(December 4, 2013) — Investment outsourcing’s popularity continues to soar through the roof, as Towers Watson saw a 40% increase in its American client list, adding $2.3 billion to its assets under management (AUM) in the last six months.
The investment management firm with $60 billion in AUM reported great success with its outsourcing business—particularly with North American plans.
“Many defined benefit and defined contribution plans, and other institutional investors of all sizes, continue to believe that the best way to achieve their investment objectives in the current environment is to outsource,” said Debra Woida, head of North American delegated investment services at Towers Watson.
These new mandates are mostly full-fund portfolios, according to Towers Watson, but two are “specialist sleeves of hedge funds, private markets, and alternative betas.”
Such growth in outsourcing at the New York-based firm is in line with the overall development in the OCIO realm.
Cerulli Associates’ recent research found the OCIO movement is becoming the fastest growing facet of investment consultancy, predicting a 54% increase by 2016. The report also stated consultants expected the OCIO business to comprise 18.5% of total assets in the next three years—a significant rise from an average of 12% at the end of 2012.
“Over the past decade, institutional investors have been seeking more proactive advice and ceding portfolio decision-making, as investment options have grown increasingly complex and markets have become more volatile,” said Michele Guiditta, associate director at Cerulli.
Other investment shops have also touted success riding this growing trend. Aon Hewitt reported in October that it held OCIO mandates for 220 pension funds with a total of $40 billion in assets.
So what’s driving investors to seek out third-party help? Governance and better attention to portfolio management are a few advantageous qualities of OCIOs, according to Towers Watson.
“The reasons are often governance-related, as investors try to match their investment ambition with the right level and quality of resources,” Woida said. “The trend toward outsourcing is clear and accelerating in line with a greater appreciation of the value full-time professional portfolio management can offer.”
A Commonfund Institute report said the OCIO model could provide much needed aid to smaller funds with fewer resources.
“These resources can be particularly advantageous for a foundation or endowment with a small to mid-sized asset pool, where the staff, however knowledgeable, may lack the time or expertise to perform multiple tasks well,” the report said.
Related content: 2013 Outsourced Chief Investment Officer Buyer’s Guide, The OCIO Revolution: Here to Stay?, OCIO Business Expected to Increase by 54%, Outsourcing Proves a Hit for Aon Hewitt