO firms had attempted to win their business over the past 12 months, up from 31% in last year’s survey.
Other findings: A lot of OCIO customers (57%) surrender all their assets to outside management. Just 10% farm out 75% to 99% of their investments, and 19% of them outsource 50% to 74%. Plus, they preferred to pay a flat rate for fees, by 43%.
And the chief reason asset owners reported for outsourcing is lack of internal resources (73% indicated this was important or very important), the second biggest impetus was faster decision-making would result (72%), and the third reason was a desire for increased returns (68%). Their overwhelming goal was to achieve good absolute returns (67%), far overshadowing de-risking (19%).
Among institutional investors’ outsourced assets, our survey found defined benefit pension plans had the largest share, 41% of the total, with defined contribution plans providing 21% and endowments 10%. The rest were scattered among health care pools and other investment vehicles.
For OCIO providers (not covered in the CIO survey), the largest out-do smaller competitors, noted Charles Skorina, head of his eponymous executive recruiting firm, which specializes in institutional investors, in his newsletter. “It’s tough for newbies and niche players to keep up with the veterans,” he wrote.
—Larry Light