Asset owners are looking to asset-class outsourcing as they struggle to stay on top of the latest strategies, but few want to give up the reins entirely, a survey found.
A quarter of the 660 institutional investors surveyed have turned over at least part of their portfolios to an outsourced-CIO or fiduciary manager. Natixis’ respondents included 336 pension plans, 131 endowments and foundations, and 69 sovereign wealth funds.
But while institutions were willing to pay for outside expertise in less efficient parts of the market, they are unlikely to outsource entirely. Three-quarters of the survey respondents said they use passive strategies to manage at least part of their portfolio, with 90% citing the desire to minimize fees.
The primary reason for outsourcing? To better manage increasingly complex portfolios, Natixis found. Nearly half of the investors surveyed reported difficulty in staying abreast of new investment strategies at the current “rapid pace of change and innovation.” The use of outside managers granted access to specialist capabilities and expertise, according to 49% of respondents.
Others, representing 18% of the respondents, said they achieved better returns with outside help, as 64% admitted that alpha was becoming harder to obtain. Likewise 72% said they were worried they would not be able to fund long-term liabilities.
“Most frequently they are looking to add expertise to research-intensive asset classes where building capabilities in their own staff could wind up being more more expensive and less efficient,” Natixis found.
The average investor outsourced about 9.5% of their total assets. The top asset class for outsourced management was real estate, picked by 53% of investors. Also favored were emerging market equities and private equity, picked by 49% and 45%, respectively.
These asset classes “require unique expertise, and success depends on the ability to evaluate a broad investment universe in order to identify inefficiencies and real opportunity,” Natixis explained.