(February 27, 2012) Only half of all investors who outsource investment decisions to a third party manager are very happy with the service and performance they receive, according to a new survey by aiCIO.
The survey, which canvassed the opinion of hundreds of global asset owners, revealed a further 43% were ‘somewhat satisfied’ with their outsourced – or fiduciary – manager, with the remainder not very satisfied or completely dissatisfied.
The theory behind investment outsourcing – to give over some level of control over investment decisions, often including manager selection – has been gaining traction over the past decade as pension funds and other large investors have opted to bring in experienced professionals to oversee portfolios.
However, there remains no agreed basis for what the service should cover. Investors who responded to the aiCIO survey over the last three months were undecided on what the term ‘outsourcing’ meant for them. Some said they had relinquished full control, right down to investment firm selection, whereas others said they merely took advice.
One of the reasons behind these muddy waters is the range of providers offering the service. Fund managers had been the leaders in the field until late in the past decade, offering their clients a way to create a diversified portfolio using their experience and expertise. The funds could be either managed by them in house, or the firm would choose a ‘best in breed’ across the industry.
Investment consultants were quick to respond to the move that could threaten their dominance in the advisory space and soon were launching similar programmes to compete.
The trend to outsource some level of investment decisions is growing, despite those already engaged being less than 100% happy with the results.
Some 44% of respondents who do not yet outsource these decisions said they would look to do so this year. Tellingly though, only 14% of those already committed to such programmes said they would allocate more assets to them, with 6% saying they would take assets back under their own control.
The main reason for outsourcing given by investors around the globe and of all asset pool sizes was a lack of internal resource to be able to efficiently manage investments in-house. One of the least popular reasons was to make investment management more nimble and allow quicker amendments to portfolios than they would have using a ‘traditional’ investment management contract.
The complete survey can be found here.