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2016 Outsourced Chief Investment Officer Survey

After eight years of exponential growth, bifurcation in the OCIO sector is starting to emerge between the biggest and smallest clients.

If there is one subsector of the investment industry that can look forward to what is expected to be a period of disappointing market returns, this year’s survey suggests that it is the outsourced-chief investment officers (OCIOs).

Almost a third (31%) of the 188 asset owner respondents to CIO’s latest survey of the sector reported that a need to increase their returns was a “critical” reason for outsourcing. This compares to just 9% in 2015. In total, 77% stated better performance as being either “critical” or “important” to their decision to outsource, up from 65% last year.

It will be interesting to discover whether the decision is seen as quite so critical in hindsight, however. A little over half of respondents (56%) declared themselves “very satisfied” with investment performance over the last 12 months. No investors said they were “not at all satisfied”—after the volatility of 2015, that is not to be disregarded.

It appears that OCIOs are starting to target two opposite ends of the market, either taking on small funds in their entirety or making do with smaller segments of bigger clients’ assets. This year’s survey shows an increase in the proportion of sub-$1 billion asset owners outsourcing their entire portfolios—or at least three-quarters. The smallest funds (less than $100 million) in particular are leaning much more heavily on OCIO.

At the same time, while fewer funds of more than $1 billion are outsourcing entirely, a larger proportion reported granting OCIOs access up to a quarter of their assets. Indeed, 25% of $15 billion-plus funds reported outsourcing between a quarter and half of their portfolios, compared to just 8% in 2015’s survey.

Asset owners are showing more willingness to cede control over their outsourced portions, too: 70% of respondents granted OCIOs full discretion over manager selection, compared to just 39% last year.

To understand why even the biggest asset owners with the broadest internal resources are choosing to lean on outsourcers, it’s helpful to turn (briefly) to another recent survey. Last year, French asset manager Natixis quizzed more than 600 institutional investors on their attitudes to outsourcing.

While it did not provide the wealth of data sitting on these pages, it did provide one insight, as reported by CIO at the time: “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.”

Once again there are more outsourced providers than in last year’s survey—and managing more assets. The number of clients has broken through 10,000 and shows no signs of falling.

Looking back on the growth of OCIO since the financial crisis hit, the numbers are staggering: Discretionary assets have grown by 860% while the number of investors choosing to outsource some or all of their portfolio has rocketed by 2,189%.

Finally, with 41% of respondents currently outsourcing or planning to outsource in the next 12 months, whatever your philosophy with regards to this sector, there is no denying that it is as hot as ever.

Nick Reeve

Methodology

Responses from 188 asset owners were accepted for the survey from January 11 to 28, 2016. Responses are aggregated on the following charts and the results are shown in comparison to last year’s survey. CIO 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 CIO editorial and survey teams construct the survey. For more information, contact Quinn Keeler at qkeeler@assetinternational.com.

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